CICC has maintained its net profit forecasts for XTEP INT'L (01368) at RMB1.274 billion for 2026 and RMB1.404 billion for 2027. The current stock price corresponds to a price-to-earnings ratio of 9 times for 2026 and 8 times for 2027. The firm reaffirmed its "Outperform Industry" rating and HK$5.61 target price, implying 11 times and 10 times 2026/2027 P/E ratios, respectively. This represents a potential upside of 21% from the current share price.

Recent company developments indicate that XTEP reported its operational performance for the first quarter of 2026. The core XTEP brand achieved low single-digit year-over-year growth in retail sell-through, with retail discounts maintained at 70-75% off. Channel inventory turnover stood at 4.5 months as of the end of March. Meanwhile, the Saucony brand reported over 20% growth in retail sell-through compared to the same period last year.

In the first quarter of 2026, the core XTEP brand demonstrated steady operations. Retail sell-through increased by a low single-digit percentage year-over-year, with online channels and the XTEP Kids segment both achieving double-digit growth, outperforming the overall brand. On a monthly basis, performance in January and February benefited from holiday consumption and was stronger than in March. Retail discounts for the core brand remained stable at 70-75% off sequentially. Inventory turnover was healthy at 4.5 months by the end of March. By category, functional products outperformed lifestyle items, with running and outdoor categories recording double-digit retail sales growth. Management indicated plans to improve lifestyle categories through design adjustments and co-branded collections.

Growth in the professional sports segment met expectations. Saucony's retail sell-through rose by more than 20% year-over-year in the first quarter. Key product series such as Triumph, Endorphin Elite, Kinvara, and Endorphin Pro performed well. The company plans to launch the Triumph 24 in the second quarter. Following increased investment, apparel accounted for 20% of sales in the first quarter, with the brand also enhancing its professional image and youth-oriented marketing. Additionally, the Merrell brand saw retail sell-through grow by over 20% year-over-year.

For 2026, the core XTEP brand will focus on optimizing its channel structure, accelerating presence in shopping malls and outlet centers, and closing underperforming stores. The company plans to add 500 direct-to-consumer stores throughout the year, with the majority scheduled for the second half. By the end of the first quarter, 30 selected outlet stores had been opened, with average store efficiency exceeding RMB1 million. The goal is to expand this to 70-100 stores by the end of 2026.

Regarding Saucony, management aims to prioritize store efficiency and brand elevation over net store openings in 2026. Plans include opening larger stores of 200-300 square meters in key commercial districts in tier-one and tier-two cities, with each store targeted to achieve annual sales exceeding RMB10 million. For instance, a store opened in Changsha IFS during the first quarter, and a flagship store in Hong Kong is planned for the second quarter.

Potential risks include intensified industry competition, weaker-than-expected retail conditions, and delays in channel transformation.