XTEP International High Risk Stock: Gross Profit On Capital, Stock Increase By 91%

XTEP sports shoes

XTEP International's performance in the first half of 2011 has increased against the market, and more relies on the mode of "changing the gross profit with capital", that is, relying on its abundant monetary funds, with the help of bulk, advance, advance payment and other means of procurement, it will get more discount from suppliers.

However, other companies in the same industry have not followed the way of generosity.

High inventory not only affects the turnover rate of XTEP international, but also its own.

Moreover, the risk of impairment on large inventory and prepayment is likely to become a sharp sword hanging on the growth of company performance.

In fact, whether Lining and China's big profit margins are reduced, or XTEP International's stock and advance payments are increasing, reflecting the fragility of their own business models, it also reflects the industry predicament to a certain extent.

What's more, investors should be on the alert that there are many similar A companies in Hongkong.

Counter trend growth

After the early warning of a sharp decline in the performance of China's Listed Companies in Lining and China, another Hongkong listed sports unit, XTEP international, turned up a brilliant answer: the first half of the year was 2 billion 570 million yuan, an increase of 26% over the previous year, of which the XTEP brand received 2 billion 452 million yuan, an increase of 29% compared with the same period last year. The gross profit margin was 40.9%, an increase of 0.2 percentage points compared to the same period last year. The share profit of the XTEP brand was 466 million yuan, up 25% over the same period last year.

For the reasons for the growth of performance,

Further analysis can be found that in the industry generally faced with the plight of raw materials, rent and artificial rise, XTEP international first half of 2011 performance growth is more dependent on the "money for gross profit" mode.

In the first half of 2011, the revenue of XTEP brand footwear products increased by 28.7% to 1 billion 100 million yuan, accounting for 42.9% of XTEP brand revenue.

It is reported that the increase in revenue is mainly due to an increase of 16.4% to 11 million 100 thousand pairs of shoes sales, and the average wholesale price rises by 10.6% to 94.8 yuan.

Among them, the average wholesale price increase was mainly due to the increase in retail prices. The discount to distributors in the first half of the year was still 60% of the proposed retail price.

In order to control the rising cost, the company takes necessary measures, such as increasing stock purchase and paying more advance payments to suppliers.

Therefore, the company successfully reduced sales costs and raised gross margin by 0.8 percentage points to 41.1%.

This is similar to the reason for XTEP's brand clothing product revenue, profit and gross margin growth.

With the growth of revenue and gross profit margin of XTEP brand products, the performance of other brands of XTEP international business in the first half of 2011 is not satisfactory.

Other brands of XTEP international revenue mainly came from products that were allowed to sell. In the first half of the year, other brands earned 118 million yuan, down 15.3% from the same period last year, and gross margins dropped to 41.8%, compared with 44.4% in the same period last year.

It is reported that the decline in gross margin is mainly due to the cost pressures and the sharp competition in the high-end market, resulting in a decline in average selling prices.

In fact, for XTEP brand products, like other brands, they are faced with the pressure of cost and competition. Why can we have a good view? We think that the reason is that "the company takes necessary measures such as increasing stock purchases and paying more advance payments to suppliers". That is to say, because the production and purchase of private brand is in the hands of the company, it creates conditions for the operation of "money changing margins".

As for this operation, in simple terms, it is to rely on its abundant monetary funds, with the help of bulk, advance and advance payment, to get more discount from suppliers, thereby reducing the cost pressure.

Generosity

What is the most important capital in 2011?

Under the background of tightening monetary policy in the first half of the year, domestic market funds were suddenly strained after continuous approval, interest rate increase and window guidance.

According to media reports, the interest rate of private lending has been far too high, and even some listed companies and banks have joined the ranks of high interest lending or disguised usury.

As a result, XTEP international has changed its profit by capital, thus reducing the pressure of cost rise.

But the scale of the operation is astonishing.

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According to the China Daily, XTEP international inventories rose 887 million yuan at the end of 6 in 2011, an increase of 424 million yuan or 91.77% compared with the same period last year, of which the product increased from 4 yuan to 474 million yuan at the beginning of the year, and increased by 4 times. The advance to suppliers was 417 million yuan, up 189 million yuan or 83.20% over the same period last year.

The total amount of the two accounts is 1 billion 304 million yuan, which accounts for 27% of the total international assets, net assets and current net profits of XTEP, and 27% of the total net assets.

The huge increase in inventory and supplier advances resulted in the deterioration of XTEP's international cash flow. In the first half of 2011, cash flow from the company's operating activities was a net outflow of 335 million yuan, compared with a net inflow of 230 million yuan in the same period last year.

Originally, XTEP international is relatively precise in fund management.

In the first half of 2011, XTEP international paid a dividend of 218 million yuan, which is close to this amount. XTEP also increased 216 million yuan in short-term bank loans in the first half of the year.

