BOCOM INTL released a research report stating that it maintains a "Neutral" rating for TOPSPORTS (06110) due to ongoing pressure on foot traffic, expecting the company to still face operational pressure in the short term. However, considering the Sports Sector has significant growth potential, even though the role of offline channels is expected to undergo adjustments and changes in the future (such as precise matching of brand attributes), it remains one of the important channels. Meanwhile, the new CEO of Nike emphasizes efficient retail cooperation across the board and the layout for professional sports categories, such as outdoor and running (with greater emphasis on cushioning materials). TOPSPORTS, being an important retailer for Nike in the China market, presents promising future cooperation. The Target Price is maintained at HKD 3.06.

Bocom International's main points are as follows:

The operating performance in the third quarter met the company's expectations, consistently improving store operational efficiency.

In the third quarter of the 2024 fiscal year, the total sales amount of retail and wholesale businesses declined in the low single digits year-on-year, with retail performance slightly better than wholesale. The company continues to eliminate ineffective and loss-making stores. As of the end of November 2024, the gross sales area of directly operated stores decreased by 2.1% compared to the end of the previous quarter and 4.4% year-on-year, with the total number of stores decreasing in the high single digits year-on-year. The reduction in the number of stores is greater than the reduction in area, thus the average area per store continues to show a year-on-year growth trend, aligning with the company's goal of enhancing store image and efficiency. The company aims for the net reduction of store numbers in the second half of the year to not be less than that of the first half and expects the number of stores to remain stable next year.

Retail performance continues the trend from the first half of the year; the inventory clearance pace aligns with the company's objectives.

The retail business performance in the third quarter was consistent with the first half, with the professional sports brands showing rapid growth, while the mass leisure brands performed weakly. By channel, offline channels are still under pressure from foot traffic. In the online channel, influenced by various promotional events, the double-digit growth in online sales has become the main revenue contributor to the company's retail business in the third quarter. The inventory clearance has been one of the key focuses for TOPSPORTS this year, and the current progress meets the company's expectations. As of the end of November, 70-80% of the total inventory consists of new products.

The discount rate continues to deepen.

The increase in the sales proportion of online channels offsets the improvement in online discount rates, coupled with the deepening offline discount rates and the impact of inventory clearance, resulting in a year-on-year increase in the group's discount rate in the third quarter. Although the performance of all-channel same/period sales improved in early December, due to the continued impact of inventory clearance, the discount rate continues to show a year-on-year deepening trend.