Key points of investment
The company announced FY24Q3 results: Continued recovery and maintained high-quality growth. FY24Q3 (2023/9/1-2023/11/30) The total retail and wholesale pre-tax sales flow increased by 10%-20% year-on-year. Compared with the FY24 Q2 flow growth rate recovery from month to month (Q2 lower units lower than the previous year), the Q3 sales recovery mainly contributed to factors such as the return of passenger flow driving retail business growth, better new product performance, and faster growth rate of non-major brands. At the same time, improved discounts and increased retail share drove the year-on-year improvement in Q3 gross margin, healthy inventory management, and high turnover quality growth.
The gross sales area of direct-run stores resumed month-on-month growth, and the growth rate of non-major brands was relatively good. 1) By brand, FY24Q3's main brands (Nike & Adidas) /other brands all achieved double-digit revenue growth. Non-major brands were driven by sports segments such as outdoor, and the growth rate was faster. 2) According to the model, the core retail business performance of FY24Q3 is superior to that of the wholesale business. Among them, the retail business flow increased by high double digits, mainly due to the recovery in the market and the restoration of passenger flow, as well as the company's better operating efficiency, healthy inventory management, and the year-on-year narrowing of discounts. In terms of gross sales area of directly-managed stores, as of the end of FY24Q3, -1.7% year-on-year and +0.5% month-on-month (-3.5% in Q2, flat month-on-month), the year-on-year decline was mainly due to one-time adjustments in Adidas neo series stores. The month-on-month period was accompanied by a recovery in sales and a return to expansion in Q3. In terms of the number of stores, Q3 Maoguan stores slowed down compared to the first half of the fiscal year, and Mao store openings accelerated month-on-month. Excluding the impact of Adidas Neo adjustments, the number of stores increased net month-on-month at the end of Q3. 3) According to online and offline, FY24Q3 showed double-digit growth both offline and online. Offline growth was mainly driven by the increase in same-store efficiency, while online was mainly driven by the rapid development of online private domains.
The better sales performance of new products led to a year-on-year improvement in discounts, and the stock to sales ratio maintained a healthy level. 1) Discount rate: The FY 24Q3 direct discount rate was consistent with the improvement in the first half of the fiscal year, with a year-on-year improvement in the number of units, mainly due to the increase in the share of new product sales in FY24Q3 and the year-on-year increase in the sell-out rate, which led to a narrowing of the overall discount rate. 2) Inventory: As of the end of FY 24Q3, the inventory value fell by double digits year on year and was basically the same as at the end of Q2; the inventory to sales ratio was slightly lower than 4 months, with a marked improvement over the previous year and was basically flat month-on-month, and the inventory to sales ratio maintained a healthy and reasonable level.
Profit forecast and investment rating: The company is the largest sports footwear retailer in China. Since 23 years, along with the recovery in terminal demand, revenue has been recovering. Looking ahead to FY24Q4, the current sales situation in December is steady and maintaining the Q3 recovery trend. Due to the late Spring Festival in '24, it is expected to drive sales in January and February '24. There is a clear trend of demand improvement throughout the year. At the same time, as new product sales improve, discount rates improve, and future gross margin is expected to gradually increase. Combined with the contribution of cost efficiency, profitability is expected to improve further. The company continues to enrich its brand matrix. At the end of November, the first GOEASY urban outdoor brand in Shanghai launched its first GOEASY urban outdoor brand gathering experience space and actively lays out new sports fields. We maintain the FY24-26 net profit forecast of 23.9/27.5/3.15 billion yuan, and the EPS is 0.39/0.44/0.51 yuan/share, corresponding to PE14/13/11X, maintaining the “buy” rating.
Risk warning: changes in brand cooperation, weak consumption, etc.