In 2023, the company's revenue grew rapidly at a low base of +22% YoY /net profit to mother. 1) The company's revenue in 2023 was 2,915 million yuan, +22% year-on-year, net profit to mother was 106 million yuan, +417% year-on-year, and net profit without return to mother was 80 million yuan, a significant increase over the previous year. Without considering the effects of impairment of goodwill and trademark use rights, the company's net profit in 2023 was $225 million. In terms of profit quality: Along with terminal improvements and discount optimization, profit quality has improved. In 2023, the company's gross margin was +4.0pct to 67.8%, sales/management/financial expense ratios were -1.3/-1.0/-0.8pct to 46.1%/8.3%/0.6%, respectively, and the net margin was +3.2pct to 5.6% yoy. 2) 2023Q4's revenue was 850 million yuan, +31% year-on-year, net profit to mother was -0.3 billion yuan, -50% year-on-year, and net profit after deducting non-return to mother was -50 million yuan, -29% year-on-year.
2024Q1 revenue +12% YoY /Net Profit to Mother -38% YoY, putting pressure on short-term profit levels. The company released its 2024Q1 quarterly report: revenue of 750 million yuan, +12% year over year; performance of 0.3 billion yuan, -38% year over year; deducted non-performance of 0.3 billion yuan, -31% year over year. The gross margin was +1.7 pct to 67.3% year over year, the sales/management/finance expense ratio was +2.2 pct flat/+0.3 pct to 46.8%/7.9%/1.6% year over year, and the net margin was -3.5 pct to 5.9% year over year.
Domestic business grew at high quality, and overseas business dragged down performance. 1) By region, the company's domestic/overseas business revenue accounted for 83%/17% respectively in 2023. Domestic business profits rebounded sharply in 2023 and surpassed 2021 levels (we judge leading industries), while overseas businesses lost money due to the consumer environment. The 2024Q1 trend continues: domestic revenue increased by about 20% year on year, operating profit increased year on year, overseas revenue decreased by about 20% year on year, and profit loss increased year on year. 2) By channel: Online revenue in 2023 was +12% to 390 million yuan; offline revenue was +23.5% YoY to 2.49 billion yuan. 3) By sales model, direct channel revenue in 2023 was +23.9% to 2.40 billion yuan, gross margin was +4.7pct to 71.7% year over year; during the same period, franchise channel revenue was +12.2% to 480 million yuan, and gross margin was +3.2 pct to 55.9% year over year.
The expansion of core brand channels is progressing smoothly, driving the continuous growth of each brand's revenue. By brand: 1) Sales level:
The revenue of the Ellassay/Laurel/Edhardy/IRO/SP brands in 2023 was 10.7/3.5/3.1/7.3/420 million yuan, respectively, +21%/+47%/+3%/+10%/+50%; 2024Q1 revenue was 3.06/0.95/0.69/1.56/116 million yuan, respectively, +29%/+40%/-14%/-8%/+12%, respectively. 2) Channel level: At the end of 2023, Ellassay/Laurel/Edhardy/IRO/SP brand stores were 301/87/95/112/56, and +4/+9/-6/+15/+16, respectively. Based on industry trends, we judge the smooth progress of the brand's recent domestic store opening plan. We estimate that the whole of 2024 is expected to continue to expand its stores steadily and continue to drive revenue growth.
Cash flow management is good, and subsequent improvements in inventory turnover are expected. 1) The company's cash flow is well managed, with net operating cash flows of 48/110 million yuan in 2023/2024 Q1 respectively (about 4.5/3.7 times the net profit returned to mother for the same period). 2) Inventory at the end of 2024Q1 was +27.9% year-on-year to 800 million yuan, and the number of inventory turnover days in 2023/2024 Q1 was +24.1/+48.2 days year-on-year to 329.7/335.1 days, respectively. Following the normal state of business activities, we determine that inventory turnover is expected to be optimized.
Net profit to mother is expected to grow rapidly in 2024 at a low base. In 2023, the company carefully calculated impairment of goodwill, and short-term net profit performance due to mother was weak. Looking ahead to 2024, we believe: 1) On the revenue side, the company seizes market share opportunities and continues to advance channel expansion strategies, which is expected to drive steady revenue growth of 10% +. 2) On the profit side, good domestic profit margin performance is expected to continue, and overseas performance losses may narrow. Overall, the company's net profit to mother is expected to grow rapidly in 2024.
Profit forecast and investment advice: The company is a leading domestic luxury fashion leader, and the multi-brand strategy is clear. We expect the company's net profit to be 2.76 to 3.44 billion yuan from 2024 to 2026, respectively, corresponding to 10 times PE in 2024, maintaining the “increase” rating.
Risk warning: Consumption is weak due to the macroeconomic downturn; store expansion falls short of expectations.