Low Price Strategy Is Unable To Return To The Market. Urban Beauty Listing Is Difficult For 5 Years.

In June 28th, the city beauty (02298) issued the first earnings warning announcement. The company expects that the combined profit will drop by less than 80% in the 6 months ended June 30, 2019, and shows that the decrease in profits is mainly affected by the weakness of domestic retail industry, the increase of raw material costs, and the higher discount of brand offering.

Urban beauty continues to say that the company will develop brand portfolios in the new retail mode and expand its retail footprint, especially in shopping centres and e-commerce channels.

After the first surplus police was issued, Jiayin international adjusted the target price of the company to HK $1.2, while rating "big market".

As a matter of fact, urban beauty began to see a trend of earnings turmoil in the early 2016, mainly because of its continuous expansion of market share and the absolute size of its own market. At the same time, there was a large scale of sales promotion, extensive management and low quality, resulting in a decline in profitability. Since its listing in 2014, the income of urban beauty has increased by only about 1 billion yuan over the past five years, and has fluctuated at 4 billion 500 million yuan. In 2018, the company's revenue was up to 5 billion 96 million yuan, but the net profit to the parent company was only 378 million yuan. The combination of high income and low profit made the company's profitability questionable.

In order to gain a higher market share, the urban beauty took pains to try out the fashion line from 2012, and signed Lin Chiling with high price as the spokesman of the brand image. Relying on the star's influence, the performance of urban beauty rises. According to prospectus disclosure, from 2011 to 2013, the company's annual revenue grew by 700 million yuan, which was 1 billion 655 million yuan, 2 billion 257 million yuan, and 2 billion 916 million yuan respectively.

Then, in 2014, the urban beauty was successfully listed on the Hongkong stock exchange, and its performance increased to 4 billion 7 million yuan, operating profit increased 54.8% to 575 million yuan, and net profit to 425 million yuan, up 54.3% from the same period last year.

As of 2015, there were over 8000 stores in the city beauty shop, but the annual growth rate began to slow down. Urban beauty is pursuing a "big shop + self built electricity supplier" mode short board highlights. The operating income, operating profit and net profit of the parent company declined for the first time in 2016, down 8.9%, 55.7% and 55.2%, respectively, from 4 billion 953 million yuan, 688 million yuan, 540 million yuan in 2015 to 4 billion 512 million yuan, 305 million yuan, 241 million yuan.

Performance winter suddenly came, in order to boost performance, urban beauty decided to take a number of initiatives. Thanks to its adjustment of sales and distribution channels, closing a number of loss stores, and increasing new product market research and technological innovation and other initiatives, the company's annual performance in 2017 has begun to pick up. Among them, the annual revenue reached 4 billion 542 million yuan, an increase of 0.7% over the same period last year, operating profit of 420 million yuan, an increase of 37.4% compared with the same period last year, and the profit of the company's equity holders was 317 million yuan, an increase of 31% over the same period last year.

It is understood that shutting shop stop is an important way to prevent the decline in performance. Beginning in 2016, urban beauty accelerated the speed of closing the loss stores. By the end of 2016, the number of stores had decreased by 985 to 7651 in the whole year, and the total number of stores in 2017 has decreased by 362.

In addition, according to the annual report data, the annual sales cost of urban beauty list is more than half of the revenue. The difference is that the cost of the other two companies in 2018 is far lower than that of the urban beauty. Among them, an Li Fang (01388) has a revenue of 2 billion 451 million yuan, and the selling cost is 491 million yuan, which is only 1/5 of the revenue. The sales and sales revenue of Hui Jie shares is 2 billion 338 million yuan, and the selling cost is 746 million yuan, which is close to 1/3 of the revenue.

Urban beauty is also ups and downs in the net cash flow from business activities.

In 2015, the net income of the business reached 402 million yuan. In the same year, the city beauty implemented the "Wan Dian plan" and became a leading domestic underwear enterprise rapidly. However, the cost burden was aggravated due to over expansion. Even if 407 stores were closed in 2016, the urban beauty could not save the situation. The net cash earned in that year was 6 million 930 thousand yuan.

In May of next year, Fuxing star made a 11.18% stake in urban beauty, becoming the largest shareholder except urban beauty. The latter received 529 million yuan and signed a bet agreement. The net cash earned in the year rose to 346 million. In May 2018, Jingdong (JD.US) subsidiary Windcreek, Tencent (00700) affiliate's image architecture investment, vip.com (VIP.US) and Quick Returns of China Rui holdings jointly subscribed to 121 million city beauty shares, accounting for 5.37% of capital stock.

Unexpectedly, the net cash income of urban beauty fell to 50 million 797 thousand yuan again in 2018. According to the news, the reason is that the gambling agreement requires the company's revenue and net profit to achieve certain targets. For this reason, the city beauty shop once closed more than 300 stores, and at the same time, increased sales promotion efforts, resulting in cash flow blocked.

In the face of performance difficulties, urban beauty began to "big action" change, hired many executives to strengthen business management, continue to strengthen the channel of e-commerce, transnational business cooperation, increase new product market R & D and technological innovation, cross industry cooperation and expand market segmentation.

In order to get rid of the "low" image of consumers and improve product design and quality, urban beauty hired digital technology officers and designers to participate in product development in 2018, but the product is still at a low price.

Some experts say that if the company keeps its low price for a long time, it will bring enormous pressure to its supply chain and the cost of upstream procurement. If changes are made, enterprises need to build new retail businesses based on big data or Internet for young consumer groups.