Financial Data and Key Metrics Changes - The company's pretax sales revenue, including wholesale and retail, declined by a mid-single digit percentage year-over-year [3] - The gross margin for directly operated stores decreased by 4.4% year-over-year and 2.1% compared to August [6] - The company expects full-year profit to decline by 35% to 45% based on market expectations [25][46] Business Line Data and Key Metrics Changes - Retail performance was slightly better than wholesale, with online channels driving overall retail sales [3][4] - Direct-to-consumer online sales accounted for approximately 40% of total direct retail sales, showing a year-over-year increase [4] - Same-store traffic showed slight improvement compared to the first half of the year, but overall performance remained negative [5][17] Market Data and Key Metrics Changes - The company noted that foot traffic in offline channels weakened during the quarter, although there was some improvement compared to H1 [5][17] - The average store size continued to show year-over-year growth, despite a high single-digit decline in total same-store sales [7] Company Strategy and Development Direction - The company is strategically prioritizing inventory management and plans to utilize various promotional activities to improve inventory positions [2][3] - There is a focus on omni-channel operation efficiency, including precision store openings, renovations, and closures [7] - The company aims to collaborate with brand partners to achieve planned inventory improvements by the end of the year [5][66] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the offline retail network, believing that opportunities still exist despite current pressures [17][19] - The company remains committed to inventory optimization and expects to see improvements by the end of the fiscal year [45][66] - Management highlighted strong commitments from brand partners to the China market and the intention to strengthen collaborations [67] Other Important Information - The company capitalized on major online shopping festivals, resulting in double-digit worldwide growth in overall online sales [4] - The company is taking a proactive approach to store closures, particularly for underperforming locations [6][19] Q&A Session Summary Question: Inquiry about NACI's performance and market outlook - Management discussed recent communications with NACI's new global CEO, emphasizing the importance of the China market and potential synergies in product offerings [12][13] Question: Future offline retail network considerations - Management acknowledged pressures in the offline retail network but maintained a positive outlook, emphasizing the need for omni-channel operations [17][19] Question: Clarification on sales performance and profit guidance - Management confirmed that while Q3 performance was better than expected, they still anticipate a decline in profits for the full year [25][26] Question: Discount rates and inventory management - Management explained that discount rates have deepened due to inventory clearance efforts and increased online sales, but they are optimistic about inventory management [29][30] Question: E-commerce performance and strategies - Management highlighted the growth of online sales, particularly through live streaming and private channels, and emphasized the importance of resource allocation to online sales [33][35] Question: Store rental fees and brand support - Management indicated that store rental fees will depend on negotiations with property management companies and noted strong brand support for the China market [40][42] Question: Inventory synchronization with NACI - Management outlined strategies for inventory control and collaboration with NACI to optimize inventory levels [61][63]

Investment Rating - The report assigns an "Accumulate" rating for the company, indicating a positive outlook for its stock performance in the near term [4][64]. Core Views - The company has established deep partnerships with leading international brands such as Nike and Adidas, which are expected to drive future growth despite recent challenges [4][10]. - The company is optimizing its offline channel structure by closing inefficient stores and opening larger, more efficient ones, enhancing customer experience and brand image [4][57]. - The company is well-positioned in the sports apparel distribution industry, with a strong brand portfolio and a commitment to expanding its offerings [5][10]. Summary by Sections 1. Industry Growth and Brand Resources - The sports apparel industry is expected to continue its growth trajectory, driven by increasing consumer spending and the expansion of emerging markets [24][28]. - The company has a rich portfolio of agency brands and a leading dividend yield in the industry, reflecting its strong financial health and commitment to returning value to shareholders [10][35]. 2. Anticipating Recovery of International Brands - The company is poised for recovery as international brands adjust their strategies, with new store formats and products expected to rejuvenate sales channels [4][10]. - The company has been proactive in expanding its brand partnerships, including collaborations with emerging brands, which enhances its revenue diversification and risk resilience [35][10]. 3. Profit Forecast and Rating - The company is projected to achieve net profits of 1.316 billion RMB, 1.627 billion RMB, and 1.873 billion RMB for FY2025, FY2026, and FY2027, respectively, with growth rates of -40.53%, 23.62%, and 15.11% [5][64]. - The report highlights that the company's valuation is relatively low compared to peers, justifying the "Accumulate" rating based on its strong market position and brand resources [5][64]. 4. Key Assumptions - The company is expected to maintain a sales expense ratio of approximately 28.90% to 28.30% from FY2025 to FY2027, reflecting its efficient marketing strategies [59][60]. - Management expenses are projected to decline, indicating improved operational efficiency through digital management systems [59][60].

