In 1Q24, the company's retail sales recorded low unit growth, which was in line with the company's expectations as a whole:
Looking at each channel, offline direct sales and wholesale achieved an increase in the number of medium units and a decline in the number of medium units respectively. Direct management is better than wholesale distribution mainly driven by Ole channels, and the performance of direct regular price channels is similar to that of wholesale. E-commerce channels grew at a low level of 20%-30%, mainly due to the high offline base last year, and the stability of the online and offline price system under previous price controls; among them, the turnover ratio of Tmall/JDong/Douyin/DeMo platforms increased by a higher number of units/double digits/ 20% +/ 100% + over the same period last year.
On a monthly basis, the turnover growth rate in January and February was basically the same year on year, and there was a slight improvement in the flow rate in March.
Discount improvement & inventory maintenance: The 1Q24 company discount was in line with expectations, both online/offline achieved a year-on-year improvement in the number of low units, and the overall offline comprehensive discount period was about 40% off (1Q23:30% off middle). By the end of 1Q24, the company's omni-channel inventory turnover was slightly over 4 months, an improvement over the previous year. Among them, wholesale channel inventory was better than direct management; the storage age structure remained flat year on year, and the proportion of new products remained 80% high within 6 months. The sell-out rate of new products was relatively stable, and the 3-month sell-out rate declined slightly year-on-year. The 6-month new product sell-out rate is nearly 80%.
The 1Q24 price increase is driving the improvement in turnover, but more popular products will be launched later: 1Q24 sales will be split according to volume price, tag prices will rise by lower units, discounts will improve, average ASP will rise by the number of units; volume will decline by higher number of units over the same period last year. However, in the future, more popular products such as general running shoes and low-priced basketball shoes will be launched one after another, and it is expected that the growth rate of tag prices will decline throughout the year. By category, running/fitness/basketball turnover increased 20% +/ double digits/negative year-on-year in 24Q1. The company will launch marketing activities related to the Olympic series one after another in May, including new product launches, technology platform launches, etc.
The Q1 performance was in line with expectations, and management maintained its annual results and store opening guidelines: The company achieved low unit volume growth under a higher base. The growth rate was lower than the annual target but in line with management expectations. The turnover growth rate was slightly better since April. The management maintained the annual revenue growth guide, the profit margin remained low in double digits, and the growth rate in the second half of the year will be better than in the first half of the year. In terms of opening stores, the company maintained the target of 20 direct sales outlets, 100 net wholesale stores, and 150 net children's clothing stores in 24 years. We believe that in '24, the company attached importance to investment in Olympics and sports resources, continued to strengthen the matrix of professional sports products such as running and basketball, while expanding the price range downward. These measures are expected to have positive results in the future.
Investment rating and valuation: The company's brand strength and product strength are leading in the industry, operating efficiency continues to improve, and it has long-term growth potential as a leading local sports brand. The company's net profit for 24-25 is estimated to be 3.53 billion yuan and 4.17 billion yuan. The current stock price corresponds to 24 P/E of 11.6x. Maintaining the “recommended” rating risk warning: terminal retail consumption is weak; industry competition is intensifying; and the results of the reform fall short of expectations.