Description of the event

The company released 2024Q1 retail operation data. 2024Q1 offline bulk sales increased by double digits year on year, children's clothing sales increased 20% to 25% year over year, e-commerce sales increased 20% to 25% year over year, and sales performance exceeded expectations.

Incident comments

The increase in turnover exceeded expectations, and discounts deepened sequentially. The Q1 sales performance is expected to be superior to that of peers, mainly due to increased consumer pursuit of cost-effective brands and products, and that last year 361 degree store expansion rate was higher than that of peers. Adult clothing retail performance exceeded expectations (expected low double-digit growth), which is expected to be due to deepening company discounts and speeding up sales. The 2024Q1 discount is expected to be 30% off, which has deepened from month to month. Subsequent company discounts are still expected to be related to the competitive trend in the industry. The company's inventory sales ratio is expected to remain at 4.5-5, which is basically flat from month to month, and is still at a relatively healthy level.

The new product launch is rich in product matrices, running shoes & basketball shoes with dual turbo drive. In the field of running shoes, 361 degree brand day launched the CQT carbon critical running professional matrix (including Feiyuan 3, Feibiao Future 1.5, Fast Pai Float, Feifun 2 ET, etc.), and in March, 361 Degrees launched the Shippeng CQT running shoes (75% propulsion +) priced at 599 yuan and the Shippeng Q Bomb 5.0 running shoes (60% + recovery). New products continue to enrich the product matrix. In terms of basketball shoes, it was announced in December 2023 that the Nuggets team Jokic will enhance its brand power, and the Touchdown Tournament will go to the US to host an exchange tournament later, which is expected to further enhance the influence of the tournament.

In the short term, all orders for the four seasons of 2024 have come to an end. It is expected that the order performance will be excellent, so there is a strong certainty that revenue will continue to increase in 2024. Furthermore, continued store expansion and structural optimization will still drive growth. In the medium to long term, the trend of improving the company's product matrix and improving product strength continues. In the context of cost-effective consumption, the company is expected to continue to benefit. The current volume is still small compared to other sports brands, and subsequent revenue and performance are expected to maintain steady growth. The overall forecast is that the company will achieve net profit of 11.4/13.5/1.59 billion yuan in 2024-2026. Currently, the corresponding PE is 8/6/5X, respectively, which is significantly lower than other sporting goods companies, giving it a “buy” rating.

Risk warning

1. Weak terminal retail;

2. The growth rate of professional sports categories falls short of expectations;

3. Store expansion falls short of expectations.