Summary of Xtep International Conference Call Company Overview - **Company**: Xtep International - **Industry**: Sportswear and Footwear Key Points Sales Performance - Xtep International's recent sales performance has outpaced competitors, driven by new product launches such as the 160×7 and X7 Pro, with the champion series carbon plate running shoes expected to sell 8 million pairs, achieving a 50% market share in marathons, significantly surpassing Nike [2][6][4] Product Strategy - The company covers a wide range of consumer segments through different price tiers, with high-end products priced between 160, 260, and 360 series, and mass-market offerings like the Qingyun series priced from 299 to 799 yuan, catering to various consumer needs [2][7] - The children's apparel segment is growing faster than adult products, focusing on functional products for ages 8 to 12, developed in collaboration with universities to enhance product competitiveness and parental trust [2][8] Financial Metrics - Despite a decline in gross margin in the first half of 2025 due to an increased proportion of lower-margin apparel products, the company anticipates a gradual recovery in gross margin as scale effects and brand strength improve [2][9] Inventory and Sales Growth - Inventory turnover remains stable at approximately 4 to 4.5 months, with discounts maintained between 70% to 75% [3] - Same-store sales growth exceeded 25% in the first half of 2025, with e-commerce single-store sales surpassing 400,000 yuan [5][11] E-commerce and Marketing - E-commerce sales are projected to continue double-digit growth, with a focus on major platforms and live-streaming channels to enhance brand exposure [21] - The company plans to increase marketing investments in the Saucony brand while ensuring stable growth for the main brand [12][14] International Expansion - Xtep's overseas market share has rapidly increased to about 1%, with strategic focus on Southeast Asia, the Middle East, and the broader Russian region, utilizing a distributor model for market penetration [19][20] Future Outlook - For 2025, the main brand is expected to maintain stable growth, while Saucony is projected to achieve a 30% to 40% increase in sales, with plans to expand product categories and reach a scale of at least 2 billion yuan by 2027 [22][23] Differentiation Strategy - Xtep differentiates itself from competitors by focusing on professional running shoes and sponsoring major running events, positioning itself as a leader in marathon participation rates [15] Direct-to-Consumer (DTC) Strategy - The company plans to transition 100 to 200 stores to a DTC model in 2025, with an aim to enhance operational efficiency and control over sales channels [16][17] Children's Footwear Strategy - Xtep is implementing a comprehensive service system for children's footwear, including testing and recommending suitable products, which has led to increased gross margins in this segment [9] Additional Insights - The company is leveraging collaborations with educational institutions to develop products that meet children's developmental needs, enhancing brand trust among parents [8]

Core Viewpoint - Anta Sports has demonstrated strong performance in the first half of 2025, achieving revenue of 38.54 billion RMB, a year-on-year increase of 14.3%, maintaining its leading position in China's sports goods industry despite overall market pressures [1][12]. Revenue Performance - Anta's main brand revenue increased by 5.4% to 16.95 billion RMB, solidifying its leadership in the mass market [3] - FILA brand revenue reached a record high, growing by 8.6% to 14.18 billion RMB, exceeding market expectations [3] - The multi-brand matrix, including Descente and Kolon, surged by 61.1% to 7.41 billion RMB, showcasing the growth potential of Anta's multi-brand strategy [3] Store Expansion and Efficiency - Anta's offline store count increased slightly from 12,427 in mid-2020 to 12,453 in mid-2025, yet revenue grew from 14.669 billion RMB to 38.544 billion RMB, marking a 162.76% increase [5] Strategic Focus - The company emphasizes a "single focus, multi-brand, globalization" strategy, aiming to meet diverse consumer needs and accelerate global expansion in key markets such as Southeast Asia, the Middle East, North Africa, North America, and Europe [1][6] Brand Management and Acquisitions - Anta has developed a mature multi-brand management methodology, focusing on acquiring brands with strong value and potential, such as the recent acquisition of Jack Wolfskin, enhancing its outdoor product offerings [6][11] - The multi-brand strategy has proven to be a significant growth engine, with all brands contributing to revenue growth [6] Direct-to-Consumer Strategy - Anta's unique "brand + retail" business model, supported by a Direct-to-Consumer (DTC) strategy, has significantly improved operational efficiency and consumer engagement [8][9] - The company has invested heavily in digital transformation and AI, optimizing consumer experience and retail precision [9][11] Research and Development Investment - Anta has committed nearly 1 billion RMB to R&D in the first half of 2025, with a total investment exceeding 20 billion RMB over the past decade [11] - The establishment of seven global R&D centers aims to drive technological innovation in sports products [11] Global Market Position - In the first half of 2025, Anta's revenue surpassed that of major international competitors, with a significant lead over Nike and Adidas in the Greater China region [12][13] - Anta's global strategy includes localized marketing and flexible supply chain management, enhancing its competitive edge in international markets [16] Industry Trends - The Chinese sports goods market is shifting from "scale competition" to "quality competition," with Anta leveraging its multi-brand matrix to capture diverse market segments [15] - Anta's approach reflects a broader trend of Chinese consumer brands gaining prominence in the global value chain through innovation and strategic positioning [16]

