2024H1 joined and expanded steadily, and profitability increased steadily, maintaining the “buy” rating company 2024H1 to achieve revenue of 1.94 billion yuan (+15.0% year over year), and realized net profit attributable to mother/withheld from mother of 0.48/0.46 billion yuan, an increase of 15.3%/20.5%; of these, 2024Q1/Q2 revenue increased 17.6%/10.5%, respectively, and net profit to mother also increased 20.4%/1.7%, respectively. 2024Q2 performance is under pressure in the short term, and the cost ratio has increased slightly. We lowered our profit forecast for 2024-2026. We expect net profit to be 1.05/1.22/1.4 billion yuan (previous value was 1.14/1.38/1.65 billion yuan), corresponding EPS was 1.85/2.13/2.45 yuan, and the current stock price corresponding PE is 9.6/8.4/7.3 times. Considering the steady expansion of the franchise, profitability has steadily increased, maintaining the “buy” rating.

Building a brand matrix and moving towards internationalization, the steady expansion of various types of stores on the channel side and a slight decline in direct-run store efficiency. By product, the 2024H1 top/bottoms/outerwear/other categories achieved revenue of 9.9/0.45/0.29/0.19 billion yuan, respectively, an increase of 14.2%/12.9%/13.7%/26.1%, respectively. New products from K&C and CERRUTI 1881 were unveiled one after another. By channel, 2024H1 online/direct management/franchise achieved revenue of 0.12/1.28/0.52 billion yuan, compared to +34.6%/+2.4%/+56.5%; online, the company increased its online layout and carried out in-depth cooperation with platforms such as Tmall, WeChat video accounts, and DeWoo; offline, the number of 2024H1 stores increased net by 8 to 1,263 compared to the beginning of the year, with a net increase of 2/6 to 609/654. (1) Store expansion: Optimistic about the continued expansion of various types of stores under the 2024H2 brand matrix. (2) Store efficiency: The single-store efficiency of 2024H1 direct-run stores was 2.098 million yuan, down 2.6% year on year; direct-run store efficiency declined slightly.

Profitability has been rising steadily, and the quality of operation has been excellent

Profitability: 2024H1/2024Q2 gross margin was 77.9% (+0.7pct)/81.3% (YoY +1.6pct), with a steady increase in gross margin. The gross margin of 2024H1 online/direct operation/franchise was +14.9%/+1.5%/+1.2% respectively, and online gross margin increased significantly. The cost ratio for the 2024H1 period was 48.7% (+0.5pct), of which the sales/management/finance/R&D expense ratios were +0.3/+0.1/-0.4pct, respectively, and remained stable; the cost rate during the 2024Q2 period was 62.8% (+0.7pct), of which the sales/management/ financial/ R&D expense ratios were +1.8/-0.6/+0.1/-0.6pct, respectively. In summary, the net interest rate for 2024H1/2024Q2 was 24.7% (YoY + 0.05pct)/17.5% (YoY -1.5pct). Operating capacity: 2024H1 ended inventory of 0.76 billion yuan, +11.0% year over year, inventory turnover was further optimized for 309 days (-26 days); after 28 days of accounts receivable turnover (+0.4 days), the net operating cash flow of 2024H1 fell 13.4% to 0.53 billion yuan, with sufficient capital.

Risk warning: Store expansion falls short of expectations, e-commerce competition intensifies, and new brand development falls short of expectations.