Zhongjin Research Report stated that it maintained the "outperform" rating for xtep int'l (01368), with a forecast of 0.45/0.52 yuan for EPS in 2024/25. Considering that the industry valuation center has fallen slightly, the target price has been lowered by 8% to HKD 6.08. In the second quarter of 2024, the running water of xtep's main brand increased by 10% year-on-year, and the retail discount was about 25%. In the first half of 2024, the running water of xtep's main brand increased by a high unit number year-on-year, and the channel inventory turnover was about 4 months.

CICC's main points are as follows:

The running water of xtep's main brand in Q2 2024 increased steadily, and online sales were the main driving force.

In Q2 2024, the total channel sales of xtep's main brand increased by 10%, mainly driven by online sales, with online sales increasing by 25%. The company has re-planned the online channel product portfolio and increased product sales by adding high performance-to-price ratio products with a price of 599 yuan, such as the high performance-to-price ratio carbon plate running shoes 360X, which has sold more than 0.8 million pairs. During the 618 period, the GMV of the xtep main brand e-commerce increased by more than 40%. Although the online return rate has increased, the income side still has an increase of more than 20%. The offline channel sales increased by a low unit number, mainly due to the influence of torrential rain weather on store and especially street store traffic.

The retail discount and inventory sales ratio have improved compared to the previous period.

In terms of discounts, the company's retail discounts in the second quarter improved to about 25% compared to around 7-75% in Q1 2024. At the same time, the inventory turnover is healthier, and the inventory sales ratio returned to 4 months at the end of June (the inventory sales ratio was 4-4.5 months in Q1 2024). Currently, the pressure of offline passenger flow in the sports shoe and clothing industry is large. The main brand is cautious in expanding channels, planning to achieve growth through new product releases and inventory management, and improve profit margins through cost control.

Skechers and Marvel performed well, and the company expects to complete the divestiture of Geox and Palladium in Q3 2024.

As for new brands, the professional sports brands Skechers and Marvel increased by more than 50%, which is better than expected, and brought better profit performance. In particular, the same-store growth of the Skechers brand exceeded 30% in the first half of 2024. The company plans to invest more in the Skechers and Marvel brands, and in early July, Skechers announced a new brand spokesperson and launched a new Victory 22 running shoes, along with new store openings. The company believes that Skechers is expected to further improve its brand awareness and market share. The company expects to complete the divestiture of Geox and Palladium brands in Q3 2024. If the divestiture is successful, the listed company is expected to significantly reduce its losses (the operating profit level in 2023 was a loss of more than 0.18 billion yuan), and contribute to profit elasticity.

Risk

Industry competition intensifies, the terminal retail environment is not as expected, and raw material prices fluctuate.