Description of the event
The company released retail data for 2024Q1. The sales volume of the main brand of TEP increased by a higher number of units over the same period last year, with discounts of 70-75 percent off, and inventory sales compared to 4-4.5 months. The sales performance was in line with expectations.
Incident comments
The main brand grew steadily, and 360X sales were impressive. Q1 Special Step's main brand turnover is high. Among them, offline growth is expected to be low in number of units, and online growth of more than 25%, mainly due to differences in online and offline bases in 2023Q1. Furthermore, the 360X running shoes released in mid-late March are equipped with three core technology platforms: XTEP POWER, XTEP ACE, and XTEP FIT to achieve a more stable, labor-saving, and more comfortable wearing experience for runners, and achieve impressive sales performance with excellent cost performance. They are expected to drive overall sales as the main driving force for overall sales. The April base is expected to drop in volume, and growth is expected to accelerate in subsequent quarters.
Channel inventory remains healthy, and discounts have improved. The Q1 inventory sales ratio for the main brand of TEP was 4-4.5, which was basically the same as 2023Q4. The discount was 70-75 percent off, which improved from 2023Q4 to 70 percent off. Furthermore, it is expected that in April, along with the improvement in terminal retail sales, the inventory sales ratio is expected to fall back to ~4, and the discount trend will also improve to 25% off. Further channel inventory is further removed, and inventory and discounts are expected to continue to be optimized.
With strong professionalism in running, Sauconi's growth is expected to accelerate. The company continues to cultivate the professional running market. Currently, TEP is the brand with the highest wearing rate of marathon running shoes in China. In 6 key marathons including Beijing, Shanghai, Guangzhou, and Xiamen, the rate of elite runners wearing Special Steps within 3 hours is as high as 31%, which is nearly 10pct higher than all brands, including international brands. Sauconi is the company's focus on cultivating running shoe brands. It is expected to achieve 50% + growth in Q1. Under the retail improvement trend of Xtrex's main brand in April, it is expected that the synergy between Sauconi and Special Step will continue to be strong. Subsequent retail sales are also expected to accelerate, and the performance is beautiful throughout the year.
In the short term, the company's inventory has returned to a relatively healthy level. By 2024, there is still room for optimization of the main brand's gross margin and A&P expense ratio, and professional sports brands continue to grow and contribute to performance. In the medium to long term, Sauconie is on the right track, forming differences and complements with the main brand of Xtrex in the field of running, and is expected to develop into the Group's second growth curve with the continuous cultivation of new brands. It is estimated that in 2024-2026, Teb International will achieve net profit of 1.17 billion yuan, 13.2 billion yuan, and 1.47 billion yuan, an increase of 14%/13%/12% over the previous year, and the PE corresponding to the current price is 9/8/7 times, respectively, maintaining a “buy” rating.
Risk warning
1. Retail recovery falls short of expectations;
2. The development of other brands falls short of expectations;
3. Risk of weak overseas demand.