The Development Of XTEP's Business Is Not A Lot Of Brand Operation Or Aggravating Operating Pressure.

XTEP's performance in the half year has improved, but the capital market has not bought it.

In the afternoon of August 21st, XTEP International Holdings Limited (1368.HK, hereinafter referred to as XTEP) released its 2019 interim results report. After the announcement of the earnings report, XTEP's share price rose 4% to 5.99 Hong Kong dollars per share. After that, it plunged rapidly and plunged for two consecutive days. As of August 23rd closing, XTEP reported HK $4.81 / share as a comparison, Anta sports (2020.HK) received HK $62.10 / share; Lining (2331.HK) reported HK $22.25 / share; and 1361.HK (31 degree) reported HK $1.48 / share.

In the first half of the year, XTEP achieved a revenue of 3 billion 357 million yuan and a net profit of 463 million yuan, an increase of 23% over the same period last year. The operating profit amounted to 717 million yuan, an increase of 21% over the same period last year. "Investment line" noted that when XTEP's profitability indicators grew toward growth, its operating ratio, operating costs, accounted for an increasing proportion of revenue. In the first half of 2019, same store sales showed double-digit growth. On the business line, the growth rate of the footwear industry with the highest gross profit rate declined, and the clothing business grew at a high speed. In the children's business sector, XTEP directly expressed "prudent attitude towards the development of XTEP's children business in 2019".

At present, XTEP is expanding to multi brand channels and increasing investment in international business. It will expand its demand for resources such as capital and talents, and will also put forward higher requirements for XTEP's synergy in various aspects such as channels, marketing and supply chain.

1 the development of business is different.

In the first half of 2019, XTEP still held the belief that "becoming the preferred brand of Chinese runners" accelerated the expansion of overseas markets while continuing to promote XTEP's natural growth.

XTEP said in its earnings report that revenue growth in the first half of 2019 was mainly due to sound product mix and good acceptability (especially XTEP's clothing products), resulting in a higher sales rate and an increase in replenishment orders from total agents, a complementary demand for healthier stock levels, and a strong sales performance of downstream retailers due to the upgrading of stores and the optimization of retail networks.

In the first half of the year, the core business footwear sector brought in 1 billion 912 million yuan, an increase of 8.1% over the previous year, accounting for 57% of total revenue. The revenue of service business was 1 billion 356 million yuan, up 50% from the same period last year, accounting for 40.4% of total revenue and strong momentum of development. In terms of gross margin, footwear business remained at 44.8%, while clothing business increased 2.7 percentage points to 44.7%, basically unchanged from footwear business. XTEP also mentioned that the gross profit margin of the company increased by 0.9 percentage points, mainly from the sale of functional clothing products that are widely praised by consumers.

Wind data show that the proportion of footwear revenue has declined since 2016, accounting for less than 60% in the first half of 2019, the lowest level since 2014, with a negative year-on-year growth in 2017 and an increase of 20.48% in 2018.

It is worth noting that, although the number of sales outlets in XTEP's children's Department has reached 650 as of June 30, 2019, XTEP said its strong growth momentum in the first half of 2019 was mainly attributed to product design and quality improvement. However, XTEP still said that "XTEP children's contribution to the group's contribution was minimal", and "in view of the current retail market in the mainland of China," it will "be cautious about the development of 2019 XTEP children's business".

More than 2 overweight basketball outside the brand

XTEP said that the current way to expand the market share of the company is multi brand portfolio.

In May 2nd, XTEP announced the purchase of E-Land Footwear USA Holdings Inc. at a price of 260 million US dollars (about 1 billion 750 million yuan) to acquire K-Swiss, Palladium and Supra brands. In August 1st, the acquisition was completed.

Prior to March, XTEP announced the establishment of a joint venture with Wolverine to carry out the development, marketing and distribution of Merrell and Saucony brand products in mainland China and Hong Kong and Macao.

XTEP has said to the investment line that the acquisition is an excellent opportunity for companies to invest in a series of world-renowned sports and leisure brands for high-end markets, while helping to improve XTEP's position in the Chinese sporting goods market and bring opportunities for growth in overseas markets.

In the deep ploughing of XTEP brand, XTEP continues to focus its brand and marketing resources on marathon and running sponsorship, celebrity and key opinion leaders endorsement and other entertainment marketing. In the first half of 2019, XTEP sponsored 21 marathons and running events, with a participation rate of over 340 thousand. It has been the sporting goods brand with the largest sponsorship of marathon in mainland China for 5 consecutive years. In August 9th, XTEP signed basketball player Jeremy Lin as spokesperson for XTEP brand and released the "basketball Product Co creation plan". Since August 18th, XTEP has held a 6 day trip to China for Jeremy Lin. In August 20th, Jeremy Lin's fans set the box for the first time.

Textile and clothing management expert, Cheng Weixiong, general manager of Shanghai Liang Qi Brand Management Co., Ltd., told the Beijing Commercial Daily that Anta signed Jeremy Lin for Anta and Jeremy Lin. It is hoped that with the help of basketball star traffic, the sales of basketball products will be promoted. Basketball is relatively popular in the domestic market. As a comprehensive sports brand, it is necessary to enter the basketball scene market.

3 rising operating costs

As of June 30th, June 30th, the number of XTEP brand retail outlets in mainland China and overseas reached 6312, and 82 stores opened in the first half of the year.

In addition, XTEP said in its 2019 mid term report that Saucony and Merrell's first brand independent stores will open in the first half and second half of 2020 respectively, while the sale of Saucony's e-commerce channel started in July 2019.

XTEP pointed out in the earnings report that the company's newly opened stores are mainly located in the busy shopping mall, and the company expects that this trend will continue for several years in the future. As of the first half of 2019, the number of exclusive agents of XTEP remained steady at 40, and about 60% of the total outlets were directly operated by them.

While improving customer experience, XTEP also refurbished the store. According to XTEP, up to the first half of the year, more than 80% of the shops have been converted into an international sports style layout. The average building area of the new shops exceeds 105 square meters. In addition, XTEP has established 7 running clubs.

Nevertheless, XTEP's same store sales showed double-digit growth in the first half of the year, while in the one or two quarter of 2018, XTEP's same store sales showed double-digit and double-digit growth respectively.

In addition, XTEP's sales and distribution expenses reached 637 million yuan in the first half, accounting for 19% of total revenue, up 1.4 percentage points over the same period last year. Among them, the cost of advertising and promotion rose to 449 million yuan due to the increase in channel development and market penetration, celebrity endorsement and promotion of running activities. The proportion of total revenue increased to 13.4%, the highest level in the past 5 years.

In R & D, the proportion of R & D expenses in the first half of 2018 dropped from 2.6% to 2.4%; in 2018, the cost was 166 million yuan, accounting for 2.6% of total revenue, down 0.2% from the same period last year.

In terms of cash turnover, the average stock turnover days in the first half of decreased from 104 days to 81 days; the average number of days of receivable trade turnover decreased from 113 days to 107 days; the average turnover days of trade receivable decreased from 134 days to 90 days, while the total working capital turnover days increased 15 days to 98 days.

As of June 30, 2019, XTEP held 3 billion 957 million yuan in cash and cash equivalents, with a debt ratio of 16.7%.

In the face of the intensification of market competition, the period of cultivation of multi brands and the challenges brought by the company's deepening of its own brand, how will XTEP maintain its high growth? "Investment line" sent a letter to XTEP on this issue. At the end of the press release, the other side did not comment.