The Zhitong Finance App learned that Changjiang Securities released a research report that the revenue performance of overseas companies continued to be weak in Q1, the year-on-year growth rate of various regions was divided, and it will still take time for demand in North America to recover. Looking ahead, it is expected that library replenishment will continue. The flexibility of replenishment depends on the strength or weakness of terminal demand repair. The overseas clothing retail industry has gradually entered the end of storage since it went out of storage in 2022/Q3. The pace and continuity of subsequent export chain repairs depends on the pace of inventory replenishment, and the flexibility of repair depends on the strength or weakness of terminal demand restoration. However, since sports retailers' inventory is still backlogged, orders are still cautious in the context of weak demand compounded by warehousing. In the future, we need to focus on the progress of sports retailers leaving the warehouse and the subsequent inflation trend in the US affecting terminal consumption.

2024Q1 review: Overall revenue continues to be weak, North American demand still needs to recover

The revenue performance of overseas companies continued to be weak in Q1. The year-on-year growth rate of various regions was divided, and it will still take time for demand in North America to recover. Judging from the 2024Q1 revenue performance of representative footwear companies, VF (-13%) and UA (-5%) are under year-on-year growth pressure, while Deckers (+21%), Lululemon (+10%), and Adidas (+8%) showed excellent year-on-year growth rates; on a month-on-month basis, most companies have improved compared to 2023Q4 revenue; by region, most sports brands are still under the most significant revenue pressure in North America. The year-on-year growth rate in Greater China declined after the base returned to normal last year. Most companies are still pessimistic about future sales in North America, and there are many companies that have recently revised Bloomberg's revenue expectations in line. Judging from the level of revenue and profit, the year-on-year growth rate of the revenue and performance of overseas companies is somewhat differentiated. The net profit growth rate of some companies is higher than the revenue growth rate due to improved gross margin and improved ability to control expenses, showing superior profitability and operating levels.

Follow-up guidance: Revenue guidance decelerates, gross margin is expected to diverge

Judging from the FY2024/2025 guidelines, the revenue guidance is pessimistic. The growth rate guide decelerates more from month to month, and the gross margin guide is somewhat divided. 1) Revenue level: Short-term inflation has clearly suppressed overseas clothing consumer demand. Overseas companies are still cautious in their expectations of consumer demand, leading the growth rate to slow down more than in the previous fiscal year. Specifically, for companies that have not yet finished FY2024, the trend of the lowest growth rate in the subsequent quarter is somewhat divergent. The annual growth rate guidelines are mostly decelerating compared to the previous fiscal year; for companies that have already disclosed the end of FY2024, the annual growth rate guidelines are all decelerating month-on-month compared to FY2023. 2) Gross margin level: Under differentiated promotion plans and freight expectations, changes in gross margin of overseas companies are somewhat differentiated.

Inventory replenishment will continue, focusing on demand repair and retail inventory removal

Industry inventories have reached a healthy level, and it will take time for demand to recover. Looking at the inventory side, US sales YOY - inventory YOY continued to improve since bottoming out in 2022/7, and have basically recovered to a normal position. On the other hand, the inventory sales ratio of US retailers has now stabilized at a historically low position (wholesalers are slightly higher than the historical center), and the inventory situation has returned to relatively normal. Looking at the demand side, the year-on-year growth rate of retail sales of clothing in the US remains low and fluctuating under high inflation. Currently, demand is still weak; the consumer confidence index is still fluctuating, and subsequent demand needs to be restored urgently.

Q1 Overseas brand-side inventory continues to be healthy, and the channel inventory repair trend is expected to continue. The inventory sales ratio of all segments on the brand side improved year over year, and sports companies' inventory sales ratio of sports brands other than Adidas and VF all fell below 50% in history. Overseas companies' inventory YOY - revenue YOY changed from positive values in the same period last year to negative values. On a month-on-month basis, the decline in most companies' 2024Q1 inventory YOY has slowed compared to 2023Q4, and inventory sales have decreased month-on-month compared to most, while the Q1 inventory sales ratio of the two major retailers has improved, and the recovery trend is expected to continue.

Looking ahead, it is expected that library replenishment will continue. The flexibility of replenishment depends on the strength or weakness of terminal demand repair. The overseas clothing retail industry has gradually entered the end of storage since it went out of storage in 2022/Q3. The pace and continuity of subsequent export chain repairs depends on the pace of inventory replenishment, and the flexibility of repair depends on the strength or weakness of terminal demand restoration. However, since sports retailers' inventory is still backlogged, orders are still cautious in the context of weak demand compounded by warehousing. In the future, we need to focus on the progress of sports retailers leaving the warehouse and the subsequent inflation trend in the US affecting terminal consumption.

Risk warning

1. Risk of decline in overseas demand;

2. Inventory removal falls short of the expected risk;

3. Industry competition increases risk.