The company released its 2024 quarterly report: 24Q1 revenue of 1.35 billion yuan (+4.8% year over year), net profit to mother 250 million yuan (-2.1% year over year), net profit after deducting non-return to mother of 235 million yuan (+6.9% year over year), slightly lower than our forward-looking forecast. The 24Q1 gross profit margin was 67.8% (+1.7 pct year on year), further upward. The cost ratio for the period was 43.2% (+0.7 pct year over year), of which the sales expenses ratio was 36.2% (+1.35 pct year over year) and the management expenses ratio was 6.2% (+0.14 pct year over year), while the R&D and financial expenses ratio declined slightly. The net operating cash flow for 24Q1 was only 17.52 million yuan. The large decline was mainly due to a year-on-year increase in main business revenue and an increase in sales repayments, but payments for goods purchased, employee bonuses, and taxes for the previous year increased year-on-year.
We reaffirm that HAZZYS is in a golden period of growth and that various financial indicators continue to be optimized! According to the 23 annual report:
1) Reasonably control discounts and expenses, and continuously improve profitability. The gross profit margin for 23 years was 64.7% (+2.0pct year on year), and the cost rate for the period was 46.8% (-0.5pct year on year), of which: ① as revenue expanded, the sales expenses rate was reduced to 38.7% (-1.0pct year on year); ② the company implemented incentives for excessive growth, so the management expenses rate was slightly raised to 7.1% (+0.6 pct year on year); ③ The company continued to increase product innovation. R&D expenses during the period were 110 million yuan, an increase of more than 30% year on year. In the end, the net interest rate for 23 years was 13.3% (+2.6 pct year on year), after deducting the net interest rate for non-return mother 11.5% (+2.8 pct year on year).
2) Inventory impairment accruals decreased, resale increased, and inventory indicators optimized. In 23 years, inventory prices were reduced by 62.58 million yuan (-16% year over year), while resale was 73.24 million yuan (+41% year over year), indicating that the sales of products sold out of the season and the removal of out-of-season products performed well. Inventory at the end of 23 billion yuan (-2.4% year on year) did not increase with sales expansion. The number of inventory turnover days was 236 days (-32 days year on year), of which 79% of finished products were produced within 2 years. Both turnover efficiency and storage age structure improved.
3) Operating cash flow has greatly exceeded expectations, and the financial strength on the account is strong. Net operating cash flow in '23 was $1.15 billion (+124% YoY), with a net present ratio of 1.65, a significant increase from 1.33 in '21 and 1.12 in '22. At the end of 23, total monetary capital and transactional financial assets reached 2.46 billion yuan (+8.2 billion yuan year over year), establishing resilience to risks and potential for future expansion.
By channel, strong direct management growth is a key driver of the jump in gross margin and cash flow. According to the 23rd Annual Report: Direct revenue of 2.09 billion yuan (YoY +44.1%), gross profit margin of 77.2% (YoY +1.8pct); franchise revenue of RMB8.1 billion (YoY +4.7%), gross profit margin 66.7% (YoY -0.6pct); Group purchase revenue of 1.17 billion yuan (+15.6% YoY), gross profit margin of 46.4% (+0.6pct); online revenue of RMB 8.0 billion (+0.8% YoY), gross profit margin 69.5% (+1.8pct).
By brand, the high-quality brand matrix is growing across the board, and channels are expanding with high quality. According to the 23 annual report: HAZZYS revenue of 1.76 billion yuan (+24.1% year over year), 457 stores (net increase of 40); Happy Bird revenue of 1.73 billion yuan (+17.2% year over year), 817 stores (net increase of 13); Treasure Bird revenue of 1.04 billion yuan (+15.9% year over year); Lefeiye revenue of 260 million yuan (+40.5%), 75 stores (net increase of 9); Kemiche & TB revenue of 180 million yuan (+30.1% year over year).
As a mid-range and high-end menswear brand group, the conditions for HAZZYS to accelerate growth are becoming more mature and maintain a “buy” rating. Low temperatures at the beginning of the year led to a late start of spring clothing. Coupled with social recovery during the same period of the year, high base pressure contributed to a year-on-year weakness in clothing retail sales in March-April. We think May is expected to improve. Since HAZZYS still has to maintain a certain level of brand investment during the growth period, we slightly raised our 25-26 sales expenses rate, so we maintained our 24-year profit forecast and lowered our 25-26 year profit forecast. We expect net profit of 8.2/9.5/110 billion yuan to mother for 24-26 (originally 9.7/1.15 billion yuan in 25-26), corresponding to PE 10/9/7 times. It is an underestimated high-quality consumer product and maintains a “buy” rating.
Risk warning: The domestic clothing retail market is sluggish; store expansion falls short of expectations; inventory absorption capacity is weakening.