2025-08-26 13:23Summary of Li Ning (2331.HK) Conference Call Company Overview - Company: Li Ning Company Limited - Industry: Sportswear Key Points 1. Downbeat 2H Outlook - Management expressed a pessimistic outlook for the second half of 2025, citing worse-than-expected retail performance in July and August, including a year-over-year increase in retail discounts and declining offline traffic compared to the second quarter [1][2][3] 2. Financial Guidance - The company maintained its full-year guidance for 2025, expecting flat sales growth year-over-year with a high single-digit net profit margin (NPM). This implies a wider year-over-year decline in net profit in the second half compared to the first half of 2025 [1][3] 3. Selling Expenses - Management anticipates a substantial rise in selling expenses both year-over-year and half-over-half due to back-end loaded advertising and promotional (A&P) expenses and increased staff costs in the second half [1][3] 4. Gross Profit Margin (GPM) Pressure - The company expects GPM to decline year-over-year in 2025 due to weaker retail sales and higher-than-expected retail discounts, with a worsening trend observed from the second to the third quarter [2][3] 5. Sales Performance by Category - In the first half of 2025, footwear sales (56% of group sales) grew by 5% year-over-year, while equipment/accessories (9% of group sales) rose by 24%. However, apparel sales fell by 3% year-over-year. Notably, basketball retail sales declined by 20% year-over-year [7] 6. Margins by Channels - In the first half of 2025, gross profit margins for direct retail, e-commerce, and wholesale channels were in the low-60s, mid-50s, and mid-40s respectively, reflecting a decline due to increased retail discounts [4][6] 7. Long-term Strategy - Despite the financial pressures in the second half, the company's long-term strategy to invest in branding and focus on professional categories remains unchanged [3] 8. Risks - Key upside risks include improved consumer confidence in China and lower-than-expected industry discounting. Downside risks involve volatile sales growth, competition with foreign brands, and execution risks in the mass market segment [9] 9. Valuation - The target price for Li Ning shares is set at HK$18.10, based on a 17x 2025E P/E, reflecting a 40% discount to Nike's historical trading P/E due to lower earnings visibility [8] 10. Market Position - The sector ranking remains: Anta (Buy) > Topsports (Buy) > Li Ning (Buy), indicating a competitive landscape within the sportswear industry [1] Additional Insights - The company is facing significant challenges in the current retail environment, with management's cautious tone reflecting broader industry trends in China. The focus on professional products and branding may provide a buffer against short-term volatility, but execution will be critical in navigating the competitive landscape.