The main brand orders will proceed smoothly, and the new brand will be brilliantly launched in the fall and winter of 2024. 1) Main brand: rich and upgraded products, stable channels, grasping customer demand trends. ① Product: According to the company's operating pace, we judge that the recent Spring and Summer 2025 Order Meeting for the main brand was held smoothly. Considering industry trends and the long-term development concept of the brand, we estimate that the company's new products will be more youthful, high-end, broaden the price range, enrich style designs (combine customer groups and popular preferences, launch light sports scene products, IP co-brands, etc.), continue to iterate on the basis of functional technical fabrics, and create popular SKUs in superior categories.
② The marketing side focuses on the mentality of the customer base and exposes traffic for brand accuracy, including cooperating national teams competing in the Paris Olympics and cooperating KOLs to promote brand concepts. 2) Other brands have opened up room for imagination for long-term development. Among them, K&C is expected to try to open new stores and take the lead in the fall and winter of 2024.
2024H1 performance is expected to continue to lead the industry. 1) 2024Q1 still achieved rapid growth under a high base, with revenue of 1.27 billion yuan, +18% year over year, net profit to mother 0.36 billion yuan, +20% year over year; gross margin +0.3 pct to 76% year over year, and net margin +0.7 pct to 28.5% year over year. 2) We estimate that the company's fundamental performance will still lead the industry since 2024Q2. Taken together, we estimate that 2024Q2 revenue and performance are still expected to grow steadily year-on-year.
Expanding stores, contributing to new stores, and improving terminal operation quality is expected to continue to drive long-term growth. 1) By channel: In 2023, the company's direct management/franchise/e-commerce channel revenue was 2.395/0.918/0.195 billion yuan, respectively, +35%/-2%/16% year-on-year. We judge that the inventory pressure of the franchise channel is low and the delivery situation is expected to improve in 2024. 2) Looking at price by volume: ① Number of stores: According to brand development, we estimate that the company's stores are expected to increase by a net of about 100 in 2024 (1,255 offline stores at the end of 2023, including 607 direct operations/648 franchisees), an increase of about a single digit. In the future, high level encryption and low line decline are expected to jointly drive business growth. ② Store efficiency: The company's main brand customer base is highly sticky, the repurchase rate is high, the sales staff incentive mechanism is perfect, and the omni-channel customer base is maintained and diverted offline. At the same time, along with the continuous upgrading of product capabilities, we estimate that the advantages of differentiated brand positioning will be reflected in store effectiveness in the future.
There is sufficient cash on the account, paving the way for good operation. 1) The company's products can be sold for a relatively long time, and inventory is removed through Ole and other channels. Currently, the company's overall inventory is controllable and the storage structure has been optimized.
At the end of 2024Q1, the company's inventory at the end of the year decreased by 1.2% year on year to 0.64 billion yuan, and the number of inventory turnover days decreased by 40 to 200 days year on year. 2) There is sufficient cash on the account, laying a solid foundation for future business activities such as opening stores. The monetary capital at the end of 2024Q1 reached 3.23 billion yuan (about 3.5 times the net profit returned to mother in 2023).
Investment advice. The main brand is a sports, stylish, and high-quality track. Other brands are expanding the ceiling for long-term development, and medium- to long-term net profit is expected to continue to grow rapidly. We maintain our profit forecast. We expect net profit to be 1.156/1.407/1.685 billion yuan from 2024 to 2026. The current price corresponds to 10 times PE in 2024. The valuation is highly attractive and maintains a “buy” rating.
Risk warning: Risk of fluctuations in the consumer environment; channel expansion falls short of expectations; Venice brand incubation falls short of expectations; brand acquisition results fall short of expectations; sports fashion boom falls short of expectations.