Garman Apparel IPO Has A Long Way To Go

On the last day of 2020, Garman clothing submitted a prospectus to be listed on the gem. This is the second time that Garman apparel has impacted IPO after the meeting of the development and Examination Committee of China Securities Regulatory Commission in January 2020.

By comparison, it is found that some of the problems still exist when the Garman costume will be rejected last year. Including the high proportion of inventory, the adverse impact of brand authorization on the stability of business performance.

In addition, there are also a number of lawsuits and administrative penalties in the Garman clothing industry, which is full of negative news.

Rely on authorized brands

Garman clothing is a medium and high-end children's wear operation enterprise, covering 0-16 years old (mainly 2-14 years old) men's and women's children's clothing and underwear socks and other related ancillary products. The company itself does not carry out production, the products are mainly purchased from the factory or commissioned processing.

By the end of June 2020, the company has opened 749 offline stores nationwide, including 229 Direct stores and 520 franchise stores; meanwhile, the company has opened 36 online stores on vipshop, tmall, Jingdong and other e-commerce platforms.

The sales mode of Garman clothing includes online and offline, franchise and direct marketing. From 2017 to 2019, the proportion of direct e-commerce revenue will gradually increase, from 31.07% to 52.91%. In the first half of 2020, under the influence of the epidemic situation, the proportion of direct e-commerce revenue will further rise to 60.31%, while the proportion of offline direct sales revenue will be 31.30%. Offline direct marketing is mainly to settle in department stores, which are responsible for the overall operation and management, and implement unified cash collection and regular settlement for the settled stores.

Among the brands sold by Garman clothing, the revenue of authorized brands accounted for the highest proportion, and increased year by year. From 2017 to 2019 and the first half of 2020, the proportion of authorized brands in total revenue was 42.45%, 51.44%, 56.53% and 58.50% respectively. The proportion of private brand revenue remained at about 28% for three consecutive years.

The prospectus disclosed that the authorized brands of Garman clothing are Hush Puppies children's wear and haggis children's wear. The company does not own the trademark ownership of the two brands in China. Among them, the hush hush hush brand is authorized to Tianda Huaye by the brand owner wangerfulin outdoor products Co., Ltd., and then Tianda Huaye will authorize the hush pups children's wear brand to the company. Haggis children's wear is directly authorized by lf Corp.

The authorization period of Hush Puppies is from August 1, 2013 to December 3, 2018. In 2017, the two parties signed an agreement to extend the authorization period to December 31, 2022. Both parties agreed that the renewal of the contract would be discussed 18 months before the expiration of the existing franchise agreement (i.e. before June 30, 2021). Garman clothing first obtained the authorized operation right of hajis brand in June 2015, and after the expiration of December 31, 2020, the authorized operation period will be extended to December 31, 2025

Authorized brand is an important part of revenue, and Garman clothing has a certain degree of dependence on authorized brand. Once there is a dispute between Garman clothing and the company in the cooperation, or the contract will not be renewed after the expiration of the authorization period, which will adversely affect the company's business performance.

High proportion of performance growth

According to the financial data, from 2017 to 2019, the operating revenue of Garman clothing was 543 million yuan, 729 million yuan and 897 million yuan, with growth rates of 35.06%, 34.11% and 23.01% respectively; the net profits were 52 million yuan, 70 million yuan and 89 million yuan, with the growth rates of 39.85%, 34.55% and 28.16%, respectively.

Garman clothing will also be adversely affected by the epidemic in 2020. From January to June 2020, the company's operating income, total profit and net profit decreased significantly year on year, with the decrease rates of 18.49%, 50.57% and 51.51% respectively. Garman apparel said that it was mainly offline stores and franchisee stores affected. By the second half of 2020, with the domestic epidemic situation under control, the company's sales situation exceeded the level of the same period last year.

As for stores, as of June 30, 2020, the company has opened 35 new stores and closed 107 stores, with a total of 785, and the total number of stores at the end of 2019 is 857.

Garman said that the rapid growth of children's clothing market has attracted more and more clothing enterprises. At present, China has more than 10000 children's clothing enterprises, with more competitors in the industry, and the market is relatively scattered.

On the other hand, although the proportion of Garman clothing inventory decreased, it was still at a high level. The proportion of inventory in total assets decreased from 44.39% in 2017 to 33.87% and 36.07% in the first half of 2020. It can be seen that Garman clothing has controlled the inventory scale after being criticized for many times. In terms of provision for falling price, the proportion of provision listed by Garman clothing is higher than the average value of comparable companies in the same industry, which is mainly due to the existence of some finished products with a stock age of more than one year and a large sales discount rate, resulting in more provision for inventory falling price.

According to media reports, in the previous IPO, the company was questioned about the low proportion of inventory falling price reserves.

From the perspective of investment projects, Jiaman clothing will raise 520 million yuan, of which 310 million yuan will be used for the construction of e-commerce operation center and 105 million yuan for the construction of marketing system. It can be seen that the company will also focus on promoting sales.

Negative news

In recent years, there are still many negative news about Garman clothing. Tianyan inspection shows that there are a number of legal proceedings in Jiaman clothing, mainly contract disputes.

Tianyan Tianyan Tianyan Tianyan Tianyan Tianyan

According to public information, Garman clothing also received a warning letter from China Securities Regulatory Commission in September 2019 due to the use of personal accounts to pay money or fees and failed to fully offset the unrealized profits of internal transactions due to brush orders and self purchase during the listing application period.

The prospectus disclosed that in recent years, the company still has the behavior of "buyers show" and "make money explosion". However, the company said that the amount of brush accounts for a very small proportion of e-commerce revenue, and they are not included in the company's online sales revenue. A small number of brush lines do not affect the authenticity of the company's online customers and revenue, and have no significant impact on the company's operating performance, and there is no case of false increase in revenue through brush orders. Starting from May 2020, the company requires that all forms of bill brushing be prohibited.