Incidents:

Revenue and net profit for the first three quarters of 24 years were -13% and -33% year-on-year. The pressure on Q3 performance increased, and Disu Fashion released its 2024 three-quarter report. The company achieved operating income of 1.61 billion yuan in the first three quarters of 2024, a year-on-year decrease of 12.6%, net profit of 0.28 billion yuan, a year-on-year decrease of 32.6%, after deducting non-net profit of 0.24 billion yuan, a year-on-year decrease of 32.4%, and EPS of 0.59 yuan. Among them, in Q3, the company achieved operating income of 0.48 billion yuan and net profit of 56.48 million yuan to mother in a single quarter.

On a quarterly basis, 24Q1-Q3 companies' revenue in a single quarter was -12.0%/-7.1%/-19.0%, respectively, and net profit to mother was -33.0%/-21.0%/-47.1%, respectively. Retail sales were poor since the beginning of '24, causing revenue and profits to continue to be under pressure.

Comment:

Each brand's revenue has declined to varying degrees, and the direct management pressure on the channel side is relatively high. Looking at channel optimization and adjustment by brand, the share of DA/DM/DZ/RA brand revenue in the first three quarters of 24 was 52.6%/5.5%/40.0%/1.6%, respectively. Revenue declined to varying degrees compared to -14.6%/-14.0%/-10.0%/-5.7%, respectively.

By channel, the proportion of online and offline sales revenue in the first three quarters was 16.4%/83.3%, respectively, and revenue was -5.3%/-14.0% year-on-year, respectively. After the offline split, revenue from direct management and distribution channels accounted for 39.2%/44.1% of total revenue, respectively, and revenue was -20.0%/-7.9%, respectively.

In terms of number of stores, the company's total number of stores was 936 at the end of September '24, a net decrease of 101 (-9.7%) from the beginning of the year, and is undergoing optimization adjustments. Among them, the number of DA/DM/DZ/RA brand stores was 487 (-10.0% compared to the beginning of the year) /24 (flat) /407 (-9.6%) /18 (-18.2%), respectively.

Gross margin remained flat, expense ratios increased, and inventory and accounts receivable turnover slowed. Gross profit margin remained flat year-on-year in the first three quarters of 24, at 74.8%. On a quarterly basis, 24Q1-Q3 companies' gross margins in a single quarter were -1.1/+0.3/+0.7PCT to 75.6%/75.2%/73.6%, respectively.

Expense rate: The cost ratio increased by 5.1 PCT to 50.9% year on year during the first three quarters of 24 years. Among them, sales/management/R&D/finance expenses were 40.0%/9.1%/3.4%/-1.5%, respectively, +1.5/+2.0/+0.2/+1.3 PCT, respectively. Among them, the increase in sales expenses was mainly due to the impact of cost rigidity in the context of declining revenue, and the amount of sales expenses decreased year over year. On a quarterly basis, the cost rates for the single quarter period from 24Q1 to Q3 were +4.2/+4.1/+7.5PCT, respectively.

Other financial indicators: 1) Inventory increased by 23.0% to 0.48 billion yuan at the end of September '24 compared to the beginning of '24, which was basically the same as -0.2%; the number of inventory turnover days was 287 days, an increase of 39 days over the previous year. 2) Accounts receivable decreased by 20.7% to 62.78 million yuan at the end of September '24 compared to the beginning of '24, an increase of 23.3% over the previous year; the number of accounts receivable turnover days was 12 days, an increase of 3 days over the previous year. 3) Non-operating income decreased by 98.9% year on year, net decrease of 73.11 million yuan; 4) Net operating cash flow was 0.18 billion yuan in the first three quarters, a decrease of 63.1% year on year.

Short-term retail pressure is compounded by channel adjustments. It is expected that consumption will pick up and boost performance. Considering that the short-term domestic retail environment is still uncertain, and the company's channels are still being optimized and adjusted, there is some pressure on short-term performance. It is expected that performance will recover after internal and external factors are absorbed. We lowered the company's profit forecast (net profit to mother decreased by 34%/27%/19% from the previous forecast), corresponding EPS for 24-26 to 0.71/0.87/1.06 yuan, respectively, and PE was 16/13 times for 24/25, and downgraded to a “gain” rating.

Risk warning: Domestic demand continues to weaken; inventory backlog; industry competition intensifies; improper cost control; progress in brand development falls short of expectations.