Key points of investment
The company released its 23 annual report and 24 quarterly report:
In 2023, we achieved revenue of 5.315 billion yuan (+0.03% year over year), net profit of 572 million yuan (-1.4% year over year after retroactive adjustment of accounting standards); 24Q1 achieved revenue of 1,088 million yuan (-12.3% year over year), and net profit to mother of 89 million yuan (-49.5% year over year). We expect large fluctuations in performance mainly due to the decline in the US furniture business and the wrong pace of marketing expenses in the home textile business.
In '23, the company plans to pay a cash dividend of 334 million yuan, with a dividend rate of 58.3%. At the same time, the company plans to pay a dividend of not less than 0.2 yuan per share in mid-'24. According to estimates, the annualized dividend rate will not be less than 87%, continuing the high dividend policy.
Direct revenue from the main home textile industry increased significantly. The gross margin of all channels rose to 4.267 billion yuan (+3.4% year-on-year). Of these, online/franchise/direct/group purchasing revenue was 16.1/17.9/4.1/4.6 billion yuan, respectively, +8.6%/-3.9%/+31.7%/-3.0% year-on-year. The high growth in direct management was mainly due to the recovery in store efficiency and rapid store opening. At the end of '23, there was a net increase of 28 to 335 direct-run stores, with a single store revenue of 1,216 million yuan (+20.7% YoY), and the efficiency of direct-run stores opened over 12 months ago was +30.1%; the slight decline in franchise revenue is expected to be more cautious when placing orders and picking up goods, with a net increase of 40 to 2,395 franchisees during the year.
The gross profit margin of the home textile business in '23 was 50.6% (+2.1pp), net profit of 533 million yuan (YoY +10.25%), and the net profit margin was 12.5% (YoY +0.8pp). Among them, the gross margin of online/franchise/direct-operation/group purchasing was 52.2%/47.3%/42.3%, respectively, +1.7/+0.7/+5.1pp. We believe that the company continues to elevate the brand strategy, and the gross profit of all channels continues to rise.
In 24Q1, retail sales of home textiles showed high levels. Online and offline sales both increased year-on-year in January and February, and offline retail declined in March. The company expects this to be due to adjustments in the timing of new product launches and inventory clearance.
Orders and profit margins in the US furniture business fluctuated greatly, driving down the performance of the US Lexington Furniture business in '23 with revenue of 1,048 billion yuan (-11.6% YoY), net profit of 39.39 million yuan (-59% YoY), gross profit margin of 33.8% (-3.4pp), and net profit margin of 3.8% (-4.5pp). Affected by adverse factors such as overseas inflation, high US dollar interest rates, and changes in the real estate cycle, the revenue and profit margins of the US furniture business all declined significantly. The 24Q1 furniture business is still under heavy pressure, which has had a significant impact on the overall business in Q1.
Inventory elimination has achieved good results. It continues to guide franchisees to focus on retail and inventory improvements. At the end of 23, the company's inventory was 1,344 billion yuan (-17.9% YoY) and 24Q1 inventory was 1,296 billion yuan, maintaining a continuous downward trend. Thanks to the company's vigorous promotion of retail management upgrades and increased inventory management and clearance efforts, the inventory turnover of all major categories has improved markedly.
In the future, the company will continue to guide franchisees to pay attention to retail data and inventory turnover to increase the sell-out rate and gross profit margin of current season products. With the completion of the Nantong Smart Industrial Park project, we expect that the company's supply chain's ability to respond quickly will also be further enhanced.
Profit forecasts and investment suggestions:
We believe that the company's strategic focus on franchisee inventory and retail may affect short-term franchise shipments, but it is conducive to the healthy development of long-term channels. The efficiency of the company's direct-run stores has improved significantly, and the overall store opening policy is positive. With the steady recovery of the US furniture business, we expect the company to return to steady growth.
In 24-26, the company's revenue is expected to be 53.0/58.2/6.37 billion yuan, -0.2%/+9.7%/+9.5%, net profit to mother of 5.6/6.2/680 million yuan, -2.6%/+10.2% year-on-year, corresponding to PE 13.5/12.2/11.1 times. The company's medium- to long-term growth is steady, high dividend attributes stand out, and maintain a “buy” rating.
Risk warning: e-commerce platform growth bottlenecks, regional home textile competition intensifies; US furniture recovery falls short of expectations