Incident: Taobo issued a quarterly operating announcement. FY2025Q1 (March to March 2024) saw a year-on-year decline in the number of units in the company's omni-channel sales (retail turnover and wholesale delivery amount, tax included), and the gross sales area of direct-run stores decreased by 0.5%/1.4% year-on-year.
Fluctuations in offline passenger flow are compounded by a high base, and the turnover performance is weak. Q1 The number of units in the company's overall sales decline. We expect the decline in offline sales to be greater than the overall average. The overall FY2025Q1 consumption environment showed a fluctuating recovery trend. Offline traffic is still weak, and sales pressure is high at the company's offline stores; at the same time, in order to meet the progress of the Olympics, we judge the company's cooperative brands or adjust the pace of new product delivery in a targeted manner; taking into account the relatively high sales base for the same period, we expect the company's FY2025Q1 offline flow to decline significantly.
In the long run, we believe the company will continue to improve the efficiency of single store operations. According to the company's disclosure, gross sales area decreased by 0.5% year on year as of the end of May. After considering the reduction in the number of stores, we expect the sales area of a single store to continue to grow. We determine that currently the company's offline stores are becoming a comprehensive retail space of “physical stores+communities+live streaming of stores and special IPs”. Multiple roles help channel offline stores and open up space for improving the efficiency of single stores.
The share of e-commerce turnover may continue to increase, and the sales growth rate is excellent. We judge that in line with changes in consumer demand, the company has broadened the scope of e-commerce platform layout and created a combination of e-commerce, content e-commerce, and private domain operations. FY2024's direct online sales account for 20% to 30% of the total direct sales. Entering FY2025Q1, we expect online sales to continue to grow rapidly. E-commerce accounts for or further increase. Currently, online business has become an important driving force for the company's growth.
Looking ahead to FY2025, we expect the company's revenue to grow by 5% and improve profitability. Taking into account the pace of recovery in consumption and the continued improvement of the company's global retail efficiency, we expect the company's FY2025 revenue to increase 5%; in terms of profit margin, considering that the company's inventory level is currently in a healthy position (we expect the inventory ratio to be between 4-5 by the end of May), gross margin improvement can be expected throughout the year. At the same time, leverage on the cost side is expected to be reflected. We expect the company's annual profit growth rate to be higher than revenue growth.
Profit forecast and investment advice: As a leading downstream channel company for sports shoes and clothing, the company optimizes the structure of terminals and stores, and digital transformation drives the improvement of retail efficiency, and efficient membership operations continue to consolidate user stickiness. We expect the company's FY2025-FY2027 net profit to be 24.06/26.80/2,930 billion yuan respectively, 10 times the current price corresponding to FY2025PE, maintaining a “buy” rating.
Risk warning: Terminal sales are slowing down; changes in brand cooperation bring business risks.