1Q24 results slightly higher than our expectations
The company announced 1Q24 results: revenue of 3.139 billion yuan, +4.58% year over year; net profit of 346 million yuan, +11.40% year over year; net profit without return to mother of 338 million yuan, +15.55% year over year, slightly higher than our expectations, mainly due to gross margin growth faster than our expectations.
Revenue is growing steadily, and the shift in franchise delivery and retail sales is driving overall growth. 1Q24 revenue increased 4.58% year-on-year, and cumulative retail sales achieved positive growth. The reported revenue performance was better than the 1Q24 full-system turnover performance, mainly driven by franchise delivery. Under the influence of 1Q23's low base (higher single-digit year-on-year decline) and channel conversion from inventory removal to replenishment, we expect 1Q24 franchise shipments to achieve rapid year-on-year growth. By brand, we expect Semma to perform slightly better than Barabara.
Gross margin continues to rise, and expenses are well controlled. 1Q24's gross margin reached a record high of +2.3ppt to 46.6% year-on-year, mainly driven by discount control and product structure improvements.
In terms of expenses, the 1Q24 sales expense ratio was +1.1ppt to 24.5% year over year, mainly due to the low sales expense base for 1Q23 and a year-on-year increase in investment under the company's target of increasing scale in 2024. 1Q24 management/R&D/finance expense ratios were +0.1/+0.1/-1.1ppt to 4.5%/-2.1%, respectively, and the cost control was reasonable. Asset impairment losses were +41.6% year-on-year to 115 million yuan, mainly due to the company actively accounting for inventory depreciation of seasonal products. Taken together, the net profit margin for 1Q24 was +0.7ppt to 11.0% year-on-year.
Inventories continued to improve, and cash flow was abundant. By the end of 1Q24, the company's inventory was -23.27% year-on-year to 2,587 billion yuan, declining for 6 consecutive quarters. The number of turnover days was -51.2 days to 143.24 days, and we estimate that the company's inventory structure is improving under the new global retail model. The company's cash flow continued to be abundant and healthy. As of the end of 1Q24, the company's net operating cash flow was +114.18% year-on-year to 834 million yuan.
Development trends
1Q24 Under the pressure of the industry's high base, the company showed strong performance resilience. Looking ahead to the whole year, the company said it will continue to expand its scale, continue to promote global retail transformation, and improve the quality of operations. We expect the company's performance to continue to recover.
Profit forecasting and valuation
We keep the company's 2024/25 profit forecast of 1.36/1.51 billion yuan unchanged. The current stock prices correspond to 2024/25 12.4x/11.2x P/E, respectively. The outperforming industry rating and target price remain unchanged at 7.57 yuan. The target price corresponds to 15.0x/13.5x P/E in 2024/25, with 21.3% room for increase from the current price.
risks
The development of the new retail model fell short of expectations, the expansion of stores fell short of expectations, and the risk of inventory depreciation.