The company's 1-3Q2024 revenue decreased 7.85% year on year, and net profit to mother decreased by 30.89% year on October 18. On October 18, the company announced the 2024 three-quarter report: 1-3Q2024 achieved operating income of 0.566 billion yuan, a year-on-year decrease of 7.85%, and realized net profit of 0.055 billion yuan, which translates into fully diluted EPS of 0.13 yuan, a year-on-year decrease of 30.89%.

Looking at the single-quarter split, 3Q2024 achieved operating income of 0.163 billion yuan, a year-on-year decrease of 16.52%, and realized net profit of 0.016 billion yuan, which translates into fully diluted EPS of 0.04 yuan, a year-on-year decrease of 41.64%, and realized net profit without deduction of 0.012 billion yuan, a year-on-year decrease of 56.92%.

The company's 1-3Q2024 comprehensive gross margin increased by 0.84 percentage points, and the cost ratio increased by 7.50 percentage points during the period 1-3Q2024, and the company's comprehensive gross margin was 56.13%, up 0.84 percentage points from the previous year. Looking at the single-quarter split, 3Q2024's comprehensive gross margin was 58.20%, up 1.62 percentage points from the previous year.

The 1-3Q2024 company's expense ratio for the period was 42.04%, up 7.50 percentage points from the previous year. Among them, the sales/management/finance expense ratios were 7.49%/37.07%/-2.52%, respectively, with a year-on-year change of +2.67/ +4.17/ +0.66 percentage points, respectively. The 3Q2024 company's expense ratio for the period was 44.58%, up 10.71 percentage points from the previous year. Among them, the sales/management/finance expense ratios were 8.55%/38.39%/-2.36%, respectively, with a year-on-year change of +3.38/ +7.37/ -0.04 percentage points, respectively.

Strengthen membership management to increase stickiness, and revise the sports and leisure brand matrix stores. As of June 30, 2024, the company had a total of 5 stores, including 1 department store, with a construction area of 0.2184 million square meters; 4 supermarkets, with a construction area of 0.041 million square meters. In terms of membership management, the company co-brands plan salon activities, expand new channels of adoption, improve the member labeling system, strengthen community maintenance, provide accurate services, promote consumption transformation, and increase member stickiness. In terms of brand management, in 2024, the company adjusted the layout of the sports and leisure category, introduced brands such as Salomon, Gloria Stone, Anta Collection, and National Geographic, and upgraded 91 brands in the first half of the year. On the online side, the company actively launched an online live broadcast of the “ZTE Building+” mini-program to help drive brands to the store.

Lower profit forecasts and maintain the “increase in holdings” rating

The company's performance fell short of our previous expectations, mainly due to the decline in the company's revenue and the increase in expense ratios, which led to a significant degree of loss in profits. Given the intense offline retail competition and some uncertainty about the progress of macroeconomic consumption recovery, we lowered our 2024/2025/2026 EPS forecast by 7%/15%/22% to 0.18/0.19/0.19 yuan. Facing competition and macroeconomic pressure, the company actively improves the brand and membership system, enhances the consumer shopping experience, and maintains an “gain” rating.

Risk warning: The operating conditions of major stores fell short of expectations, and competition in the retail industry in Shenyang and other regions intensified.