On Saturday, This Year, Stores Will Expand To Enhance Marketing.

Net profit in the first half of was 5 billion 700 million yuan, an increase of 6.6% over the previous year, a little 2% higher than our estimate. The main business revenue grew by 24.4%, while the pre tax profit increased by 18.8%. However, because of the preferential tax rate abolished, the profit growth after tax was slower.

Positive:

Rapid opening of stores to boost sales growth. In the first half of this year, 179 new self operated stores were opened, and the number of stores increased by 19%. The growth of the main brands on Saturday and Sophia reached 38.7% and 53.9% respectively, which significantly improved the market share of the brand.

The gross profit margin of the main products increased by 2 percentage points. The average unit price of domestic leather shoes increased by 1.77% and the unit cost decreased by 0.68%.

The old goods clearance was effective. The inventory over the past two years was reduced by 35%. The inventory was basically stable from one to two years. The increase in inventory was mainly in the new year (up 36.4%), which accords with the strategy of fast opening stores and stocking the goods and promoting sales. A significant decline in secondhand goods will help to remove some investors' concerns about the company's inability to clean up old products.

Negative:

The rapid opening of shops resulted in a significant increase in the rate of operating expenses, because the new store opened a lot and the benefits were low in the first few months of the new store. And the company began to increase advertising efforts significantly from the 2 quarter, and the cost rate rose sharply.

Development trend:

Net profit may decline in the third quarter. The three quarter is the off-season footwear business, new store efficiency is difficult to significantly improve. And advertising costs will continue to rise, so net profit in the 3 quarter is likely to decline. In the fourth quarter, the company is expected to return to the track when the peak season is coming. The increase in market share and the maturity of new stores can bring long-term benefits.

Earnings forecast adjustment:

The company's annual marketing expenses may exceed thirty million, higher than expected. We lowered the 2010 profit forecast by nine million yuan and adjusted earnings per share by 0.47 yuan.

Valuation and recommendations:

Maintain recommended ratings. On Saturday, the brand keeps the industry leading and has broad space for growth and has long-term investment value. This year, the company focused on expanding its stores and enhancing its marketing efforts. In the first half of this year, it followed BELLE's rapid growth and successfully seized the market share of other small brands. Store sales and marketing efforts exceed expectations, which is conducive to consolidating the market position and establishing a good image and laying the foundation for long-term growth.

But we must be vigilant that the short term stock price is underestimated by the overvalued (35.5 times dynamic P / E) and performance pressure.