Financial Performance - Revenue for the six months ended August 31, 2024, decreased by 7.9% year-on-year to RMB 13,054.7 million[7]. - Gross profit declined to RMB 5,362.4 million, with a gross margin of 41.1%, down 3.6 percentage points from the previous year[7][12]. - Profit attributable to equity holders of the company was RMB 1,120.9 million, representing a decrease from RMB 1,725.9 million in the same period last year[7]. - The company's profit attributable to equity holders decreased by 34.7% to RMB 873.8 million, with a profit margin decline of 2.7 percentage points to 6.7%[14]. - Operating profit for the same period was RMB 1,120.9 million, down 35.1% year-on-year[37]. - The company reported a net profit of RMB 873.8 million for the six months ended August 31, 2024, compared to RMB 1,337.2 million for the same period in 2023, representing a decline of approximately 34.7%[90]. - Basic earnings per share decreased by 34.7% from RMB 21.56 to RMB 14.09 for the six months ended August 31, 2024[52]. Inventory and Sales - The average inventory turnover period increased to 148.3 days compared to 140.9 days in the previous year[7]. - The company's inventory increased by 6.4% year-on-year to RMB 6,119.9 million, but decreased by 2.6% compared to the previous period[23]. - Direct online sales accounted for approximately 30% of total direct sales, with live streaming sales on Douyin platform increasing by about 200% year-on-year[20]. - Sales of goods amounted to RMB 12,960.1 million, down from RMB 14,068.2 million, reflecting a decline of 7.8%[112]. - The total inventory cost for the six months ended August 31, 2024, was RMB 7,601.7 million, down from RMB 7,824.2 million for the same period in 2023, a decrease of 2.8%[140]. Cash Flow and Liquidity - Cash and cash equivalents as of August 31, 2024, amounted to RMB 2,839.6 million, with net cash generated from operating activities increasing by 2.5% year-on-year to RMB 2,613.5 million despite a 35.1% decline in pre-tax profit[15]. - The current ratio as of August 31, 2024, is 2.8, down from 3.2 as of February 29, 2024[7]. - The company maintained a net cash position as of August 31, 2024, with total short-term bank deposits and cash exceeding short-term borrowings by RMB 2,039.6 million[57]. - Net cash generated from operating activities increased by RMB 22.2 million to RMB 2,702.9 million for the six months ended August 31, 2024[54]. - The cash and cash equivalents at the end of the period stood at RMB 2,839.6 million, down from RMB 3,148.2 million at the end of the same period last year[93]. Store Operations and Employee Metrics - The number of directly operated stores decreased by 6.4% year-on-year to 5,813, with total sales area declining by 1.9%[16]. - Employee headcount as of August 31, 2024, was 28,941, a decrease of 3.2% year-on-year, aligning with the reduction in store numbers[24]. - The company opened new stores focusing on key brands and professional niche brands, while also accelerating the closure of underperforming stores[19]. Dividends and Shareholder Returns - The company declared an interim dividend of RMB 0.14 per share, with a payout ratio of 99.4%, up from 74.2% in the previous year[15]. - The company declared an interim dividend of RMB 0.14 per share, totaling RMB 868.2 million[66]. Strategic Initiatives and Market Position - The company is focusing on long-term brand building and user value creation despite external market challenges[11]. - The company is implementing a flexible retail network adjustment strategy to optimize store layouts in response to declining foot traffic[10]. - The company is enhancing its online presence through over 2,500 mini-program stores and more than 300 live streaming accounts, significantly increasing consumer engagement[20]. - The company implemented personalized marketing strategies through refined user segmentation, enhancing marketing precision and efficiency[27]. - Future initiatives focus on enhancing digital capabilities and sustainable practices, aiming for long-term growth and resilience in retail operations[36]. Governance and Compliance - The company has complied with all applicable code provisions of the Corporate Governance Code, except for the separation of roles between the Chairman and CEO[171]. - The board will regularly review and enhance its corporate governance practices to ensure continued compliance with the Corporate Governance Code[172]. - The Audit Committee is composed of three independent non-executive directors, with Mr. Lin Yaojian serving as the chairman and possessing professional accounting qualifications[175].

