The Inventory Of SEMAR Clothing Reached 3.957 Billion Yuan, Accounting For 69.01% Of The Current Operating Income

This advertisement from Zhejiang Senma Clothing Co., Ltd. (hereinafter referred to as SEMAR clothing, 002563. SZ) has entered the life of many young people and brought good performance to the company. But in the first half of this year, the situation was somewhat different.

According to the interim performance report recently released by the company, in the first half of 2020, the operating revenue of SEMA clothing was 5.734 billion yuan, down 30.24% year-on-year; the net profit of parent company was 22 million yuan, down 97.01% year-on-year; the net profit loss of parent after deduction of non-profit was 55 million yuan, down 108.19% year-on-year.

Obviously, the decline of net profit of SEMAR clothing is higher than that of its revenue, and the deduction of non net profit, which can reflect the main business performance of listed companies, has a direct loss of 55 million yuan.

Researchers of investment times have noticed that since 2016, the growth rate of net profit of Semir clothing has been significantly lower than that of revenue. In 2018, with the blessing of French children's wear brand kidiliz, its performance improved for a year, but in 2019, it fell into a state of revenue growth and no profit.

According to the latest announcement, SEMAR intends to sell kidiliz group at 680 million yuan, a net loss of 160 million yuan compared with the previous purchase price of 110 million euro (equivalent to 840 million yuan). The offeror is its major shareholder, SEMAR Group Co., Ltd. (hereinafter referred to as SEMAR group).

In addition, it is worth noting that in the first half of 2020, the inventory of SEMAR clothing reached 3.957 billion yuan, accounting for 69.01% of the current operating income, while the inventory turnover rate of the company decreased from 1.05 times in the same period of last year to 0.81 times.

Of course, what is worth encouraging is that since its listing, SEMAR clothing has accumulated 7.196 billion yuan of cash dividends, significantly higher than the amount of 4.942 billion yuan raised since its listing, with a dividend rate of 64.50%.

As of September 1, 2020, SEMAR clothing closed at 7.64 yuan / share, down 37% from the 52 week high, with a market value of 20.8 billion yuan.

Profit growth is not stable

Founded in 2002, SEMAR clothing is an enterprise group with leisure clothing and children's clothing as its leading products. It has two major brand clusters, namely, adult leisure clothing represented by SEMAR brand and children's clothing represented by Balabala brand.

From 2015 to 2019, the operating revenue of SEMA clothing was 9.454 billion yuan, 10.667 billion yuan, 12.026 billion yuan, 15.719 billion yuan and 19.337 billion yuan, respectively, with a year-on-year increase of 16.05%, 12.83%, 12.74%, 30.71% and 23.01%; the net profit attributable to parent was 1.349 billion yuan, 1.427 billion yuan, 1.138 billion yuan, 1.694 billion yuan and 1.549 billion yuan, with a year-on-year increase of 23.53%, 5.73%, 20.23%, 48.83% and - 8.52%.

Over the same period, the company's return on net assets (ROE) in the past five years were 14.61%, 14.28%, 11.27%, 15.20% and 13.17%, respectively.

From the above data, we can see that the performance growth rate of SEMA clothing in the past five years is not stable, and the growth rate of its revenue and net profit attributable to its parent company began to decline after reaching a short-term high in 2018; and since 2016, the growth rate of revenue is generally higher than that of net profit of parent company, except in 2018.

The return on net assets of the company, which investors are more concerned about, only reached 15.20% in 2018, and hovered below 15% in the remaining years.

In addition, the investment times researchers noted that since 2015, the growth rate of the sales expenses of SEMAR clothing was significantly faster than that of its revenue in the same period.

Wind data shows that from 2015 to 2019, the sales expenses of SEMAR clothing were 1.120 billion yuan, 1.455 billion yuan, 1.763 billion yuan, 2.570 billion yuan and 4.055 billion yuan, respectively, with a year-on-year increase of 21.94%, 29.93%, 21.17%, 45.77% and 57.78%, significantly higher than the growth rate of its revenue in the same period.

