CITIC Securities released a research report stating that it maintains XTEP INT'L (01368) as "outperforming the Industry," considering the company's profit reduction after the spin-off of the Gaiswei and Paladin brands. The EPS forecast for 2024 has been raised by 4% to 0.46 yuan, while the 2025 EPS forecast remains at 0.52 yuan, with the introduction of the 2026 EPS forecast at 0.59 yuan. The valuation has been switched to 2025, with a slight increase in the Target Price by 3% to 6.9 Hong Kong dollars. The company's announcement for the 4Q24 Operation performance indicates that the main brand XTEP's retail revenue increased by a high single-digit percentage year-on-year, with retail discounts at 70% to 75%; the Saucony brand retail revenue grew approximately 50% year-on-year.

CICC's main points are as follows:

The revenue growth rate of the main brand in 4Q24 improved on a sequential basis.

In 4Q24, the main brand XTEP's retail revenue saw a high single-digit percentage year-on-year increase, showing improvement compared to the third quarter, which is related to holidays such as the National Day Golden Week and Singles' Day Sales. Among them, online sales maintained rapid growth with revenue increasing over 20%, while offline sales faced continuous pressure resulting in low single-digit percentage revenue growth; retail discounts were at 70% to 75%, with slight year-on-year improvement, and average transaction value and attachment rates remained stable; channel inventory turnover was maintained at around 4 months. Looking back over the year, XTEP's main brand retail revenue achieved a high single-digit percentage year-on-year growth, with the running shoe category serving as the growth engine, as functional running shoe sales surpassed 4 million pairs, with a growth rate of about 30%, thus continuously consolidating its competitive advantage in the running field.

The Saucony brand continued its outstanding performance, with annual revenue growth in 2024 better than expected.

In 4Q24, Saucony's retail revenue grew by approximately 50% year-on-year, and the annual revenue growth for 2024 exceeded 60%, better than the management's previous expectations. By the end of 2024, Saucony brand has over 150 stores in China, concentrated in high-tier cities, with an average area of over 100 square meters and an average monthly store efficiency exceeding 0.3 million, achieving a high sales efficiency in the industry.

In 2025, continued in-depth development of the two major running brands' products and channel development.

Looking forward to 2025, management indicated that, on one hand, they will continue to update and iterate the XTEP main brand's 160 series products, while constantly launching new products (such as higher cost-performance ratio running shoes) to expand the running matrix. There are also considerations to introduce new types of running stores; on the other hand, the company will increase investment in the Saucony brand, adding new categories and products such as outfits and commuting items based on the existing running shoe lines. In terms of channels, they will operate in a self-managed manner to open larger and more upscale flagship stores in high-tier cities, while also renovating and expanding existing stores to enhance the shopping experience for Consumers.

Risks

Industry competition is intensifying, and the terminal retail environment is below expectations.