The company announced operating results for the first quarter of 2024, and sales performance was in line with expectations. The company's revenue for the first quarter was 1.7 billion yuan, a low year-on-year increase in units (data from company announcements and public conference calls, same below). Among them, the main brand Koradior's revenue declined slightly by 3% due to the closure of a certain number of low-quality stores in the first quarter. The second-largest brand, NAERSI, grew 5%, the third-largest NEXY.CO brand grew 9%, the La Koradior brand grew 17%, and the new brand FUUNNY FEELLN grew by 21%. The remaining 3 middle tier brands dropped by a single digit. Overall, the company still experienced low unit growth due to factors such as the high base in January-January, the March weather affecting seasonal demand for spring clothes, and returns from franchisees, etc., and the performance was in line with expectations.
Looking at each channel, online Douyin and video channels are growing strongly, and offline store structures are being optimized. 1) Online revenue increased 18% year-on-year in the first quarter, and the differentiated development of multiple platforms increased the proportion of self-broadcasts. According to the company's public conference call, online revenue increased 18% year over year in the first quarter. Among them, Vipshop increased 14% and EEKA's own store increased 27% year over year. Tmall has grown sharply by 29%. Since the implementation of the regularization strategy, it has experienced a short-term decline in traffic, and has now gradually rebounded. Sales of regular-priced products are growing steadily, with sales of the same offline product increasing by more than 40%. Sales revenue from live streaming businesses such as Douyin and video accounts increased 30% year over year. The company launched a live streaming base in Hangzhou in the first quarter, and plans to account for more than 30% of total live broadcast sales throughout the year. 2) The scale of offline stores has shrunk, and the optimization structure continues to drive the improvement of store efficiency. Distribution channel sales increased 7% year-on-year in the first quarter. Direct sales channels declined 1% year over year under net store closures. As of March 31, the number of stores directly managed by the company has maintained a net decline. It is expected that no less than 10% of stores will continue to be optimized and adjusted throughout the year, focusing on the second half of the year to improve user experience and sales transformation by adjusting store locations, upgrading store image, and expanding store area.
Inventory turnover efficiency has improved, and the share of main sales has increased significantly. According to the company's public conference call, the balance of the company's inventory in the first quarter decreased compared to the beginning of the year, and inventory turnover efficiency also improved. The number of brand customers continued to increase. The number of members increased by more than 60,000 in the first quarter. The correlation rate was stable, and the customer unit price was slightly lower than in '23. In the future, the company will continue to improve the customer's repurchase rate, purchase frequency and customer unit price by optimizing the product system and adjusting product strategies. After the implementation of the excellent product system, the share of main sales sales was significantly higher than before. Direct sales channels accounted for more than 50% of spring and summer sales sales in 24, gradually moving closer to the direction of excellent commodity system reform.
Profit margins remained stable, and cash flow continued to improve. According to the company's public conference call, the company's gross margin of all channels improved year-on-year in the first quarter. In particular, the gross margin of e-commerce channels increased significantly after the implementation of Tmall's regularization strategy. The company's expenses rose slightly in the first quarter, mainly due to one-time expenses such as hiring a brand ambassador and running the catwalk at Paris and Milan Fashion Week in the first quarter.
However, the net profit margin was basically the same compared to the same period. Operating cash flow and cash and cash equivalents on books increased.
The equity incentive plan has clear goals, demonstrating confidence in development. On April 10, the company announced the adoption of the 2024 stock incentive plan. According to information from the company's public performance exchange meeting, sales growth of 20% or more is sufficient to meet the requirements for stock trading. High targets show confidence in development. In '24, the company will continue to promote product upgrades and channel optimization to improve store efficiency, with a target retail sales of 10.5 billion yuan.
With the vision of building a Chinese luxury brand management group, the company will comprehensively upgrade products, channels, supply chain, digital construction, etc.
Multi-brand operation capabilities are outstanding. Digitalization empowers the entire business process. I am optimistic that the company will show stronger growth momentum and more room for development under the new positioning and management upgrade. Maintaining the profit forecast, net profit for 24-26 is estimated to be 10.1/11.7/1.37 billion yuan, corresponding to PE of 8/7/6 times, respectively, maintaining the “buy” rating.
Risk warning: brand performance and channel expansion fall short of expectations; risk of inventory backlog; increased risk of market competition.