In the first half of 2020, under the influence of the new crown pneumonia epidemic, the operating revenue of SEMA clothing was 5.734 billion yuan, down 30.24% year-on-year; the net profit attributable to the mother was 22 million yuan, down 97.01% year-on-year; the net profit loss after deduction of non-profit was 55 million yuan, down 108.19% year-on-year.

Among them, the revenue of children's clothing was 3.844 billion yuan, a year-on-year decrease of 26.26%, accounting for 67.03% of the total income; the revenue of leisure clothing was 1.824 billion yuan, a year-on-year decrease of 38.02%, accounting for 31.82% of the total income.

In this regard, SEMA said that in the first half of 2020, the sudden epidemic situation made the global retail industry, including the clothing industry, facing great impact and test. The decline in operating revenue was mainly caused by the decrease in sales affected by the epidemic during the reporting period.

While the investment times researchers noted that while the sales revenue declined, the inventory of SEMAR clothing in the first half of 2020 was 3.957 billion yuan, accounting for 69.01% of the current revenue. The inventory turnover days of SEMAR clothing were 223.10 days, an increase of 52.05 days compared with the same period of last year; the inventory turnover rate decreased to 0.81 times from 1.05 times in the same period of last year.

Revenue and growth rate of SEMA clothing in recent five years (100 million yuan)

Proposed sale of kidiliz business

Investment times researchers note that since 2017, the revenue of children's clothing business of SEMAR clothing has exceeded that of leisure clothing. Since then, SEMAR clothing has continued to make efforts in children's clothing business.

In March 2018, Semir clothing and the children's place, a North American children's wear brand, reached a long-term strategic cooperation; in October of the same year, Semir clothing purchased all the assets of French kidiliz group with 110 million euro cash, becoming the second largest children's wear company in the world.

According to the announcement on the evening of July 20, 2020, SEMAR apparel intends to sell 100% of the assets and business of its wholly-owned subsidiary sofiza sass (hereinafter referred to as sofiza) to its shareholder, SEMAR group.

SEMAR apparel said that through this transaction, the company will realize the divestiture of assets and business of kidiliz group (sofiza owns 100% equity of kidiliz group), which is conducive to reducing operational risk and avoiding greater loss of company performance.

It is understood that since the acquisition of sofiza SAS from France in 2018, the business of kidiliz group has continued to lose money. In the fourth quarter of 2018, 2019 and the first quarter of this year, sofiza SAS was in deficit, with losses of 49 million yuan, 307 million yuan and 121 million yuan respectively. According to the semi annual report, kidiliz business continued to lose 362 million yuan in the first half of the year.

In fact, after the acquisition was completed in 2018, the company was full of confidence in the children's wear business. However, in 2019, the losses of kidiliz group increased instead of decreasing. What happened in this short year?

According to the equity transfer agreement disclosed on August 12, semma clothing intends to sell kidiliz group for 680 million yuan, which is a net loss of 160 million yuan compared with the previous purchase price of 110 million euro (equivalent to 840 million yuan).

The agreement also shows that, in order to avoid the competition of the same trade, the Samma group will not carry out new business or expand the original business in China after holding the kidiliz group. In addition, SEMAR group needs to be transferred the creditor's rights of 1.14 billion yuan to kidiliz Group owned by SEMAR clothing as of July 31, 2020.

However, it should be noted that the debt of 1.14 billion yuan to be borne by SEMAR group is not stipulated in the equity transfer contract.

Industry insiders said that the majority shareholders are willing to purchase, indicating that they are still optimistic about the development of children's clothing business, while the sale of SEMAR shares is a kind of burden shedding behavior that can not see the improvement of performance in a short period of time.

In fact, the researchers of investment times also noticed that in the first year after the acquisition of kidiliz group, the management expenses of SEMA clothing reached 1.029 billion yuan, an increase of 97.13% year-on-year; while in the first half of 2020, when the performance was declining, its management cost was 419 million yuan, still increasing by 12.03% year-on-year.

By the end of June 2020, the domestic revenue of SEMA clothing was 4.896 billion yuan, a year-on-year decrease of 27.08%; the overseas revenue was 838 million yuan, a year-on-year decrease of 44.34%.

At present, SEMAR clothing has 9507 stores, including 1132 Direct stores, 8115 franchise stores and 260 joint stores. In the first half of the year, a total of 750 stores were reduced.