Investment Rating - The investment rating for the company is "Outperform the Market" [1] Core Views - The company reported a revenue of 13.05 billion yuan for FY25H1, a year-on-year decrease of 7.9%, primarily due to weak demand and a double-digit decline in same-store traffic [5] - The net profit attributable to shareholders was 870 million yuan, down 34.7% year-on-year, while operating cash flow increased by 2.5% to 2.61 billion yuan [5] - The gross margin decreased by 3.6 percentage points to 41.1%, attributed to sales weakness and increased inventory pressure [6] - The company maintained a high dividend payout ratio of nearly 100%, declaring an interim dividend of 0.14 yuan per share, resulting in a dividend yield of 5.5% [7] Financial Performance Summary - For FY25H1, retail and wholesale sales fell by 10-20% year-on-year, with retail sales down 8.9% and wholesale down 2.2% [7] - The company ended the period with 61.2 billion yuan in inventory, a 6.4% increase year-on-year, with inventory turnover days rising to 148 days [7] - The company expects net profits for FY2025, FY2026, and FY2027 to be 1.324 billion, 1.799 billion, and 2.152 billion yuan respectively, with a projected PE ratio of 13-15 times for FY2025 [8] Valuation and Forecast - The company is focusing on strengthening its main brand operations and optimizing operational efficiency while maintaining strong cash flow and high dividend rates [8] - The estimated reasonable value range for the stock is between 3.02 and 3.48 HKD per share, based on a conversion rate of 1 HKD = 0.92 CNY [8]

Investment Rating - The investment rating for the company is downgraded to "Neutral" [4][3]. Core Insights - The company has experienced a decline in both revenue and net profit for the first half of the fiscal year 2025, with a revenue drop of 7.9% year-on-year to 13.05 billion RMB, slightly below market expectations. The gross margin decreased by 3.6 percentage points to 41.1% due to increased discount rates and a higher proportion of lower-margin wholesale channels [1][3]. - The company maintains a high dividend payout ratio, with an interim dividend of 0.14 RMB per share, resulting in a payout ratio of 99.4%, and an average payout ratio exceeding 100% over the past three years [1][3]. - The total number of stores decreased by over 300, with 5,813 stores in operation by the end of the first half of fiscal year 2025, a year-on-year decrease of 396 stores. However, the quality of membership continues to improve, with a total membership of 81 million, reflecting a 10.8% year-on-year growth [2][3]. - The company is actively expanding its brand partnerships to capture future growth potential, including collaborations with high-end brands in the trail running segment and digital operation platforms [2][3]. Financial Summary - For the fiscal year ending February 29, 2025, the company is projected to have a revenue of 26.58 billion RMB, a decrease of 8.1% year-on-year. The net profit is expected to be 1.472 billion RMB, down 33.4% year-on-year [6][10]. - The earnings per share (EPS) for 2025 is estimated at 0.24 RMB, with a significant adjustment of -42.2% from previous forecasts [6][10]. - The company’s price-to-earnings (P/E) ratio is projected to be 10.3 times for 2025, reflecting a downward adjustment from previous estimates [6][10].

