Guosheng Securities released a research report stating that maintaining the “buy” rating of Taobo (06110), as a leading downstream channel company for sports shoes and clothing, the terminal store structure is optimized, digital transformation drives retail efficiency improvement, and efficient membership operations continue to consolidate user stickiness. It is estimated that the net profit of the company FY2025-FY2027 to mother will be 1.338/1.477/1.64 billion yuan respectively, and the current price is 12 times that of FY2025PE. Taobo issued a quarterly operating announcement. FY2025Q3 (September-November 2024) saw a year-on-year decline in the number of units in the company's omni-channel sales (retail turnover and wholesale delivery amount, tax included), and the gross sales area of direct-run stores decreased by 2.1%/4.4% month-on-year.

Guosheng Securities's main views are as follows:

Faced with fluctuations in customer flow, FY2025Q3 offline sales are still under some pressure.

The number of units in the Q3 company's overall sales decline was significantly narrower than FY2025Q2. The bank expects the decline in offline sales to be greater than the overall average (this trend is consistent with the first half of the fiscal year). The main reason is that the overall consumption environment and offline passenger flow in FY2025Q3 showed a fluctuating recovery trend. Based on this, the bank expects the company's offline store sales pressure to be high.

Looking at store area: According to the company's disclosure, as of the end of September, the gross sales area of stores fell 2.1% month-on-month, 4.4% from the end of August. The main reason for the decline in sales area was the decrease in the number of stores. According to the company's previous interim report, FY2025H1 offline direct-run stores closed 331 to 5813. The bank expects the sales area of single stores to increase in Q3. Currently, on the one hand, the company continues to optimize inefficient loss-making stores, and on the other hand, it is also carrying out more accurate store operations based on different brand characteristics.

E-commerce has performed well, and the sales growth rate may be in double digits.

The bank determined that FY2025Q3 was stimulated by e-commerce promotion activities, and the company's e-commerce may continue to grow rapidly. The overall sales environment for FY2025 e-commerce is good. At the same time, the company broadened the scope of e-commerce platform layout to create a combination of platform e-commerce, content e-commerce, and private domain operations. The bank determined that e-commerce business has become an important driving force for the company's business.

Looking ahead to FY2025, the bank expects the company's revenue to drop by a high number of units, and net profit to mother falling by nearly 40% year on year.

Benefiting from factors such as macroeconomic environment improvements, holiday misalignment, and early pace of e-commerce promotion activities, the company's FY2025Q3 sales improved significantly compared to Q2. Since December, sales through various channels are expected to continue the improvement trend in Q3. After taking into account sales performance in the first half of the fiscal year, the bank expects the company's revenue to drop by a high number of units. In terms of performance, the FY2025 company as a whole is centered on inventory removal, and offline discounts may have deepened year over year. After taking into account the factors that have increased the share of e-commerce business, the pressure on gross margin is relatively high, so the bank expects the company's performance to decline by nearly 40% for the full fiscal year.

Currently, the company's main brands Nike and Adidas are developing at a slightly different pace in Greater China and around the world:

Adidas has maintained a steady growth trend as a whole, while Nike's short-term performance has fluctuated. Currently, after taking office as the new CEO, Nike is restructuring the product and channel business. The product side is optimizing the structure to promote the growth of professional categories such as running and outdoor, and appropriately controlling the sales share of classic sports fashion products; the channel side is rebalancing relationships with DTC and wholesale businesses to strengthen cooperation with retailers. As a leading global sports brand, Nike's brand strength is still strong, and product technology accumulation is abundant, so the bank is still optimistic about Nike's long-term growth potential, and Taobo is expected to benefit as Nike's core retailer in Greater China.

Risk warning: Terminal sales are slowing down; channel optimization falls short of expectations, and changes in brand cooperation bring business risks.