2024Q1 continues to disrupt the US business. It is optimistic about the steady growth of domestic home textiles, maintaining the “purchase” rating of revenue of 5.32 billion yuan (+0.03% year over year); net profit attributed/withheld from mother to mother of 570 million yuan (-1.4% year over year)/5.2 billion yuan (-3.7% year over year). 2024Q1's revenue was 1.09 billion yuan (-12.3% YoY); net profit attributed/withheld from mother was 89 million yuan (-49.5% YoY)/087 million yuan (-46.5% YoY). Considering the continuation of turbulence in the US furniture business, we lowered 2024-2025 and added a profit forecast for 2026. We expect net profit to be 5.79/68/743 million yuan (2024-2025 year value: 7.25/825 million yuan), corresponding EPS 0.69/0.79/0.89 yuan, and the current stock price corresponding PE is 13.7/12.1/10.7 times. Considering the company's active domestic and offline stores and improving store efficiency, steady online gross profit will achieve steady growth. Maintain a “buy” rating.
Domestic home textiles: Optimistic about direct-run store efficiency, stable gross profit online, and continuous improvement in retail sales. Domestic home textiles achieved revenue of 4.27 billion yuan in 2023, an increase of 3.4%, gross margin increased 2.1 pct to 50.6%, and net profit of 50.3 billion yuan, +10.2% year-on-year. By product, kits/quilts/pillows/summer products reached 16.5/18.6/2.6/180 million yuan respectively, +3.1%/+8.6%/-7.0%/+10.5% compared with the same period last year. By channel, direct-operation/franchise/online/other achieved 4.1/17.9/16.1/4.6 billion yuan respectively, +31.7%/-3.9%/+8.7%/-3.0% year-on-year, and gross margins of +0.7/+1.7/+5.1pct year-on-year, respectively. In terms of stores, as of the end of 2023, there were 2,730 offline stores, of which 335/2,395 were direct-operated/franchised stores, with a net opening of 28/40 during the year; in terms of store efficiency, the efficiency of direct-run single stores that have been in operation for 12 months or more in 2023 also increased by 30.0%. I am optimistic that stores will continue to expand in 2024, direct-run store efficiency will continue to grow, franchise retail refinement and inventory will continue to improve, and there will be steady growth under stable online gross profit conditions.
US furniture: Affected by US real estate, the 2024 full year results may continue to weigh on US furniture's revenue of 1.05 billion yuan in 2023, down 11.6% from the same period, gross margin falling 3.4 pcts to 33.8%, and net profit of 39.39 million yuan, or -59.5% year-on-year. Affected by US real estate, the US furniture business continues to be under pressure. The disturbance will continue until 2024Q1, and full-year results may continue to be under pressure.
The gross margin increased steadily and the expense ratio decreased, and inventory turnover continued to improve profitability: 2023/2024Q1 gross margin of 47.3%/43.5%, up 1.3/-0.5pct; 2023/2024Q1 fee ratio 32.3%/32.9%, +2.4/+5.8pct; in summary, 2023/2024Q1 net profit margin of 10.8%/8.2%, year-on-year flat /-6.1 pct. Operating capacity: Net cash flow from operating activities in 2023 was $940 million (+117% YoY); inventory balance at the end of 2024Q1 was $1.30 billion (-17%), inventory turnover days 194 days (-14 days).
Risk warning: Channel expansion falls short of expectations, Douyin channel spending has increased, and US business continues to be under pressure.