2024Q1-Q3: Revenue -13% YoY; Net Profit to Mother -33% YoY. 1) 2024Q1-Q3's revenue was 1.61 billion yuan, -13% YoY; net profit attributable to mother was 0.28 billion yuan, -33% YoY; net profit after deducting non-attributable net income was 0.24 billion yuan, -32% YoY. 2) In terms of profit quality, the company's gross margin remained flat at 74.8% year on year from 2024Q1 to Q3, and sales/management/financial expense ratios were +1.5/+2.0/+1.3 pct to 40.0%/9.1%/-1.5% year on year, respectively; overall, 2024Q1-Q3 net margin was -5.1 pct to 17.3% year over year.

2024Q3: Revenue -19% YoY /Net Profit to Mother -47% YoY. 1) 2024Q3's revenue was 0.48 billion yuan, -19% YoY; net profit attributable to mother was 0.06 billion yuan, -47% YoY; net profit after deducting non-attributable net income was 0.05 billion yuan, -48% YoY. 2) In terms of profit quality, 2024Q3's gross margin was +0.7 pct to 73.6% year on year (we judge that the company's brand discount management is good), and the sales/management/financial expense ratio was +5.3/+1.9/-0.3 pct to 42.1%/9.7%/-1.0% year on year (we judge that the increase in sales expenses ratio was mainly due to some channel rigid costs); overall, the company's 2024Q3 net margin was -6.2 pct to 11.7% year on year.

Sales revenue for all brands declined year over year, and stores are still in the adjustment phase. Consumer traffic has fluctuated since 2024, and the company's terminal sales performance is under pressure. Looking at spin-off brands: 1) At the sales level, the 2024Q1-Q3 DA/DM/DZ/RA brand revenue was 8.48/0.089/0.645/0.026 billion yuan, respectively, -15%/-14%/-10%/-6% year over year (of which H1 was -13%/-8%/-5%/-1% year over year, and Q3 was -17%/-29%/-22% year over year, with gross margins of 75.8%/79.6%/72.6%, respectively) /79.0%, year-on-year, -0.3/+1.0/+0.4/+0.3pct, respectively (we judge that the company's terminal sales discount management for each brand is good). 2) Channel level:

The number of DA/DM/DZ/RA brand stores at the end of 2024Q3 was 487/24/407/18, respectively, 54/0/-43/-4 compared to the beginning of the year, and -17/+1/-21/-4 compared to the end of H1. Since core brand stores are still in the adjustment stage, we judge that the channel scale will shrink or affect recent revenue performance, and we expect a steady improvement in store operation quality in the medium to long term in terms of structural optimization.

The decline in e-commerce and distribution channels is narrow, and the pressure on direct management is relatively high. 1) Online: From 2024Q1 to Q3, the company's online sales revenue was 0.264 billion yuan, -5% (including H1 -3% YoY and Q3 -10% YoY), with a gross margin of 76.7%, or -2.4pct year-on-year. 2) Offline: 2024Q1-Q3 direct/distribution sales revenue was 0.633/0.712 billion yuan, respectively, -20%/-8% year-on-year (including H1 direct-operation/distribution revenue was -19%/-1% year over year, and Q3 was -22%/-20% year over year); gross margin was 80.3%/69.5%, respectively, +1.1/+0.5pct year on year; in terms of number of stores, the number of direct-operated/distribution stores at the end of 2024Q3 was 261/675, respectively, compared to the beginning of the year. -10/-31 compared to the end of H1, respectively.

Asset impairment is calculated carefully, and there is room for improvement in inventory turnover. In 2024Q1-Q3, the company accrued asset depreciation of 0.055 billion yuan (accounting for 3.4% of revenue). Inventory turnover days were +39.0 to 287.4 days year over year, and inventory at the end of the period was -0.2% to 0.48 billion yuan. In terms of cash flow, the company's net operating cash flow for 2024Q1-Q3 was 0.18 billion yuan, which is approximately 0.7 times the net profit due to mother for the same period.

Performance is weak. Reminder to follow up on subsequent turnover performance. The company's terminal retail performance has been relatively weak since 2024. We judge that it is mainly due to fluctuations in offline customer flow+year-on-year reduction in the number of company channels, which in turn put pressure on short-term profits in 2024. We pay attention to the implementation of the company's channel plans and look forward to a steady return to medium- to long-term revenue and profit growth.

Profit forecast and investment advice: The company is a leading high-end women's clothing enterprise. The product design and supply chain are excellent, and the dividends are abundant. We adjust the profit forecast based on recent conditions. We expect net profit to be 0.351/0.395/0.436 billion yuan from 2024 to 2026, respectively. The current price is 16 times PE in 2024, maintaining a “buy” rating.

Risk warning: Consumption is weak due to the macroeconomic downturn; store expansion falls short of expectations; new brand cultivation falls short of expectations.