Is XTEP's Net Profit Making Double? Is It Caused By Children's Clothing?

Others are happy, but they are worried. Every big local sports goods brand revenue net profit is double happiness. Chinese runner XTEP, the leading brand, was hit by two ice attacks: the net profit of the revenue was double, and the children's clothes were back again.

In August 23rd, XTEP International (XTEP, 01368.HK) released the first half of 2017 performance report, as of June 30, 2017 6 months, XTEP realized operating income of 2 billion 311 million yuan (the same below), down 8.83% compared with the same period last year, net profit in the first half decreased by 18.36% to 310 million yuan, gross profit 1 billion 15 million yuan fell 7.5%, gross margin increased 0.6 percentage points to 43.9%. Among them, the gross profit margin of clothing increased by 1.8 percentage points to 43.5%, while footwear and accessories increased to 44.3% and 39.3% respectively.

Children's clothes are back on the back burner.

XTEP said that XTEP's revenue and net profit declined in the first half of this year due to the impact of XTEP's children's business sector and advertising expenses. It is noteworthy that Ding Shuibo said that he started the strategy of running product line 8 years ago. Then, the impact of XTEP's revenue and net profit falls on the business of children's clothing is unavoidable.

2016, XTEP Total revenue It was 5 billion 400 million yuan, an increase of only 1.9% compared to the same period last year, and the revenue in the second half of the year decreased by 40 million yuan even compared with that of the previous year. Its net profit fell by 15.2% on average, only 530 million yuan. XTEP's explanation is also a result of the reorganization of children's business.

It is understood that in 2016, because of the insufficient sales capacity of children's outlets, XTEP made a great effort to abolish the sales outlets of children's brands. In the past year, XTEP has closed about 350 children's shops. Due to the large reduction in the number of children's stores, XTEP had to restructure its children's business unit.

In 2016, XTEP's children's Department experienced a major reorganization, with a better positioning of demand, in order to effectively achieve profit growth, but it turned out to be the opposite: the XTEP children's contribution to the overall income in the first six months of 2017 was very small. XTEP said that the children's clothing business was not satisfactory because the first half of the year was still digesting the old products. As of June 30, 2017, XTEP children's sales shop remained at around 250.

Although children's clothing business is not optimistic, but XTEP believes that under the two child policy dividend, the children's clothing industry has a bright future, and the children's sportswear provided by XTEP meets the parents' dual needs for quality and safety.

However, in the first half of this year, the Zhejiang Provincial Bureau of industry and Commerce organized the quality sampling inspection of children's clothing in the circulation area in Zhejiang Province, and sampled 100 batches of children's clothing. After testing, 78 batches of qualified children were tested, 22 batches were failed, and the unqualified detection rate was 22%. XTEP children's clothing, Pacific bird Mini Peace and other brands failed to list. Test results show that XTEP (China) Co., Ltd. XTEP children jeans pH value is not qualified.

Last year, XTEP children's clothing was also listed in the list of quality blacklists. In May 25, 2016, the Jiangxi Provincial Bureau of industry and Commerce released the sampling results of commodity quality in circulation area in 2016. 50 batch of unqualified children's clothing was exposed, and the samples were marked with XTEP children's clothing.

In its 2016 annual report, XTEP clearly stated that the footwear and clothing required for production are in line with the importance of regulatory requirements. It is more clear that failure to comply with its regulations will be revoked business licences and fines. Frequent quality blacklist, XTEP children's clothing is actually from the face.

ADI, Nike, Anta, 361 degree and so on all have children's wear plate, but XTEP children's wear Late start, seems to be more good at the price, and the product quality safety seems to have a fluke mentality, but this will only be not optimistic, after all, for consumers, the real cost-effective products often have both quality safety, high price, good design and other characteristics.

Advertising and promotion fees amounted to 282 million

XTEP chairman Ding Shuibo said in his report that 2017 is XTEP's "year of change". XTEP is continuing to transform into a sports fashion brand. It has successfully consolidated the brand image as "the preferred brand of Chinese runners", unified the overall management of products, brand marketing and retail management, and further enhanced the image of retail stores, distributing products through the exclusive distribution network and online e-commerce platform, presenting the best XTEP from multi angle and multi platform.

