From January to September in 1919, the monthly income increased by 13%, and the net profit decreased by 42%.
From January to September 2019, the company achieved an income of 902 million yuan, an increase of 13.36%, a net profit of 33.0995 million yuan, a decrease of 42.29%, a deduction of 24.9876 million yuan from non-net profit and a decrease of 49.65% with a decrease of 0.25 yuan. The lower growth rate of non-net profit is mainly due to the decrease of gross profit margin and the increase of sales expense rate, while the lower growth rate of non-net profit is mainly due to the growth of non-recurrent profit and loss due to the increase of government subsidies compared with the same period last year.
Quarterly, 2018Q1-19Q3's revenue increased by 21.72%, 12.96%, 22.66%, 15.06%, 17.71%, 12.35%, 8.69%, while net profit increased by 6.31%, 83.83%, 62.88%, 12.13%, 30.01%,-51.46%, from profit to loss. 2019Q3 is affected by the weak overall clothing consumption and fierce competition in the children's clothing industry, and the company's income growth slows down. The quarterly loss is mainly due to the decline in gross profit margin (1.85PCT), the increase in sales expense rate (9.66PCT), and the increase in R & D expenses (1.03PCT).
Inventory clearance led to a decline in gross profit margin, an increase in expense rate, and an increase in inventory compared with the beginning of the year.
Gross profit margin: from January to September 19, the company's overall gross profit margin also decreased by 2.31PCT to 54.64%, mainly due to the company's increased inventory clearance efforts. Quarterly gross profit margins of 2018Q1-19Q3 are 59.63% (+ 2.39PCT), 49.15% (- 8.63PCT), 58.98% (- 1.12PCT), 55.13% (- 1.83PCT), 56.34% (- 3.29PCT), 52.02% (+ 2.87PCT), 54.49% (- 1.85PCT), respectively. 2019Q3's product inventory has been cleared and its gross profit margin has declined compared with the same period last year.
Expense rate: during the period from January to September 2019, the expense rate increased by 3.07PCT to 50.83%, of which the sales expense rate also increased by 2.49PCT to 43.94%, mainly due to the increase in labor, store rent and management fees caused by the company's efforts to open offline stores, as well as the increase in inventory clearance efforts. The management expense rate (considering R & D expenses) also increased to 7.81%, mainly due to increased R & D investment. The financial expense rate also increased by 0.38PCT to-0.92%.
Other financial indicators:
1) at the end of September 2019, the company's inventory increased by 18.91% to 509 million yuan compared with the beginning of the year, mainly due to the company's autumn and winter and Singles Day products. From January to September in 2019, the company's inventory turnover and inventory-to-income ratio were 0.89 and 0.56 respectively, which were 0.88 and 0.61 in the same period of 18 years.
2) at the end of September 2019, the company's accounts receivable increased by 6.13% to 74 million yuan compared with the beginning of the year, and the turnover days of accounts receivable was 28.54 days, a decrease of 0.90 days compared with the same period last year.
3) the impairment loss of the company's assets was-5.6859 million yuan from January to September 2019, and 6.2071 million yuan in the same period in 2018, mainly due to the company's increased inventory clean-up efforts, and the inventory impairment was reversed after the long-aged goods were cleared.
4) the investment income of the company from January to September in 2019 was-1.0701 million yuan, compared with 2.4464 million yuan in the same period of 18 years, mainly due to the reduction of investment income from the purchase of financial products and the operating loss of investment enterprises.
5) the net operating cash flow from January to September in 2019 was-127 million yuan, compared with 99.2843 million yuan in the same period of 18 years, mainly due to the increase in the company's payment to suppliers, fees and rental payments for the expansion of shopping malls.
Inventory clearance is a drag on short-term performance, and long-term profitability has room for recovery.
We think: 1) in terms of revenue, the company will resume net operation in 2018, and it is expected that 80-100 new stores and 20-30 net stores will be added in 2019; the number of terminal stores will expand and the proportion of shopping centers will increase. It is expected that in the future, the new stores will contribute to the performance after the training period, and the number of direct stores will continue to expand, driving offline income to maintain growth. 2) online, the company continues to increase investment, promoting the growth of revenue from channels such as Tmall and Vipshop Holdings Limited, and expanding e-commerce channels such as JD.com, Yunji Inc and Ai inventory, driving the overall online income to maintain a rapid growth rate. 3) in 2019, the company cleared off-quarter inventory and the gross profit margin decreased compared with the same period last year, and the current inventory structure is relatively healthy. In the future, the company will strengthen the ability to control the terminal discount rate and cost control, and the overall gross profit margin is expected to increase steadily compared with the same period last year. In 2019, the company's direct store opening and inventory cleaning have led to an increase in the expense rate. In the future, the new store will gradually contribute income and optimize the warehouse age structure, and the expense rate is expected to decline gradually. 4) on October 23, 2019, the company announced that it had received a government subsidy of 1.2762 million yuan, and a total of 8.8303 million yuan in 2019, accounting for 10.59% of the net profit.
Due to the decline of the company's gross profit margin and the higher-than-expected increase in expenses, we downgraded the EPS forecast for 2019-21 to 0.39max 0.67max 0.95 (the original value is 0.77max 0.93max 1.12 yuan). The current stock price corresponds to 45 times PE in 19 years, with a decline in short-term performance and a high valuation, downgrading to a "neutral" rating. At present, the competition pattern of the children's wear industry is scattered and the growth rate is high. Long-term optimistic that there is still a lot of room for growth in the company's revenue in the future, and profitability is expected to pick up after inventory clearance and continuous channel optimization.
Risk tips: intensified competition in the children's clothing industry, shop opening is not up to expectations, inventory backlog and so on.
