According to a research report released by Pioneer Securities, maintaining the “buy” rating of Special Step International (01368), considering that 23Q4 is still dominated by inventory removal and the profit forecast was lowered, the estimated net profit for 2023/24/25 was 10.4/12.1/1.41 billion yuan (the original forecast was 11.3/13.7/1.64 billion yuan). The company released 2023Q4 business data. The 23Q4 omni-channel retail sales of the main brand of XTEP increased 30% + year-on-year, and retail sales increased 20% + in 2023. The 23Q4 retail discount is about 30% off, and the channel inventory turnover by the end of 2023 was 4-4.5 months. Special Step has significant advantages in the field of running. A healthy inventory helps to go lightweight, and the multi-brand matrix drives long-term growth.
The report's main points are as follows:
23Q4 retail performance was impressive, and the inventory ratio returned to a healthy level.
Retail sales: In 23Q4, the omni-channel retail sales volume of the main brand of XTEP also increased by 30% +. Among them, the offline growth rate was faster than online, and the children's clothing business also increased 30% +. The main reason why the 23Q4 flow rate increased month-on-month was that the 22Q4 base was low. Discount: The 23Q4 retail discount is about 30% off, which is deeper than in Q3. It is expected that the company will increase its inventory sales efforts during major promotion seasons such as Double Eleven. Inventory: As of 23Q4, channel inventory turnover returned to a healthy level of 4.5-5 months, an improvement over Q2. The bank expects that the company's 2022 autumn/winter inventory has basically been cleaned up. The current inventory is mainly new products. The total inventory is expected to drop significantly from 23H1's 2.4 billion yuan, helping to achieve healthy revenue and profit growth in 2024. Product: Under the current consumer trend of focusing on “cost performance”, the company expects to further enrich the product matrix and broaden the price range. For example, the 260X carbon running shoes were launched in December, priced at 799 yuan, providing more choices in the field of high-performance running shoes.
Sauconi's turnover increased high throughout the year, and Gestway's overseas performance was weak.
Professional sports: Sauconi and Mille brands saw a high increase in retail sales throughout the year. The number of specialty sports brand stores is expected to reach 110 in 2023, and the opening speed in 2024 is expected to exceed 2023. Subsequent products are expected to expand to non-functional commuting series. Fashion movement: Gashway's domestic retail performance is strong, but overseas business performance is expected to be weak.
It is worth looking forward to the acquisition of joint venture interests and the accelerated growth of the new brand.
On December 17, the company announced the acquisition of Wolverine Group's interest in the 2019 joint venture. The joint venture will become a wholly-owned subsidiary of Techstep International; at the same time, the company will acquire 40% ownership of Saucone Asia IPholdCo. The total transaction consideration was $61 million. The bank believes that the acquisition will (1) strengthen the company's control over the strategic direction and operational efficiency of the Sauconi brand; (2) make better use of the synergy between the Sauconi brand in product innovation, marketing and channels; (3) reduce subsequent investment in intellectual property costs, reduce procurement costs, and increase profitability; and (4) the company's self-developed “China line products” are expected to open up the global market and further explore the growth potential of professional sports brands.
Risk warning: Consumption recovery falls short of expectations, overseas consumption continues to weaken, and market competition intensifies.