Investment Rating - The investment rating for the company is downgraded to Neutral with a target price of HKD 3.06, indicating a potential upside of 14.1% from the current closing price of HKD 2.68 [1][4][3]. Core Insights - The company experienced a decline in both revenue and net profit for the first half of the fiscal year 2025, with revenue dropping by 7.9% year-on-year to RMB 13.05 billion, slightly below market expectations. The gross margin decreased by 3.6 percentage points to 41.1%, primarily due to increased discount rates and a higher proportion of lower-margin wholesale channels [1][3]. - The company maintained a high dividend payout ratio, with an interim dividend of RMB 0.14 per share, resulting in a payout ratio of 99.4%, and an average payout ratio exceeding 100% over the past three years [1][5]. - The total number of stores decreased by 396 year-on-year to 5,813, with a 1.9% decline in total sales area compared to the previous year. However, the average sales area per store increased by 4.8% [2]. - The company has enhanced its membership quality, with a total membership count reaching 81 million, reflecting a 10.8% year-on-year growth. The contribution of repeat members to overall sales remains stable at 60-70% [2]. Financial Summary - For the fiscal years ending February 29, the projected revenues are as follows: RMB 26.58 billion for 2025E (down 8.1% year-on-year), RMB 27.57 billion for 2026E (up 3.7%), and RMB 29.11 billion for 2027E (up 5.6%) [5][9]. - The net profit is expected to be RMB 1.47 billion for 2025E (down 33.4% year-on-year), RMB 1.67 billion for 2026E (up 13.6%), and RMB 1.85 billion for 2027E (up 10.6%) [5][9]. - The earnings per share (EPS) forecast for 2025E is RMB 0.24, with a significant downward adjustment of 42.2% from previous estimates [5][9].

Investment Rating - The investment rating for the company is "Buy" and is maintained [3][4]. Core Views - The company reported a revenue decline of 8% year-on-year to 13.1 billion HKD for FY2025H1, with a net profit attributable to shareholders down 35% to 870 million HKD. The interim dividend payout ratio was 99.4% [3][4]. - The company maintains strong cost control despite pressure on terminal discounts, with a net profit margin decrease of 2.7 percentage points year-on-year to 6.7%, primarily due to a gross margin decline of 3.7 percentage points to 41.1%. This was influenced by significant retail pressure and an increase in online sales, which affected gross margins [4]. - Inventory levels remain manageable, with inventory turnover days increasing by 7 days year-on-year to 148 days. The company reported good cash flow from operating activities at 2.61 billion HKD, maintaining a high dividend payout ratio [4]. - Looking ahead, the company anticipates gradual recovery in performance due to adjustments in previous orders and improved support from Nike's new CEO. The sports industry demand has shown signs of recovery since October, and the company continues to implement cautious cost control measures [4]. Financial Summary - For FY2024, the company expects revenue of 28.93 billion HKD, with a projected decline of 8% in FY2025 to 26.736 billion HKD. The net profit is forecasted to drop to 1.377 billion HKD in FY2025, a decrease of 38% [8]. - The earnings per share (EPS) is projected to be 0.36 HKD for FY2024, decreasing to 0.22 HKD in FY2025, with a price-to-earnings (P/E) ratio of 13.70 for FY2024 and 10.84 for FY2025 [8].

Investment Rating - The report maintains a "Buy" rating for the company, with a target price of 3.52 HKD based on a 15x PE valuation for FY25 [2][7]. Core Views - The company reported FY25H1 revenue of 13.055 billion, a year-on-year decline of 7.9%, and a net profit attributable to shareholders of 870 million, down 34.6%, which was below market expectations [1]. - The company plans a cash dividend of 860 million, with a payout ratio of 97.85% [1]. - The main brand and other brands saw revenue declines of 8.1% and 6.5% respectively, while retail and wholesale business revenues fell by 8.9% and 2.2% year-on-year [1]. - The company has increased its store sales area and is focusing on live streaming from stores, with 5,813 stores as of FY25H1, a net decrease of 331 stores since the beginning of the fiscal year [1]. - The gross margin for FY25H1 decreased by 3.7 percentage points to 41.1%, attributed to increased inventory and promotional efforts due to weak sales [1]. - Inventory turnover days increased to 145 days, up 7 days year-on-year, while operating cash flow remained healthy at 2.61 billion [1]. Financial Summary - The company adjusted its earnings forecast for FY25-26, predicting earnings per share of 0.22, 0.26, and 0.30 for FY25-27, down from previous estimates of 0.39 and 0.42 for FY25-26 [2][7]. - The projected revenue for FY25 is 26.747 billion, with a year-on-year decline of 7.6%, and a recovery expected in FY26 with a growth of 5.9% [6][8]. - The gross margin is expected to be 38.0% in FY25, improving to 40.0% by FY27 [6][8].

