19H1 income is down 6%, net profit is down 80%, and the performance adjustment is relatively large.
2019H1's revenue also fell 5.5% to 2.21 billion yuan, lower than we had expected, mainly due to the weakness of domestic clothing retail, the company's strategic restructuring and the need to improve team execution.
The gross profit margin also fell by 2.6PCT to 41.1%, mainly due to: 1) rising prices of raw materials, 2) fierce market competition, a decline in the share of revenue from products such as high gross margin bras and thermal clothing, and 3) companies offering higher discounts to customers.
The net profit of returning to the mother also fell by 79.7% to 355 million yuan, and the growth rate of net profit was lower than that of income, mainly due to the decline in gross profit margin, the increase in the rate of sales and management expenses, and the decrease in other income such as government subsidies. 2019H1 company EPS is 0.016 yuan, do not pay dividend for the time being.
At the end of June 2019, the company's inventory was 1.295 billion yuan, an increase of 11.16% compared with the beginning of the period. The inventory turnover days of 19H1 was 169.9 days, with an increase of 30.1 days, mainly due to lower-than-expected sales and the product preparation of new designers.
Channel adjustment, offline revenue declined compared with the same period last year, and online income increased year-on-year.
From a sub-channel point of view: the income of 2019H1 joining, retail and e-commerce was 1.082 billion yuan, 712 million yuan and 324 million yuan respectively, with an increase of-14.26%,-8.01% and 6.93% respectively, and the income from the sale and purchase of raw materials was 93.368 million yuan. The company continued to invest in e-commerce channels, and its revenue maintained growth. At the end of June 2019, the company joined 5293 stores, down 10.27% from the beginning of the year, 1269 stores directly operated, down 9.74% from the beginning of the year, the company optimized the channel structure, and 2019H1 renovated 113 direct stores and 246 franchise stores.
From a product point of view, the income of 2019H1 bra, underwear, pajamas and household clothes, thermal clothing and other products were 1.105 billion yuan, 384 million yuan, 302 million yuan, 93.235 million yuan and 232 million yuan respectively, with an increase of-14.01%,-5.88%, 0.03%,-14.10% and-1.32%, respectively. The competition in the personal clothing industry is fierce, the company's channels are adjusted, and the income of most categories has declined compared with the same period last year.
The company continues to optimize the operation mode and strengthen the management level.
In terms of supply chain, the company increased investment in raw materials and product research and development, and 2019H1 signed strategic investment contracts with 16 material suppliers to strengthen supply chain management and enhance fast reaction capability. The company strengthens the product quality inspection, some testing items are higher than the national standards, and strengthen the product quality advantage.
In terms of products, in the second half of 2019, the company will launch French designers Nathalie Sokierka and Emeline Dural and domestic well-known designer Fan Yanyan products, and officially launch competitive new products in the four middle school style (temptation, simple nature, functionalism and playism) to promote product iteration.
In terms of marketing, the company appointed well-known star Guan Xiaotong as the new spokesperson to cater to young consumers, continue to strengthen advertising investment, and increase presence in shopping centers, strengthen interaction with members through WeChat Mini Programs, and upgrade brand influence.
In terms of management, the company further optimized its management team. 2019H1 appointed Mr. Xiao Jiale, the experienced CEO of clothing retail, appointed a new sales director and recruited a new director of marketing and brand management to improve the level of internal management, operation and marketing promotion.
The pattern of the close-fitting clothing industry is scattered, and there is still a lot of room for long-term growth due to the lower-than-expected profit growth of 2019H1, we downgrade the EPS forecast for 2019-20 to 0.09 EPS 0.10 yuan (the original value is 0.24 yuan), the forecast for 2021 EPS is 0.12 yuan, and the current stock price is 13 times PE in 2019. According to the American experience, underwear has a long-term high prosperity in the past 12 years, and the concentration continues to improve, leading to benefit. At present, China's personal clothing industry is scattered, the company as a leader still has a large room for growth for a long time, taking into account the company's performance pressure in the short term, downgraded to "neutral" rating.
Risk tips: the deterioration of channel inventory; increased competition in the industry; a significant decline in the number of stores.