On brand promotion, Ding Shuibo said that he should "make a brand like a marathon" and build a brand with a comprehensive and long-term vision. In order to boost XTEP's transformation to professional sports brands and increase its publicity and sponsorship for running and football, XTEP has won the sponsorship of China's most marathon sports goods brand in the first half of 2017, and sponsored 13 marathons and running events. On the celebrity endorsement, XTEP reduced the number of spokesmen for entertainment stars and increased the most popular female artist Zhao Liying in China to promote women's indoor comprehensive training products and sports life products.

In the six months ended June 30, 2017, XTEP's advertising and promotion expenses accounted for about 12.2% of the total revenue (2016: 9.3%), about 282 million yuan (2016: RMB 234 million 600 thousand yuan).

Innovative products with high cost performance ratio

XTEP believes that innovation is of great importance to brand value. As consumers become more rational, they will choose the cost-effective products with good rotation comfort and bright eyes. Therefore, XTEP set up China's first running research center in 2016. In the first half of 2017, XTEP continued to hire international designers who had worked for the world's leading sporting goods brands, promoted the simultaneous upgrading of technology and design, and worked with global fiber technology giants such as Dow Chemical Corporation and 3M to jointly develop exclusive materials for XTEP to create products that best meet the needs of Chinese runners.

In the first half of 2017, XTEP launched three core running shoes series: race running, power running and comfortable running, meeting the needs of marathon runner, regular runner and entry-level runner respectively, and creating six new core garment technology platforms, namely, cool dry technology, ice release technology, thermal energy technology, XTEP-SHIELD, XTEP-COMFORT and XTEPSTRONGER, in order to cope with different wear demands of runners.

According to Chinese clothing, XTEP was founded in 2002, mainly engaged in the design, development, manufacture, marketing, marketing and brand management of sporting goods such as shoes, clothing and accessories. It began trading on the main board of Hongkong stock exchange in June 3, 2008. At present, XTEP has about 6500 retail distribution networks (December 31, 2016: 6800), covering 31 provinces, autonomous regions and municipalities directly under the central government.

Breaking the line and the lower boundary

In the first half of 2017, the electricity supplier was still one of the fastest growing retail channels in China. The sales volume of China's electricity suppliers reached RMB 3 trillion and 100 billion yuan (2016: RMB 2 trillion and 200 billion yuan), an increase of 33.4% over the same period last year. XTEP's electricity revenue accounts for about 20% of the total revenue, which continues to lead the domestic competitors.

XTEP believes that the electricity business has made brilliant achievements. The O2O system on line in 2016 has provided another sales channel for offline distributors to achieve inventory sharing and speed up sales, which has increased its revenue and net profit. Online and offline retail channels are the main channel to maximize the profitability of XTEP.

"3+" strategy helps sales, net profit and double harvest?

Ding Shuibo said that XTEP will continue to implement the "3+" strategy and inject momentum into its continuous growth through product + sports, sports plus and Internet plus, and every strategy will become an important part of long-term business strategy. Among them, "product +" focuses on the change of technology materials, pays more attention to the consumption needs of runners, and builds shoes and clothing based on the unique needs of Chinese runners.

XTEP believes that products that are most suitable for target customers can maintain customer loyalty. It is understood that XTEP plans to continue to implement smart retailing and payment in the physical store, using big data to improve sales, profitability and customer loyalty, to provide better products and services for runners.

In the first six months of 2017, self produced shoes and clothing products accounted for about 51% (2016: 56%) and 11% (2016: 15%), respectively. The products were continuously manufactured and tested in batches, and the same batch of products were transported to the national stores according to the logistics delivery schedule.

As of June 30, 2017, XTEP maintained a strong net cash position, net cash and cash equivalents amounted to 2 billion 565 million 300 thousand yuan, equivalent to 48.6% of net assets, inventories also decreased, and inventory turnover days remained low for 67 days (2016: 55 days).

XTEP said it will continue its restructuring in the second half of this year. By repositioning XTEP as a professional sports fashion brand, the product will continue to focus on running as a core and enhance the proportion of functional categories. It will gradually enrich the training, women, outdoor and other categories. The channel will be pushed into flatness and retail orientation, so as to support distributors to open flagship stores, increase the proportion of direct outlets and increase investment in e-commerce channels. After the completion of the reorganization, the average sales efficiency of the shops will be significantly improved. Therefore, XTEP is confident that it will achieve double growth in revenue and net profit. We can wait and see if XTEP is willing to do so.