The company's revenue in 2023 was +10% YoY/Performance +28% YoY. 1) In 2023, the company's revenue was 2.65 billion yuan, +10% year over year; performance was 490 million yuan, +28% year over year; deducted non-performance was 450 million yuan, +21% year over year, achieving steady growth under a low base. In terms of profit quality: In 2023, the company's gross margin was -0.9 pct to 74.5% year on year, the sales/financial/management expense ratio was -3.2/-0.2 pct/ basically flat to 40.5%/-2.1%/7.1% year on year, and the net margin was +2.6 pct to 18.6% year on year.

The company plans to distribute a discovery dividend of 0.8 yuan (tax included) per share. The total dividend distribution in cash in 2023 was 420 million yuan, accounting for 85.3% of net profit due to mother during the same period, and a dividend rate of about 6.6% based on the 2024/4/25 closing price. 2) Looking at the fourth quarter of a single quarter, 2023Q4's revenue was 800 million yuan, +18% year over year; performance was 80 million yuan, +778% year over year; deducted non-performance was 110 million yuan, +68% year over year. The sharp increase in performance was mainly due to a year-on-year restoration in profit quality under a low base.

2024Q1 revenue -12% YoY/Performance -33% YoY, putting pressure on short-term results. 2024Q1's revenue was 540 million yuan, -12% year on year, performance was 110 million yuan, -33% year on year, and -32% year on year; gross margin -1.1 pct to 75.6% year over year, sales/management/financial expense ratio was +1.5/+2.5/-0.1 pct to 41.8%/9.2%/-1.9% year on year, and net interest rate -6.4 pct to 20.5% year over year. We judge that the year-on-year decline in the company's revenue and profit since 2024 is mainly due to the year-on-year reduction in channel size.

By brand: DZ and RA performed relatively well, and the scale of DA channels is still shrinking. The company's brand matrix is clearly differentiated and positioned. The main brand has a unique DA style and continuous product innovation. The DZ brand and RZ brand are still in the channel growth stage, and sales performance is relatively good. Looking at spin-off brands: 1) At the sales level, DA/DM/DZ/RA revenue in 2023 was $14.3/1.5/1.02 billion yuan, respectively, +8.9%/-7.4%/+14.5%/+56.1% year over year; gross margin was 75.2%/80.8%/72.3%/81.9%, -1.1/+0.1/-0.6/-0.2pct; revenue for each brand above 2024Q1 was 2.63/0.37/2.24/0.13 billion yuan, respectively, YoY -16.2%/-10.1%/-7.2%/+2.3% respectively; gross margin was 76.8%/80.9%/73.0%/80.9%, -0.3/-0.4/-2.2/-1.0pct, respectively. 2) Channel level: At the end of 2023, the number of DA/DM/DZ/RA brand stores was 541/24/450/22, respectively, and -75/-6/-13/+8 compared to the previous year; the number of brand stores above 2024Q1 was 529/24/438/23, respectively, and -12/+1 compared to the beginning of the year. We determine that short-term channel volume adjustments may affect revenue performance, and the average operating quality of stores is expected to improve steadily in channel optimization.

E-commerce performance is better than offline, and the store structure has been adjusted and optimized. Looking at spin-off channels, 1) E-commerce is growing steadily and rapidly, and the quality of operations has improved markedly. In 2023/2024Q1, the company's e-commerce channel revenue was +29.5%/-4.7% year-on-year to 397/092 million yuan, and gross margin was +1.0/ -2.7pct year-on-year to 76.8%/77.0%, respectively. 2) The scale of offline stores has been reduced, and overall sales performance is weaker than online. We look forward to subsequent improvements. Direct channel revenue in 2023/2024Q1 was +10.6%/-20.0% to 11.5/238 million yuan, and gross margin was -1.45/ -0.2pct to 79.91%/80.92%, respectively; in the same period, franchise channel revenue was +4.8%/-3.7% YoY to 11.0/207 million yuan, respectively, and gross margin was -1.28/ -0.5pct to 68.1%/68.8%, respectively.

Inventory impairment is calculated carefully, and subsequent improvements in operating turnover are expected. In 2023/2024Q1, the company calculated asset impairment losses of RMB0.59,20 million respectively. At the end of 2024Q1, the company's inventory was +8.3% YoY to 450 million yuan, inventory turnover days +36.4 to 286 days, and accounts receivable turnover days +3.7 days to 12.4 days. In terms of cash flow, the company's net operating cash flow for 2023/2024/Q1 was 70/0.7 billion yuan, which is approximately 1.4/0.6 times the performance for the same period.

Short-term performance is weak, so pay attention to subsequent channel expansion. We judge that since 2024, the company's terminal retail performance has been weaker than that of the industry, mainly due to a weak year-on-year reduction in channel size. It is expected that there will be gradual improvements in the future. We would like to pay attention to the implementation of the company's channel plans. Taken together, we estimate that the company's revenue is expected to increase slightly year-on-year in 2024/performance is expected to grow steadily.

Profit forecast and investment advice: The company is a leading high-end women's clothing enterprise, with excellent product design and supply chain control, and generous dividends. We expect net profit to be 5.18/5.93/667 billion yuan from 2024 to 2026, respectively. The current price corresponds to 2024 PE 12 times, maintaining a “buy” rating.

Risk warning: Consumption is weak due to the macroeconomic downturn; store expansion falls short of expectations; new brand cultivation falls short of expectations.