According to reports, the company has received a bank loan amount of HK $500 million, secured by 475 million yuan of time deposits, and a bank loan equivalent to 216 million yuan in the first half of the year. The interest rate is "Hongkong interbank offered rate +1.5".

If the interest rate is estimated at 0.70% per year, the interest rate of XTEP international bank is 2.2%, while the current domestic RMB one year fixed deposit rate is 3.5%, and the interest rate before the latest interest rate is 3.25%.

As a result, XTEP can earn more than 1 percentage points of interest rate and can benefit from the possible appreciation of Renminbi in the future.

However, the small profits and small wisdom of this kind of capital operation, and the generous contrast between the huge amount of stock and the advance of suppliers are even more strange.

In fact, in the past, now and even in the future, the importance of capital to enterprises is beyond words.

Therefore, XTEP international has a way to maintain or raise gross profit by buying capital discounts, and on the other hand it shows the rising cost and the competition of the industry.

However, it seems difficult to draw similar conclusions when examining other business models of Listed Companies in the same industry, and other peers have not followed the way of generosity.

Take PEAK sports, which is also released recently, as an example.

Net profit in the first half of 2011 was 423 million yuan, an increase of 22.1% over the same period last year.

The main strategy for PEAK to deal with the rising prices of raw materials is to raise prices.

According to the briefing, the average unit price of footwear products increased by 7.2% to 86.3 yuan from 80.5 yuan in the first half of 2010, and the average unit selling price of clothing products increased by 14.1% to 49.5 yuan from 43.4 yuan in the first half of 2010. The main reason for the increase in prices was that the company raised the price of footwear and clothing products in the first half of 2011 to cope with rising production costs and the company's strategy of increasing gross margins.

Business conflict

For XTEP international, high inventory not only affects its turnover rate, but also has an internal conflict with its own business mode.

In the first half of 2011, the total working capital turnover days of XTEP International were 66 days, compared with 27 days in the same period last year.

Among them, average inventory turnover days were 81 days, compared with 46 days in the same period last year.

XTEP international introduced in the China Daily that the company has successfully reduced the total cost of sales and raised the gross gross profit margin, and increased the purchase cost when the selling cost increased substantially compared with the same period last year. The cost control method has been successfully implemented, and the increase in gross profit margin has already compensated the cost of increasing inventories.

We do not know how XTEP international calculates this "increase in inventory cost" and whether it fully considers the time cost of monetary funds and the impairment of inventory.

However, the substantial increase in inventory turnover days has shown the deterioration of the company's operating efficiency and has begun to change the characteristics of fast turnover in the original business model.

Of course, the stock turnover rate of PEAK sports is also declining. It is not the degree of XTEP international, nor is it the initiative.

According to the briefing, the average stock turnover days of PEAK sports increased from 38 days in the previous year to 50 days in the first half of 2011. The main reason is that the weather conditions in some areas are quite different from the initial forecasts of distributors, which led them to delay the delivery of goods in June.

Of course, if it is delayed delivery due to weather reasons, PEAK sports seems to need to consider whether it is over season after the actual shipment and whether there is any need to reduce the value.

As a matter of fact, the deterioration of the operating efficiency is only an external impact. The high stock in fact hurts the product innovation and inventory control of XTEP international, and then affects the core competitiveness of the company.

When XTEP international introduced product innovation in the newspaper, it introduced a variety of new products each season. In the first half of 2011, footwear and clothing products were more than 2000 and 2700 design styles, respectively.

In another part of the "supply chain management" section of China Daily, XTEP International introduces that the company has its own production facilities, so it can respond quickly to the changing market demand and trend. In the first half of the year, about 54% shoes and 11% garment products are produced by the company.

It can be seen that the field of XTEP international has the characteristics of fashion and seasonal products. This is also the importance of launching a large number of styles and design research and development every year.

However, at the end of the term, nearly 500 million yuan of finished products need to be sold and digested, and how the company will continue to launch a large number of styles in the second half of the year, and how to replenish new stocks according to the new trend will become a problem.

If the inventory replenishment designed and developed and adapted to the new trend is forced to slow down due to the current high inventory, it will not only waste the corresponding R & D resources, but also affect the competitiveness of its own products.

On the other hand, according to XTEP international, strict retail chain management is one of the key factors for the success of the company. Currently, about 4800 (accounting for about 65% of XTEP brand retail stores), XTEP brand retail stores adopt real-time monitoring and distribution resource planning system, so that the company can more effectively, quickly and accurately grasp the inventory of retail stores, so as to plan and closely monitor the market situation and optimize inventory management.

No doubt, the high inventory of active products not only weakens the functions of total inventory control and raising turnover rate, but also limits the speed and intensity of its response to market changes.