Investment Rating - The investment rating for the company is "Buy" (maintained) [1]. Core Views - The company's FY2025H1 revenue was 13.055 billion HKD, a decrease of 7.9% year-on-year, primarily due to a weak retail environment and a double-digit decline in offline same-store traffic. The net profit attributable to shareholders was 874 million HKD, down 34.7%, mainly due to a decrease in gross margin and an increase in expense ratio due to negative operating leverage. Despite the challenging consumption environment, the company maintains its profit forecast for FY2024-2026, expecting net profits of 1.33 billion, 1.53 billion, and 1.81 billion HKD respectively, with current stock prices corresponding to PE ratios of 12.0, 10.4, and 8.8 times [1][21]. Summary by Sections 1. Profit Pressure from Discounts and Negative Operating Leverage - FY2025H1 revenue was 13.055 billion HKD, down 7.9% year-on-year, attributed to a weak retail environment and a decline in offline traffic. The main brand revenue was 11.351 billion HKD, down 8.1%, while other brands generated 1.609 billion HKD, down 6.5% [1][10][12]. - The company has seen a shift towards online and wholesale revenue, with online direct sales accounting for over 30% of total direct sales [15] 2. Margin Decline and Cost Control - The gross margin for FY2025H1 was 41.1%, a decrease of 3.6 percentage points, primarily due to increased discounts and a higher proportion of online sales. The SG&A expense ratio was 33.1%, slightly up by 0.2 percentage points [16][18]. - Operating profit margin was 8.6%, down 3.6 percentage points, while the net profit margin was 6.7%, down 2.7 percentage points [17][18]. 3. Operational Efficiency and Cash Flow - As of FY2025H1, the company had inventory of 6.12 billion HKD, up 6.4%, with inventory turnover days at 148.3 days, an increase of 7.4 days year-on-year. The net operating cash flow was 2.614 billion HKD, up 2.5%, supporting a high dividend payout ratio of 99.4% [19][20]. - The company continues to focus on efficiency in its offline stores, reducing the number of stores by 6.4% to 5,813, while maintaining single-store sales area growth of 4.8% [13][14]. 4. Profit Forecast and Investment Recommendations - The company maintains its profit forecast for FY2024-2026, expecting net profits of 1.33 billion, 1.53 billion, and 1.81 billion HKD respectively. The current stock price corresponds to PE ratios of 12.0, 10.4, and 8.8 times [21].

Investment Rating - The investment rating for Topsports has been downgraded to "Hold" with a target price of HK$2.82, based on a 12x P/E for FY2/25E [2][4]. Core Views - The performance in 1H25 aligns with profit warnings, but the underlying conditions are weaker than previously anticipated. The outlook for 2H25E is further deteriorating, and it may take Nike 1-2 years to turn around the situation [1][2]. - Topsports reported a sales decline of 8% year-on-year to RMB 13.1 billion and a net profit drop of 35% to RMB 874 million, consistent with prior profit warnings. The decline is attributed to reduced offline traffic, increased retail discounts, and a higher proportion of low-margin e-commerce sales [1][2]. - Despite a high dividend yield of 8% for FY2/25E, the negative outlook for the second half of the year and Nike's recovery timeline led to the downgrade [2][4]. Revenue Summary - Revenue for FY25E is projected at RMB 26.69 billion, reflecting a year-on-year decrease of 8%. The revenue estimates for FY26E and FY27E are RMB 27.67 billion and RMB 29.84 billion, respectively, indicating a recovery of 4% in FY26E [7][11]. - The gross profit margin is expected to decline to 39.1% in FY25E, with a slight recovery to 39.8% in FY26E and 39.9% in FY27E [7][11]. Profitability Metrics - Net profit for FY25E is estimated at RMB 1.31 billion, down 41% year-on-year, with projections of RMB 1.53 billion and RMB 1.84 billion for FY26E and FY27E, respectively [7][11]. - The diluted earnings per share for FY25E is projected at RMB 0.212, with further declines expected in FY26E and FY27E [7][11]. Market Position and Challenges - The company faces significant challenges due to its reliance on Nike, which is expected to take 1-2 years to recover. The industry is also experiencing inventory risks, with major brands planning increased promotions [1][2]. - The management has provided guidance indicating a full-year sales decline and a net profit drop of 35%-45% for FY25E, reflecting a challenging market environment [1][2].