The company's recent situation
The company announced the first quarter business situation: retail sales of the 1Q24 Li Ning brand (excluding Li Ning YOUNG) increased by a low number of units year on year, and the number of units in the same store sales declined year on year, in line with our expectations.
reviews
1Q24 Online channels are better than offline channels, direct sales channels are better than wholesale, and the running category performs better.
Offline channels had a high base due to retaliatory consumption in the same period last year. The 1Q24 Li Ning brand (excluding Li Ning YOUNG) reduced the number of units of offline sales. Among them, direct sales also increased the number of units, mainly due to the contribution of Ole channels; wholesale sales also dropped in units. Thanks to the low base and rapid growth of emerging platforms, online channels saw a 20-30% lower year-on-year increase in turnover during the quarter.
In terms of number of stores, 1Q24 direct-run and wholesale stores were +1/-27, respectively, compared to the beginning of the year. On the same store side, due to a high base and a year-on-year decline in customer flow during the season, the number of units in the same store across all platforms declined year-on-year. Among them, direct-run and wholesale stores decreased the number of units/ 10-20%, respectively.
By category, in 1Q24, the running category increased by more than 20%, the fitness category saw a double digit increase, and the basketball category had a negative year-on-year increase. On a month-by-month basis, the flow growth rate in March improved slightly compared to January-January. Since April, the flow performance has been steady month-on-month. Among them, the Ching Ming Festival holiday in early April benefited from the holiday effect.
Retail discounts improved year over year, and inventory remained healthy. In 1Q24, Li Ning's offline retail discount improved the number of units with a year-on-year increase of 6-70% off. Among them, retail discounts on direct management channels improved the number of units over the same period last year. With the gradual launch of spring clothing, the omni-channel inventory sales ratio reached 4+ at the end of March, and the proportion of new products reached a high level of 80-90% within 6 months, maintaining a good level.
Continuous optimization of channels, products, and marketing. Management maintains a steady guide on the number of units in revenue growth throughout the year. On the one hand, the channel side is driving e-commerce to resume rapid growth, and on the other hand, it focuses on fine management of franchisees to drive good growth in wholesale traffic; the product side will further expand the product matrix in the basketball and running categories, and more popular marketable products such as running shoes will be launched in 2Q24 to strengthen the low-level market layout; the marketing side plans to increase brand investment. Starting in May, a series of marketing activities will be carried out around the Olympic theme to enhance brand influence.
Profit forecasting and valuation
Keeping the 2024/25 EPS forecast of 1.25/1.44 unchanged, the current stock price corresponds to 12/10 times the 2024/25 P/E, keeping the outperforming industry rating and target price of HK$20.92 unchanged, corresponding 15/12 times the 2024/25 P/E, with 20% upside.
risks
Consumer love has declined, industry competition has intensified, and the terminal retail environment falls short of expectations.