Financial Services Association, August 20 (Reporter Xu Cihao) Sports brand Teb International today (20th) released its semi-annual report for the year ending June 30, 2024 during the intraday session.

According to the semi-annual report, in the first half of this year, Teb International achieved revenue of 7.203 billion yuan, an increase of 10.4% year on year; net profit of 0.752 billion yuan, up 13% year on year; and gross margin increased 3.1 percentage points to 46%.

It is worth mentioning that in the first half of this year, Tep announced the strategic sale of Gashway and Palatine brands in the fashion sports business, and focused resources on the running business to increase investment in the Saucone brand. This move was seen as an important adjustment in the strategy of Special Step.

“Whether in the mass market or high-end market, we will focus more on the running business. This is the overall strategy at present.” Ding Shuibo, Chairman and CEO of Teb International Holdings Co., Ltd., explained on the phone to a financial analyst that TTEP will expand other strategies to a greater extent by doing a good job in the categories that are strong, focusing mainly on steady growth, until consumption begins to recover.

As of today's close, Tepex International closed up 4.53% at HK$5.08, with a market capitalization of HK$13.434 billion.

Divestment of Gestway and Palatin, a continuously losing business

Currently, Special Step divides the business segment into three categories according to the multi-brand operation model, namely mass sports, fashion sports, and professional sports.

Among them, the Volkswagen Sports division is a special step brand. Financial reports show that revenue contributed 6.6% to 5.789 billion yuan in the first half of this year, accounting for 80.4% of total revenue; the fashion sports division is Gestway and Palatin brands, with revenue growth of 9.7% in the first half of this year to 0.822 billion yuan, accounting for 11.4% of revenue; and professional sports brands, with revenue rising 72.2% year on year to 0.593 billion yuan, accounting for 8.2% of revenue.

Popular sports are the foundation of Special Step and support the company's main performance and profits. In the first half of this year, Popular Sports contributed 1.19 billion yuan, with an operating profit margin of 20.6%; while the professional sports business line showed a good development trend, growing from 0.013 billion yuan in the same period last year to profit 0.023 billion yuan during the reporting period; however, the profit situation of the fashion sports business line has not improved. The loss for the same period last year was 0.066 billion yuan, and this year's loss further expanded to 0.099 billion yuan.

As can be seen, although the two brands, Gashway and Palatine, can contribute more than 10% of the revenue to Special Step, from a profit perspective, not only did not bring benefits to listed companies, but instead dragged down the company's performance to a certain extent.

On May 9, Special Step issued an announcement stating that it will strategically sell KP Global Investment Limited, a wholly-owned subsidiary holding the K SWISS (K SWISS) and Palladium (Palladium) brands. The buyer is Ding Shuibo, the controlling shareholder of TEP International, and his family at a price of 0.151 billion US dollars. According to the announcement, the two brands have accumulated losses of 0.1 billion US dollars since their acquisition of 0.26 billion US dollars in 2019.

“It is anticipated that throughout 2024, these two brands will continue to generate huge losses similar to those of 2023.” This is also the most direct reason why Teb International chose to divest these two brands from the listed company system in this way.

Ding Shuibo said on the phone from a financial analyst that Special Step will invest more energy, capital, and talent into categories centered around running, and will focus more on “I believe this is more beneficial to the long-term development of the entire enterprise.”

Inventory is controllable, and online channels are growing fast

In terms of channels, in terms of offline stores, there are 8,284 STP adult and children's brand stores. According to financial reports, as of June 30, 2024, the number of STP International adult brand stores in mainland China and overseas reached 6578, a net increase of 7 compared to the 6571 in the 2023 annual report; in addition, there were 1,706 stores for the children's brand, a net increase of 3 from the end of 2023.

In terms of online sales, TEP's international e-commerce business revenue recorded an increase of more than 20% in the first half of this year, accounting for more than 30% of TEP's main brand revenue. Among them, retail sales of Douyin, DeMo, and WeChat video accounts increased by more than 80% year over year.

“Special Step's main flow direction in the second half of the year is still health and wellness. The performance in the second half of the year is expected to be the same as it is now.” Tian Zhong, president of TEP International, revealed on a phone call from a financial analyst that the sales performance of the main TEP brand in July and August was comparable to that of June. There was a slight increase in offline sales, while online sales maintained an increase of about 20%.

At the same time, Tian Zhong said that there are no plans to drastically reduce discounts at this stage, and indicated that inventory levels are still manageable.

Results guidelines for the second half of this year that investors are concerned about. Yang Rubin, chief financial officer of TEP International, said on the phone call from the financial analyst that the main brand of TEP lifestyle products will face certain sales pressure, but with running and children's products, related businesses are expected to grow to a certain extent; the Sauconee and Mille businesses will record good growth, and the annual growth target is expected to be 30% to 40%.

“Facing the downturn in 2024, the Group will pay more attention to cost control and inventory management in the second half of the year. Therefore, it is expected that it will not meet the overall sales growth target of no less than 10% set at the beginning of this year. It is expected that there will still be an increase. Under strict cost control, the profit target for the whole year can reach the 20% target set at the beginning of the year.” Yang Rubin said.

Looking for growth to greatly increase investment in the Sauconi brand

In 2019, Teb International began the path of multi-brand and international development. In addition to incorporating fashion sports brands Gesway and Paladin under the Korean clothing group at a price of 0.26 billion US dollars, Tep has accelerated the pace of incorporating Sauconie and Mille into its pockets in recent years.

At the end of last year, Teb International acquired 40% of Sauconi's intellectual property rights in China, and also acquired the remaining shares in the joint venture formed with Wolverine Worldwide in 2019 in January of this year, making the joint venture a wholly-owned subsidiary of Special Step.

According to financial reports, as of June 30, 2024, Sauconi had 128 stores in China as of June 30, 2024, as of June 30, 2024, its brand strategic positioning for China's high-tier city runners and social elites. Sokney's professional sports business maintained rapid growth in the first half of this year. Revenue increased 72.2% year over year to 0.593 billion yuan, accounting for 8.2% of TEP International's total revenue. At the same time, this portion contributed 31.8 million yuan in net profit.

“After the acquisition was completed at the beginning of this year, we think we should increase capital investment and some other investment in this brand,” Ding Shuibo revealed during a telephone analysis meeting with financial investors. Sokoni's strategy to open a store is not based on quantity as a KPI, but will open large stores. Furthermore, the proportion of franchisees will also be very small.

“TEP is now also beginning to have a series of overall plans and arrangements in Southeast Asia and other regions, particularly cross-border e-commerce.” In response to investors' overseas plans on the financial analyst's phone call, Ding Shuibo said that the focus is on getting the Chinese market right first, including Hong Kong and Macau. “There is a lot of room for development. There are many places where we can work hard. Going out to sea is the next step.”