Core Viewpoint - In H1 2025, the main brand Xtep achieved revenue of 6.053 billion yuan, a growth of 4.5%, with e-commerce maintaining double-digit growth. The inventory turnover days at the end of Q2 2025 were around 4-4.5 months, slightly increasing from Q1 2025. The professional sports segment, including Saucony and Merrell, generated revenue of 785 million yuan, a growth of 32.5%, with Saucony experiencing over 30% growth in sales. The operating profit for the professional sports segment was 79 million yuan, a significant increase of 236.8% [1][2][3]. Brand Performance - Xtep's main brand saw growth driven by children's products and e-commerce, with e-commerce accounting for over 30% of total revenue. The company plans to gradually implement a Direct-to-Consumer (DTC) strategy in H2 2025. The number of adult Xtep stores was 6,360, a decrease of 22 stores from the beginning of the year, while children's stores numbered 1,564, down by 20 stores. The brand's gross margin was 43.6%, a slight decrease of 0.3 percentage points, primarily due to a higher proportion of lower-margin children's products [2][4]. - The professional sports segment, including Saucony and Merrell, maintained rapid growth, with Saucony's sales increasing by over 30%. The gross margin for this segment was 55.2%, down by 1.6 percentage points, attributed to a higher proportion of commuting products. The number of Saucony stores reached 155, an increase of 10 stores from the beginning of the year [3][4]. Financial Performance - The company's total revenue for H1 2025 was 6.838 billion yuan, a growth of 7.1%, with a net profit of 914 million yuan, an increase of 21.5%. The proposed interim dividend is 0.18 HKD per share, with a payout ratio of 50% [1][4]. - Excluding the impact of the divested KP business, the net profit growth was 6.4%. The overall gross margin was 45.0%, with the operating profit margin at 19.1%, an increase of 0.4 percentage points [4]. Future Outlook - For H2 2025, Xtep plans to reclaim distribution rights for approximately 400-500 stores, with an expected short-term revenue impact. Saucony will accelerate its offline expansion, focusing on high-quality commercial areas in first and second-tier cities, planning to open 30-50 new stores [1][4]. - The company maintains a profit growth guidance of over 10% for 2025, with projected revenues of 14.32 billion, 15.26 billion, and 16.37 billion yuan for 2025-2027, reflecting growth rates of 5.5%, 6.6%, and 7.2% respectively [5].

Core Insights - The company reported a 7% revenue growth in the first half of the year, with a net profit increase of 22% driven by improved profitability in ongoing operations and reduced losses from the divestment of KP [1] - For the first half of 2025, revenue grew by 7.1% year-on-year to 6.84 billion yuan, while net profit attributable to shareholders increased by 21.5% to 910 million yuan [1] - The main brand showed steady revenue growth, while the professional sports brands experienced rapid growth [2] Brand Performance - The main brand, Xtep, saw a 4.5% year-on-year revenue increase to 6.05 billion yuan, with e-commerce channel revenue growing in double digits and accounting for over 30% of total revenue [2] - The children's business outperformed the adult segment, although the overall gross margin slightly decreased by 0.3% due to lower margins in children's products and online discounting [2] - The professional sports segment, including Saucony and Myle, achieved a 32.5% revenue growth to 790 million yuan, primarily driven by Saucony [2] Profitability and Margins - The gross margin for the professional sports segment decreased by 1.6 percentage points to 55.2%, attributed to a higher proportion of lower-margin lifestyle and OG categories [2] - Operating profit for the professional sports segment nearly tripled to 79 million yuan, with an operating profit margin increase of 6.1 percentage points to 10% [2] Strategic Initiatives - The company is deepening channel management and advancing a Direct-to-Consumer (DTC) strategy, planning to open 100-200 DTC stores by 2025 and a total of 300-400 by 2026, with a capital expenditure of approximately 400 million yuan [2] - Short-term impacts on revenue and profit margins are expected from the DTC transformation, but it is seen as beneficial for long-term growth and performance enhancement [2] Dividend Policy - The company plans to distribute an interim dividend of 0.18 Hong Kong cents per share, maintaining a payout ratio of 50%, and has consistently maintained a payout ratio of over 50% for 17 consecutive years [1]

