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Jing whale news on October 30th (Reporter Wang Hanyi) On the evening of October 29th, Aokang International (603001.SH) announced its third-quarter performance report, stating that revenue in the first three quarters of 2024 was approximately 1.888 billion yuan, a decrease of 18.8% year-on-year; net loss was approximately 0.136 billion yuan, a 50.56% increase in losses year-on-year.

In the third quarter, revenue was 0.513 billion yuan, a 24.58% decrease year-on-year; net loss was 0.116 billion yuan.

Aokang International, founded in 1988, is a Chinese private footwear giant that went public on the A-share market in 2012. Its latest annual report shows that the company's main income comes from leather shoes, accounting for 90%, followed by leather goods. Its brands include Aokang, Kanglong, as well as agencies for Skechers, Puma, and other brands.

According to the latest financial report for the third quarter of 2024, looking at specific brands, Aokang brand's operating income was 1.234 billion yuan, with a gross margin of 41.36%, a decrease of 18.73% year-on-year. Kanglong brand's operating income was 0.16 billion yuan, with a gross margin of 47.17%, a decrease of 33.06% year-on-year. Skechers brand's operating income was 0.197 billion yuan, with a gross margin of 30.67%, a decrease of 18.23% year-on-year.

In terms of channels, online sales revenue was 0.408 billion yuan, with a gross margin of 35.33%, a 5.16% decrease year-on-year. Offline sales revenue was 1.444 billion yuan, with a gross margin of 41.52%, a 22.73% decrease year-on-year.

In the choice of footwear, consumer preferences have clearly expressed a focus on comfort. This trend has led to the vigorous development of the leisure footwear market. However, the leather shoe market has been caught off guard, especially for listed footwear companies whose main business is leather shoes like Aokang International and Zhejiang Red Dragonfly, as they are experiencing the pains of transformation.

According to the data from the Huajing Industry Research Institute, the domestic annual output of leather shoes decreased from 4.618 billion pairs in 2016 to 3.524 billion pairs in 2021, and is expected to further reduce to 1.7 billion pairs by 2026. Aokang International was also affected, with a decrease in men's shoe sales by nearly 1.6 million pairs in 2023, resulting in a net loss of 0.093 billion yuan attributable to the parent company.

In addition, from 2021 to April 2023, Wang Zhentao also negotiated with distributors to transfer funds to the bank accounts of Nan Baixiang and Aoguang shoe stores under his control, with a total amount of approximately 0.968 billion yuan. Intended to set an example for the shoe industry through product upgrades, but exposure of behavior that occupied the funds of the listed company damaged its reputation.

At the same time, the company's founder, Wang Zhentao, from 2021 to 2022, used his controlling influence to transfer the listed company's funds to the Wen Zhou Ouhai Nan Baixiang Rufen Shoe Store and Yongjia Oguang Shoe Store under his control, with a cumulative amount of approximately 0.262 billion yuan.

Therefore, as of April 27, 2023, other risk warnings were implemented, and the stock abbreviation was changed to special treat Aokang (ST Aokang).

Of course, the fluctuations in the footwear industry itself have brought challenges to all participants, and no one can escape. Aokang International closed over 2000 stores from 2020 to 2023. As of the end of September 2024, the number of stores remaining is only 2321. In fact, not only Aokang International, enterprises such as Zhejiang Red Dragonfly (603116.SH), lightinthebox fashion (603608.SH), and Harson Trading (603958.SH) are also reducing their store scales.

Among them, the number of Zhejiang Red Dragonfly stores decreased from over 4000 during the peak period to 2962 at the end of 2023. The number of stores decreased to 3512 in 2020 and 3134 in 2021. In the span of 5 years, Lightinthebox fashion has reduced a total of 520 offline stores.

As of the end of September 2023, Harson Trading had a total of 1051 stores, nearly one thousand less than the 2050 stores at the end of the year before listing in 2015.

Facing the market changes, Aokang International proposed to improve the comfort of men's shoes and launched sports leather shoe products, signing Chen Weiting as the spokesperson. In terms of market promotion, Aokang International spared no expense. In 2022 and 2023, the company's sales expenses reached as high as 1.12 billion yuan and 1.149 billion yuan, respectively, with advertising costs of 0.111 billion yuan and 1.40 billion yuan. In these two years, the company's sales expenses were more than 20 times that of research and development expenses.

After losses of 0.374 billion yuan and 0.093 billion yuan in 2022 and 2023 respectively, the company finally bid farewell to losses in the first quarter of 2024, achieving a net income of 0.023 billion yuan. The other risk warnings were revoked, and the hat was successfully taken off. However, the good times did not last long, with losses reappearing in the second quarter of 2024, and reaching as high as 0.116 billion yuan in the third quarter. In other words, the huge investment in sales expenses has not brought the expected returns, and the company still faces the dilemma of transformation.

In response, Cheng Weixiong, founder of Shanghai Liangxi Brand Management Co., Ltd. and an independent analyst in the fashion industry, told the Blue Whale News reporter that Aokang International has indeed faced challenges in the past period, including the previous handling of ST stocks. "In the current market environment, the main challenge facing Aokang International is the lack of people wearing leather shoes. Currently, it seems that more women wear leather shoes, while men are only focusing on the business environment. Aokang International mainly focuses on men's leather shoes and has opened many stores in the low-end market of third and fourth-tier cities, facing great operational pressure. Choosing to target niche markets means a small and exquisite brand positioning. But if everyone wants it, the effect will certainly not be good, because you can't have both fish and bear's paw."

Regarding the higher losses in Q3, Cheng Weixiong explained, "In the third quarter, not only shoes but also outfits experienced losses. From July to September, the weather was hot, in the summer season, people usually buy sandals and sneakers, and rarely purchase leather shoes." He predicts that with cooler weather in the fourth quarter, consumers buying leather shoes will increase, especially for wedding attire, which will help boost leather shoe performance in the wedding season of the fourth quarter.

In addition to its main business, Aokang International has also attempted to seek growth by investing in other areas, such as investing in Lightinthebox and Chengdu Kanghua Biological Products. However, these non-footwear businesses have not significantly boosted the company's performance.