A recent research note from Gf Securities Co.,Ltd. indicates that while the brand retail segment of the athletic footwear and apparel industry posted steady revenue growth in the first half of 2026, the upstream OEM manufacturing sector experienced notable pressure on both revenue and profitability.

From a short-term perspective, the second half of 2026 benefits from a low comparison base from the corresponding period last year. Additionally, the upcoming Asian Games is expected to provide a catalyst, leading the brokerage to anticipate a performance recovery for leading domestic athletic footwear and apparel brands. Over the medium to long term, the industry's substantial market headroom, combined with the deepening competitive advantages of leading companies in marketing and R&D, should solidify their market positions.

The report suggests investors pay attention to OEM leaders that benefit from steady growth among established leisure customers, rapid penetration gains among new sports clients, and an increasing share of integrated fabric production. These companies have outperformed the industry in the first half. In the near term, a modest recovery is expected for athletic footwear and apparel OEM leaders in the second half. Over the longer horizon, however, the strong competitiveness of these contract manufacturers, their high-quality downstream client base, rising penetration among existing customers, continuous acquisition of new clients, and steady capacity expansion support expectations of sustained, steady profit growth.

The brokerage's key observations are as follows:

In the downstream brand retail segment for H1 2026, revenue grew steadily while profit expanded at a faster clip. According to iFind data and company financial reports, (1) Revenue and net profit: The brand retail sector generated revenue of RMB 80.66 billion, up 7.5% year-on-year, with attributable net profit reaching RMB 13.29 billion, a 23.9% increase. (2) Margins and expense ratios: Gross margin stood at 54.9% (up 1.2 percentage points year-on-year), selling expense ratio was 30.9% (up 0.8 percentage points), and administrative expense ratio came in at 5.8% (down 0.2 percentage points). (3) Operational metrics: Inventory turnover days increased by 7 days to 112 days, while accounts receivable turnover days decreased by 1 day to 37 days.

For the upstream OEM industry in H1 2026, revenue declined and profits were squeezed, primarily due to raw material price fluctuations, currency movements, and softer demand from certain overseas brands. Based on iFind data and company reports: (1) Revenue and profit: The sector posted revenue of RMB 62.67 billion, down 9.5% year-on-year, with attributable net profit of RMB 4.0 billion, a sharp 44.6% decline. (2) Margins and expense ratios: Gross margin contracted by 3.9 percentage points to 17.4%, selling expense ratio remained flat at 0.8%, and administrative expense ratio rose 0.5 percentage points to 5.2%. (3) Operational metrics: Inventory turnover days increased by 2 days to 72 days, while accounts receivable turnover days rose by 6 days to 66 days.

Looking ahead to Q3 2026, the brokerage expects a modest recovery in brand retail sales. Supporting factors include a low base from the prior year, normalizing weather conditions after July's disruptions, the resilience of leading companies' omni-channel operations, the timing of the Mid-Autumn Festival in September which should boost consumption, and the upcoming Aichi-Nagoya Asian Games at the end of September. The latter provides a major platform for domestic sportswear brands to enhance visibility through event exposure and athlete endorsements, potentially driving short-term sales.

For the upstream OEM segment in Q3 2026, conditions are expected to improve relative to the second quarter. This outlook is underpinned by recovering external demand, stabilizing domestic demand, and greater clarity on US tariff policies, which should normalize order placement. Additionally, the previous year's low base, the lagged pass-through of higher raw material costs into pricing during the third quarter, and a potentially reduced impact from currency fluctuations all support this view.

Key risks include a macroeconomic downturn, currency volatility, and rising labor costs.