Individuality Or Generality? Domestic Sports Brand Growth Meets Bottlenecks

UBS believes that due to the positioning of front-line brands,

It is still "down and down". Since last weekend, the income of unaudited consolidated statements in the first half of 2011 has fallen by nearly 5. Kappa brand holders and domestic sporting goods listed companies in China are moving.

Before the announcement of profit warning in China, Lining, who always occupied the head of domestic sports brand, also predicted that the interim results would decline.

Affected by this, Lining closed down three days last Friday, with a total decline of more than 27.24%.

Is it not true that products have been raised? Yes, but obviously, this is not enough to offset the deterioration of the industrial environment.

Lining is a paragon of domestic brands, and China's trend represents the highest level of operation of foreign brands in the industry.

Two bright stars overshadowed, indicating that the rapid growth of domestic sports brands began to encounter bottlenecks.

On Thursday, Lining issued a profit warning that the sales revenue of the group in the first half of the year was 5% lower than that of the same period last year, and the net profit margin will be reduced by half from 12.9% in the same period last year.

In July last year, Lining announced that the brand was reshaped and issued new logo and made a number of adjustments, resulting in two consecutive quarters of declining orders.

Not long ago, three top executives such as Lining's chief operating officer and chief marketing officer resigned.

Although Lining CEO Zhang Zhiyong later said executive turnover had no effect on the company.

However, with the early warning issued last week, the "capital market" has already started to "crack".

As news came out, Lining's share price continued to slide.

If Lining's stock price was calculated at around 31 yuan in April before the brand was rebuilt, its market value has evaporated more than 22 billion yuan.

Just second days after Lining issued the notice, another Chinese benchmarking enterprise in China's sports apparel industry also made a profit warning. It said that the unaudited consolidated statements in the first half of 2011 decreased by about 45% compared with the same period last year, mainly due to the reduction of sales orders by distributors and the unsold inventory of companies.

In addition, China's trend also predicts that net profit margins in the first half of 2011 will decline to about 17%-19% from 37% in the same period last year.

Affected by the early warning of performance, China's stock price also plunged all the way.

"Last week, investors and analysts were shocked by the far less anticipated business data released by Lining and Chinese management, and the challenges that will be faced in the second half of the year."

ICBC believes that this has not only led to a huge pressure on the two stocks, but also reduced the valuation of the entire sports apparel retail sector.

JP Morgan believes that in 2011, Lining's annual revenue will drop 13% to 8 billion 233 million, earnings will be 60% to 443 million, while Anta (02020) will grow 22% and 15% respectively.

From this we can see that Lining will not only be surpassed by Anta, but also be caught up by other second-line brands.

According to last Friday's closing price, Lining's market value is 10 billion 800 million yuan, China's trend is HK $117, and XTEP (01368) (about 11 billion 100 million), PEAK (01968) (about 11 billion) is at the same level, Anta is far ahead of 33 billion 900 million yuan.

Credit Suisse believes that China's sports apparel industry may be beginning to get into a brand crisis in view of the fact that some brands have more serious inventory problems than expected.

"If brand depreciation or brand crisis arrives in advance, the integration of Chinese sports apparel brands will probably come faster than expected."

However, ICBC has different opinions.

According to its quoted data, although the order amount of Lining's 2011 year-on-year increase was only 1% over the same period last year, the trend of Chinese orders decreased by 40% in the second half of 2011, but the amount of 2011 orders of other mass market sportswear brands increased by more than 20% over the same period.

"We believe that the market share of Lining and China is being snatched away by international fashion brands and domestic popular market brands."

ICBC maintains an optimistic view of PEAK, XTEP and Anta.

In the face of Lining and China's leading brands in the two domestic sports brands, the industry believes that the main reason for their double encounter is "Waterloo".

In addition, as a domestic first-line brand, the products of Lining and K AppA are similar to those of the international big names, and they are also important factors of "ceiling".

Prior to this, Lining had to speed up the inventory of retail inventory clearance and recovered some of the dealer inventory.

China's trend is that the company has made a 220 million yuan pre tax non regular provision to repurchase excess inventory of dealers.

Although at the end of last year, the domestic sports brand represented by Lining set off a "price upsurge" and was officially implemented this year.

However, on the one hand, consumers complain of rising prices, and on the other hand, surging operating costs are hard to control. Lining's buffer strips made up of price increases are easily devoured.

UBS has mentioned competition in a research report.

"Due to the positioning of front-line brands, Lining compared with other listed sporting goods units, its products are concentrated in the high-end market, and must compete with international products Nike and Adidas."

This is also true of Chinese luxury brand leather Kappa brand, which is similar to that of Nike and Adidas on the market.

As for Anta, PEAK, XTEP and other brands, its main battlefield is in the three or four tier market, and the penetration of international brands is still limited, so this problem has not yet been encountered.