The company issued a 2024Q1 business announcement, and the terminal flow performance was stable. According to the company's disclosure, Li Ning's adult turnover increased by a low number of units in 2024Q1. Among them, same-store sales were declining. Adult stores opened a net of 8 to 6214 at the end of 2023Q1; we expect Li Ning's child turnover to increase by single digits year on year, or better than adults. Under the relatively high base for the same period, the company's terminal sales performance was stable and in line with expectations.
Li Ning Adult: Q1 Offline customer flow needs to be resumed, and e-commerce channel sales performance is excellent. 2024Q1 Li Ning's adult omni-channel traffic increased in units year on year. Among them, the number of units in direct sales increased year over year, the number of units in wholesale sales decreased year over year, and e-commerce sales increased by 20%-30% year on year. Let's split the same store and open a store to look at:
1) Same store: Q1 offline Ole channels lead the growth rate, and e-commerce is growing rapidly. According to the company's disclosure that same-store sales in direct-managed/wholesale stores declined by low units/medium double digits year-on-year in 2024Q1, we determined that the decline in offline same-store sales was due, on the one hand, to a high base for the same period, and on the other hand, the current consumption environment is still in the recovery phase of fluctuations.
Direct store performance is superior to wholesale or due to the excellent sales performance of Ole stores in direct sales channels. After excluding Olay's business, we expect direct regular price stores to perform at the same store or be consistent with wholesale stores. E-commerce same-store sales increased by 20%-30% year-on-year, and the 2023Q1 customer flow was clearly shifting to offline, leading to a low e-commerce business base. At the same time, the company continued to increase its efforts to expand new platforms represented by DeWoo and Douyin, optimize the price order of e-commerce channels, improve sales efficiency, and combine multiple factors to promote the excellent performance of e-commerce channels.
2) Store opening: Due to seasonal differences, the store closed in Q1, and we expect a clean wholesale store opening throughout the year to penetrate the sinking market.
As of the end of 2024Q1, the number of adult direct/wholesale stores in Li Ning was 1499/4715, compared to +1/-27 at the end of 2023. Looking at 2024, the company will continue to promote channel restructuring and channel efficiency optimization. On the one hand, accelerate the profitability of direct stores in high-tier cities, close inefficient stores, and improve the efficiency of high-quality stores through product portfolio upgrades and single-point operation capacity improvements. On the other hand, in response to declining consumption, the company will increase its efforts to expand stores in low-tier cities and cooperate with dealers/distributors to seize business opportunities and seek share growth.
Li Ning children's clothing: The short-term growth rate may be better than that of adults, looking forward to subsequent performance. We expect Li Ning's children's clothing turnover to increase by single digits in 2024Q1, slightly better than adults. By the end of Q1 2024, there were 1,405 Li Ning children's clothing stores, a net decrease of 23 compared to the end of 2023. The company takes professional sports children's clothing as the core to accelerate the establishment of a product matrix and channel structure optimization. Looking at the whole year, we expect Li Ning children's clothing to continue the trend of net store openings. New stores may be opened or concentrated in the second half of the year. Taking into account new store openings and same-store growth, we expect a double-digit increase in children's clothing sales throughout the year.
Inventory is healthy, and discounts continue to improve. Benefiting from inventory removal in 2023 and the company's pragmatic and cautious delivery attitude, we expect the 2024Q1 inventory sales ratio to be 4+, at a healthy and manageable level, and 2024Q1 online/offline discounts may also improve year over year.
In 2024, we expect the number of units of the company's revenue growth, and profit margins to remain stable. Looking ahead to 2024, we expect profit margins to remain stable with the continuous optimization of the company's products and channel efficiency, the number of units in which the company's revenue is expected to grow, and the profit level, taking into account improvements in gross margin and expense ratios, as well as the negative effects of reduced one-time income such as government subsidies.
Profit forecast and investment advice: We expect the company's 2024-2026 performance to be $34.21/38.57/4.350 billion, corresponding to a 24-year PE of 12 times, maintaining a “buy” rating.
Risk warning: Fluctuations in the consumer environment, unanticipated rate of increase in profitability, operational changes due to management changes, etc.