Impairment black hole

If the huge inventory weakens the XTEP international core competitiveness slightly abstract, then the inventory and prepayment of the existence of the risk of reduction is more realistic, is likely to become a sword hanging above the company's performance growth.

According to the China Daily, XTEP International did not have any inventory provision at the end of 6.

However, any change in consumer demand, fashion trends, progress in new products, falling prices of raw materials and intensified competition in the market will lead to the depreciation of XTEP's current high inventory.

In fact, the nearly 500 million yuan inventory finished product is only the dominant account memory of XTEP international, and the wholesale retailer has actually become the company's hidden account stock.

According to XTEP International's first half year's brand income of 2 billion 452 million yuan, and the company's average receivable trade and bills turnover days 58 days (57 days in 2010), we estimate that XTEP's international retail channels account for more than 800 million yuan.

Although the inventory of wholesale channels is not legally owned by XTEP international, but once there is a large scale of unsalable sales due to various reasons, in order to maintain the stability of the channel and the development of Future Ltd, it is very likely that the company will be forced to buy back the company and then suffer a direct loss.

At the same time, the occurrence of such slow-moving sales and repurchase will undoubtedly make and accelerate the unsalable and devaluation of inventory in their accounts.

Count the past.

The risk of this kind of out of pocket inventory in the sports apparel industry has been exposed in the early warning of Lining and China.

China's trend is expected to decrease by 45% in the first half of the year, and the net interest rate of shareholders decreased from 37% in the same period in 2010 to 17% to 19%.

According to the introduction, the main reasons for the sharp reduction in income and net profit are: first, to reduce the inventory accumulated by dealers, reduce the total sales to sales, and the two is to repurchase the excess inventory held by dealers, and plan to make a net provision of 220 million yuan.

Lining's situation is similar to China's trend. Sales revenue is expected to decrease by 5% compared with the same period last year. The reason is that in 2011, the channel reform efforts were intensified. In order to speed up the clearing up of inventory at the retail end, it was decided to recover some of the dealer's stock. Moreover, as the futures orders were flat compared with last year, the cash supplement was relatively small, and the sales revenue of Lining brand had a certain decline compared with the same period last year.

It can be seen that as a sports apparel industry, its special business mode determines that once the market is in recession, the inventory account of its dealership will trigger a series of chain reaction: the unsalable inventory will cause the company to repurchase the stock pressure; the company will not only have to reduce the value of the stock, but also make the accounts and memory goods have a greater pressure of reducing value; in order to reduce the dealer's inventory pressure, the company has to slow down sales, or implement a larger discount policy, resulting in a decline in revenue or gross profit margin; in order to promote sales, it has to increase investment in advertising and other aspects, thereby increasing sales costs; these factors combined, resulting in a sharp decline in net profit.

At this time, the old smile curve was hard to laugh again.

Of course, XTEP international also has the option of not buying back the stock out of the dealership, as an institution said in PEAK Sports Research Report: "the management of the company does not agree with the policy of repurchasing goods, which means PEAK will not buy the goods from the distributor at any time."

However, this attitude is somewhat unrealistic, because after all, the company will develop together with distributors, and now there is a problem in the market that needs to be carried together.

At the same time, this attitude is not very real, because after all, there are huge accounts receivable in the dealership.

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For XTEP international, the total amount of trade receivables at the end of the period was as high as 913 million yuan, an increase of 186 million yuan over the beginning of the year, of which 115 million yuan was less than three months, and 36 million yuan was three to nine months overdue.

It is reported that there is no provision for bad debts until the end of the term.

Therefore, if we further take account of receivables and possible bad debts, the negative impact of these chains will be even more serious.

Of course, the possible negative impact of this chain is surely not what XTEP international would like to see.

It is reported that the company announced in November 29, 2010 that it had applied to the Taiwan stock exchange and the Central Bank of Taiwan for the issuance and listing of Taiwan depository receipts. As the financial market is unstable and there is no urgent need to raise working capital, the board decided to postpone the plan for Taiwan depository receipts.

In fact, whether Lining and China's big profit margins are reduced, or XTEP International's stock and advance payments are increasing, reflecting the fragility of their own business models, it also reflects the industry predicament to a certain extent.

Inspired by the rapid development of international and local sports brands in China, some local brands have also risen, and have been listed in Beijing before and after the Olympic Games to get a huge amount of capital, and then expand rapidly in channel retailing, advertising and so on.

However, in the fierce competition in the industry, it coincides with the rapid rise in raw material, labor and rent caused by inflationary pressures. It is logical to take various measures to prevent the decline of performance.

Of course, there are many A shares listed companies similar to the Hongkong sports stock business model.

More amplification and consideration, this decline in performance also exists in other industries which are highly competitive, brand dispersed and unable to conduct inflation.

Or, they are just the epitome of some traditional industries in China.