Core Viewpoint - The company reported a revenue of 6.838 billion, net profit of 914 million, and operating cash flow of 774 million for H1 2025, showing a year-on-year growth of 7.1%, 21.5%, and a decline of 6.4% respectively, with net profit growth primarily driven by the sale of KP brand leading to a loss of 106 million in H1 2024 [1] Financial Performance - The company's gross margin for H1 2025 was 45.0%, a slight decrease of 0.1 percentage points year-on-year, with the mass sports and professional sports segments showing gross margins of 43.6% and 55.2% respectively [2] - Operating profit margin (OPM) increased to 19.1%, up 0.4 percentage points year-on-year, with operating profits for mass sports and professional sports segments at 1.208 billion and 79 million respectively, reflecting increases of 1.5% and 236.8% [2] - The company’s net profit margin improved to 13.4%, up 1.6 percentage points year-on-year, attributed to a decrease in administrative expense ratio by 0.8 percentage points [2] Business Segments - The mass sports segment (Xtep) and professional sports segment (Saucony, Myle) generated revenues of 6.052 billion and 785 million respectively in 2024, with year-on-year growth of 4.5% and 32.5% [1] - The number of stores for H1 2025 included 1,564 for Xtep Kids, 6,360 for Xtep, and 155 for Saucony, with net decreases of 218 and 142 for Xtep and Xtep Kids, while Saucony saw a net increase of 27 stores [1] - E-commerce business showed strong growth, achieving double-digit growth in H1 2025, accounting for over 30% of Xtep's main brand revenue [1] Strategic Initiatives - The company is focusing on a direct-to-consumer (DTC) strategy to enhance consumer interaction and brand loyalty, despite short-term negative impacts on sales [2] - Saucony plans to expand its product matrix and open new flagship and concept stores in key urban areas, aiming to improve gross margins post-acquisition of Saucony and Myle [2] - The company aims to streamline operations by selling the KP brand, reducing financial drag, and concentrating on its three main brands [2]

Investment Rating - The investment rating for the company is "Outperform the Market" [5][32][34] Core Views - The company reported a 7.1% year-on-year revenue growth to 6.84 billion RMB and a 21.5% increase in net profit to 910 million RMB for the first half of 2025, driven by improved profitability in ongoing operations and reduced losses from the divestment of KP [1][9] - The main brand showed steady growth with a 4.5% increase in revenue to 6.05 billion RMB, while the professional sports brands (Saucony and Merrell) experienced a significant 32.5% revenue growth to 790 million RMB [2][22] - The company is focusing on Direct-to-Consumer (DTC) strategies, planning to open 100-200 DTC stores in 2025 and a total of 300-400 by 2026, with a capital expenditure of approximately 400 million RMB [3][31] Summary by Sections Financial Performance - Revenue for the first half of 2025 reached 6.84 billion RMB, with a net profit of 910 million RMB, reflecting a 22% increase in net profit [1][9] - The gross margin remained stable, with a slight decrease of 0.1 percentage points year-on-year [1][14] - The company plans to distribute an interim dividend of 0.18 HKD per share, maintaining a payout ratio of 50% [1][16] Brand Performance - The main brand's revenue grew by 4.5% to 6.05 billion RMB, with e-commerce channel revenue increasing by double digits [2][21] - The professional sports segment saw a revenue increase of 32.5% to 790 million RMB, with a significant improvement in operating profit margin [2][22] Market Strategy - The company is enhancing channel management and implementing a DTC strategy to adapt to market changes, which may have a short-term impact on revenue and profit margins but is expected to benefit long-term growth [3][31] - The focus on the running category is anticipated to drive steady growth for the main brand, while professional sports brands are expected to maintain rapid growth and improve profitability [32][34] Financial Projections - The company forecasts net profits of 1.4 billion RMB, 1.49 billion RMB, and 1.6 billion RMB for 2025, 2026, and 2027, respectively, with year-on-year growth rates of 13.2%, 5.9%, and 7.7% [32][33] - The reasonable valuation range is set at 6.1 to 6.6 HKD, corresponding to a PE ratio of 11-12x for 2025 [32][34]

Investment Rating - The report maintains an "Outperform" rating for Xtep International [2][5] Core Views - Xtep International's revenue performance in 2Q25 met expectations, with all brands maintaining their annual performance guidance [3][10] - The main brand achieved low-single-digit growth in retail revenue year-over-year, with online sales outpacing offline sales [3][10] - The company is focusing on direct-to-consumer (DTC) strategies, aiming to recover around 500 stores by 2026 [3][10] Financial Performance Summary - Revenue projections for Xtep International are RMB 14.41 billion, RMB 15.43 billion, and RMB 16.52 billion for 2025, 2026, and 2027, respectively, reflecting year-over-year growth of 6.2%, 7.1%, and 7.0% [5][12] - Net profit attributable to the parent company is expected to be RMB 1.38 billion, RMB 1.51 billion, and RMB 1.66 billion for the same years, with growth rates of 11.3%, 9.7%, and 9.7% [5][12] - The projected P/E ratios for 2025, 2026, and 2027 are 10.0X, 9.1X, and 8.3X, respectively [5][12] Brand Performance Insights - Saucony and Merrell brands are experiencing strong growth, with Saucony achieving over 30% year-over-year revenue growth in 1H25 [4][11] - Saucony aims for a 30%-40% annual revenue growth and plans to double its revenue in the next three years [4][11] - Merrell's revenue in 2Q25 grew over 50% year-over-year, driven primarily by e-commerce [4][11]

