According to Shenwan Hongyuan Group Co., Ltd., XTEP INT'L (01368) is continuously optimizing its multi-brand matrix. In 2024, it plans to divest its fashion sports brand to concentrate on its core running business, enhancing resource allocation. The DTC transformation will begin in 2025, aiming to explore more efficient and high-quality channel layouts, which will help solidify its competitive advantage in specialized sports. Shenwan Hongyuan maintains a "Buy" rating and keeps its profit forecast unchanged, with net profits expected to reach 1.37 billion, 1.49 billion, and 1.60 billion yuan respectively for 2025 to 2027, corresponding to P/E ratios of 11, 10, and 9 times.
Post-divestment from the fashion brand, the company’s business focus on running will reinforce its competitive advantages, leveraging brand synergies and aiming for positive future growth. Key insights from Shenwan Hongyuan include the following:
In Q3, the primary brand showed steady performance, with children’s and online sales growth expected to continue. The XTEP main brand’s overall channel revenue growth in Q3 registered low single-digit year-on-year growth, consistent with the robust performance observed in Q2. Online sales outperformed offline, maintaining nearly double-digit growth, while children's products surpassed adult products. In terms of categories, running and outdoor products experienced double-digit growth; life category products saw slight fluctuations due to macroeconomic factors, but over 60% of XTEP's product offerings are functional, providing a stable base.
Saucony's growth has been rapid, with ongoing channel and product optimization. In Q3, Saucony’s overall channel revenue grew over 20% year-on-year, with offline revenue increasing by over 30%. The company opened 16 new stores primarily in first and second-tier city core shopping districts, keeping its annual store opening target between 30 and 50. The online business has actively adjusted since Q2 by reducing low-priced products and tightening discounts to strengthen high-end brand positioning in preparation for the peak sales season in Q4.
In terms of products, Saucony continues to deepen its focus on running scenarios, expanding its apparel and OG series, which have received favorable market feedback. The company remains confident in achieving over 30% growth for the year and maintains a long-term target of doubling revenue and a 15%-20% operating profit margin by 2027.
The inventory and discount levels remain healthy, with the main brand’s inventory turnover ratio standing at 4-4.5 months and discount rates holding at 70-75%, indicating stable inventory management and efficiency in end sales. Meanwhile, Saucony’s inventory and discount levels are also within controllable limits, allowing for flexibility during the Q4 promotional period.
The primary brand continues to innovate its channels and increase its layout in outlet formats. XTEP is optimizing its channel structure and upgrading store images, with the new concept stores and leading stores accounting for over 70% of the total. Additionally, the company is accelerating its presence in shopping centers and outlets. The outlet format, featuring leading outlets and selected outlets, has a footprint of over 200 square meters in high-end outlet malls, showcasing high-quality running products and branding. Selected outlets range from 600 to 800 square meters, demonstrating clear advantages in product variety and SKU depth, achieving monthly sales reaching the million-level, with positive feedback anticipated. By 2026, the planned number of stores will expand to 70-100, aligning with current trends of good foot traffic and active sales in outlet channels, thus likely contributing incremental sales offline.
The DTC transformation is progressing steadily, enhancing long-term channel competitiveness. In Q4, the primary brand plans to reclaim around 100 stores, with a total of 400 stores reclaimed by the end of 2025, involving related capital expenditures of approximately 400 million yuan. Although this will have minimal impact on financial statements due to the limited number of stores involved, it will help improve the long-term competitiveness of the channel, enabling the company to swiftly respond to changes in terminal demand and adapt strategies accordingly.
Risk warnings include slower-than-expected consumer recovery, increased inventory risks, and heightened market competition.