Introduction to this report:

Consumer demand for high-end women's clothing continues to weaken, short-term company profits are under pressure, offline channels continue to be optimized, and steady operation is expected in the second half of the year. Recently, the company announced share repurchases, demonstrating confidence in development.

Key points of investment:

Investment advice: Considering that Q2 performance was lower than expected, the 2024-2026 EPS forecast was lowered to 0.88/0.99/1.08 yuan (1.15/1.28/1.39 yuan before adjustment), giving 16 times the 2024 industry average, maintaining the target price of 14.02 yuan, and maintaining the “gain” rating.

Incident: 2024H1 revenue of 1.13 billion yuan, -9.5% YoY, net profit of 0.22 billion yuan, YoY -27.5%, net of non-return mother 0.19 billion yuan, -25.9% YoY; of these, Q2 revenue was 0.59 billion yuan, -7.1% YoY, net profit to mother 0.11 billion yuan, -21.0% YoY, minus 0.11 billion yuan YoY, -20.8% YoY. Performance fell short of expectations.

Demand for terminals is weak, and the company's profits are under pressure. Consumer demand for high-end women's clothing terminals continued to weaken. 2024H1 revenue was -9.5% year over year, and gross margin was -0.4 pct year over year. 1) By brand:

DA/DM/DZ/RA revenue was 5.7/0.07/0.47/0.02 billion yuan, respectively, -13.5%/-7.6%/-4.7%/-0.9%, with the number of stores -15% /-4/ -8%/+22% YoY, and gross margin -0.8/-0.2/-0.9pct YoY. 2) Channel division: Online/direct/distribution revenue was 0.19/0.45/0.48 billion yuan, respectively, -3.1%/-19.0%/-1.0% YoY. Offline channels continued to be adjusted, the number of direct-managed/dealership stores was -9%/-12% YoY, and gross margin remained flat at -2.3 pct/+0.8 pct/ YoY. Offline stores continued to close net, with 24H1 direct-operated/franchised net-5/-55 companies to 271/706. On the profit side, due to negative operating leverage pressure, the sales/management/R&D/finance expense ratio was -0.2/+2.1/+0.1/+2.0pct year on year, so the net interest rate was -4.9 pct year over year, putting pressure on the company's profit.

The share repurchase plan was announced, demonstrating the company's confidence in development. At the end of July, the company announced a share repurchase plan. The estimated repurchase amount is 0.1-0.2 billion yuan. The repurchase of shares will be used for employee stock ownership or equity incentives.

The company is expected to operate steadily in the second half of the year. At the same time, considering the high dividend ratio in previous years (the dividend rate for 2022 to 2023 was 86%/77%), it is expected to maintain a high dividend in 2024, demonstrating confidence in the company's development.

Risk warning: Terminal consumer demand is weak, and the channel adjustment effect falls short of expectations