Core Viewpoint - The company shows steady growth in its main brand and significant growth in the Saucony brand, with a positive long-term outlook driven by strategic initiatives and product expansion [1][2] Group 1: Main Brand Performance - In Q2 2025, the main brand's total revenue showed low single-digit year-on-year growth, maintaining a stable performance overall [1] - The e-commerce segment is expected to lead in growth, while the children's segment is anticipated to outperform the adult segment [1] - The running category continues to be a strong growth driver, with expectations of double-digit year-on-year growth in the first half of the year [1] Group 2: Saucony Brand Performance - Saucony's revenue grew over 20% year-on-year in Q2 2025, although the growth rate slowed compared to Q1 2025 [2] - The company is optimizing its channels and upgrading products, focusing on elite runners and professional product areas, which is expected to drive 30%-40% revenue growth for the year [2] - The expansion of new stores in lower-tier cities is expected to enhance store efficiency and contribute to revenue growth [2] Group 3: Financial Forecast and Valuation - The company maintains its net profit forecasts for 2025-2027 at 1.37 billion, 1.53 billion, and 1.71 billion yuan respectively [2] - The target price is set at 6.58 HKD, with a revised PE ratio of 12.2x for 2025, reflecting ongoing uncertainties in consumer recovery [2]

Group 1 - The company announced Q2 2025 operational data, indicating a low single-digit year-on-year growth in main brand retail revenue, with discounts ranging from 70% to 75% [1] - In H1 2025, the main brand retail revenue achieved mid-single-digit year-on-year growth, while Saucony's retail sales exceeded 30% growth [1] - The Q2 2025 retail revenue growth for Saucony was over 20%, but the growth rate slowed by approximately 40% compared to Q1 2025, attributed to adjustments in the e-commerce strategy [1] Group 2 - The company is focusing on a direct-to-consumer (DTC) strategy, which may have short-term negative impacts on sales but is expected to enhance consumer interaction and brand loyalty in the long run [2] - Saucony plans to expand its product matrix and open around 30 new stores in high-end markets after acquiring full rights to Saucony and Merrell, which is expected to improve gross margins [2] - The sale of the KP brand is aimed at reducing financial drag and focusing on three main brands, with revenue forecasts for 2025, 2026, and 2027 set at 14.286 billion, 15.558 billion, and 17.251 billion yuan respectively [2]

Investment Rating - The investment rating for the company is "Buy" [1] Core Insights - The company's main brand retail revenue showed low single-digit growth year-on-year in Q2 2025, while the Saucony brand achieved over 20% year-on-year growth [2][3] - The retail discount for Q2 2025 remained healthy at 70-75%, consistent with Q1 2025 [3] - The company is focusing on a direct-to-consumer (DTC) strategy, which may have short-term negative impacts on sales but is expected to enhance brand loyalty and retention in the long term [4] Summary by Sections Event Overview - In Q2 2025, the main brand's retail revenue experienced low single-digit growth year-on-year, with discounts ranging from 70% to 75%. The Saucony brand saw retail sales growth exceeding 20% year-on-year [2] Analysis and Judgments - The main brand's retail revenue growth slowed from mid-single digits in Q1 2025 to low single digits in Q2 2025. The retail discount remained stable compared to previous quarters, indicating a healthy pricing strategy [3] - Saucony and another brand, Myle, benefited from their superior performance in professional running and outdoor segments, with Saucony's retail growth slowing to about 20% in Q2 2025, down from approximately 40% in Q1 2025 due to adjustments in e-commerce strategy [3] Investment Recommendations - The company is expected to continue expanding its product matrix and open around 30 new Saucony stores throughout the year. The sale of the KP brand is anticipated to reduce financial drag and allow a focus on three main brands [4] - Revenue forecasts for 2025, 2026, and 2027 are projected at 142.86 billion, 155.58 billion, and 172.51 billion respectively, with corresponding net profits of 13.74 billion, 15.11 billion, and 16.64 billion. The estimated EPS for these years is 0.50, 0.54, and 0.60 respectively, with PE ratios of 10, 9, and 8 [4][6]