Recently, Li Ning Co., Ltd. (hereinafter referred to as “Li Ning”, 02331.HK), a leading domestic sportswear brand listed in Hong Kong, released its 2023 financial report. Last year, it achieved revenue of 27.598 billion yuan, an increase of 7% over the previous year; it achieved net profit of 3.187 billion yuan and a net interest rate of 11.5%. Net operating cash for the year was 4.688 billion yuan, an increase of 19.8% over the previous year.
Through this financial report, in addition to showing a steady increase in revenue and strong cash flow over the past year, it can also be clearly seen that Li Ning's inventory removal has achieved obvious results. Furthermore, in the context of the poor overall macroeconomic environment in the second half of 2023, Li Ning quickly adjusted and strengthened the company's product and channel operation efficiency, showing excellent commercial operation capabilities, and can be expected to launch lightweight in the future.
The results of inventory removal were obvious, and the trend of inventory growth was clearly controlled
As we all know, in the sportswear industry, inventory management is one of the important indicators for examining a company's ability to operate, because inventory management not only affects a company's operating efficiency, but also directly affects a company's financial situation such as revenue and net profit, and market competitiveness.
As a leading domestic sportswear brand and a public company listed in Hong Kong, Li Ning's inventory management ability has received more attention from companies in the same industry and domestic and foreign investment institutions.
However, from the comparison of the inventory data in Li Ning's 2023 financial report and the recent three-year financial report, it can be clearly seen that the results of Li Ning's inventory removal are obvious, and the trend of the company's inventory increase in recent years has been clearly controlled.
(Data source: compiled by Gelonghui)
According to Li Ning's 2021 financial report, the company's inventory for the year was 1,773 billion yuan, up 31.72% year on year; the 2022 financial report shows that the company's inventory for the year was 2,428 billion yuan, up 36.94% year on year from 2021, and the inventory growth rate continued to increase; the 2023 financial report showed that the company's inventory for that year was 2,493 billion yuan, an increase of only 2.68% year on year.
It can be seen from this that judging from the year-on-year inventory growth rate in the past three years, compared with the sharp increase in inventory in 2021 and 2022, Li Ning's inventory almost stopped growing year on year in 2023. The growth rate declined rapidly, and the trend of inventory growth was clearly controlled.
Judging from Li Ning's 2023 channel inventory and various inventory indicators, according to the data compiled by Guoxin Securities's latest research report, Li Ning's channel inventory is quite healthy. In 2023, the company's six-month new product sell-out rate was 70-80% high. The company's year-end omnichannel inventory sales ratio was 3.6 months, down 0.6 months from the previous year, the lowest level in the past five years.
Furthermore, judging from the age structure of Li Ning's revenue accounts and indicators such as the company's accounts receivable turnover days and inventory turnover days, they are all within a reasonable historical health range.
Li Ning Group Co-CEO Qian Wei also recently said in an interview with the media that the company's inventory management level is at the best level in the past 5 years. By the end of 2023, inventory within 0-6 months accounted for 80%, and inventory in July-December accounted for 14%. Inventory over 12 months accounted for only 6%, and most of them were evergreen models.
Qian Wei said, “In the past 5 years, we have established a weekly inventory management system. We have sustainable and systematic inventory management.”
Excellent commercial operation ability, can be expected to go to battle lightly
Behind the obvious results achieved in inventory management, it reflects Li Ning's strong ability to adjust commercial operations and control channels, further improving the company's operational efficiency.
(Data source: compiled by Gelonghui)
Li Ning said in the 2023 financial report that across the country, the group has carefully planned the opening of stores, made the store layout more reasonable, and established communication and negotiation mechanisms with major commercial groups to optimize channel costs.
On the one hand, through continuous upgrading of the store's visual image, a new ninth-generation store image was successfully launched to provide consumers with a better product experience, shopping experience and sports experience. According to the data, the number of Li Ning's new Jiudai stores exceeds 230, and the average monthly store efficiency of the Jiudai store exceeds 500,000 yuan, demonstrating Li Ning's excellent commercial operation ability and ability to control channels.
Through continuous exploration and optimization of the single-store operation model, Li Ning has upgraded the group's single-store business model to 2.0, forming a comprehensive optimization system from planning to execution, and from process to results. The systematic implementation of store sales planning services and the steady advancement of management mechanisms centered on store managers have laid a solid foundation for improving the efficiency and product management capabilities of individual stores.
As can be seen from relevant data, Li Ning's offline store efficiency has actually improved. By actively dealing with inefficient stores last year, improving the overall store structure, and continuously expanding its business layout in high-quality shopping centers, he has achieved major breakthroughs in the Super Ole channel.
Last year's financial report showed that in terms of direct management channels, the company's revenue in 2023 was 6.907 billion yuan, up 29.59% year on year, accounting for 25%. Among them, same-store sales growth was low in double digits, with net opening of 68 direct-run stores to 1,498, and stores increased 4.8% year on year. The company continued to expand its store layout in high-quality shopping centers and Ole channels in high-tier cities, and the revenue contribution of high-tier markets (large and first-tier cities) increased steadily.
According to Guoxin Securities statistics, the number of Li Ning stores for the whole year of 2023 reached 7,668, an increase of 65 over the previous year. Among them, Li Ning's major companies and China's Li Ning decreased by 55 to 6240 (direct management increased 68 to 1,498, and franchises decreased by 123 to 4,742), and Li Ning YOUNG increased by 120 to 1,428 year-on-year.
In terms of product operations, the breadth and depth of Li Ning's products increased, and the total sales volume of over 12 million pairs of professional footwear IPs was over 12 million. In 2023, the width of the product will increase by a medium number of units, and the depth will increase by a low number of units. The 3-month discount rate for new products is about 80%, and the 6-month sell-out rate for new products is as high as 70%-80%. The focus on product SKUs and the increasing influence of professional products have led to sales of over 12 million pairs of professional shoes in one million IPs.
In the children's clothing business, annual turnover increased by 30% to 40% in the middle of the year. Li Ning YOUNG continued to optimize the product structure. In 2023, the average volume growth rate was 30% to 40%, the same store increased the number of units in the average unit price increase, the number of units in the average unit price increase, the connection rate increased by 20%-30%, and the average monthly store efficiency increased by 20-30%.
In the financial report, Li Ning said that the company will continue to optimize the efficient channel layout to provide better product experience, shopping experience and sports experience. In the future, we will accelerate the rectification of inefficient stores, focus on improving store efficiency as the main goal, and continue to improve the efficient retail model on the basis of refined operation, and achieve the replicability and promotability of this model to provide professional guarantees for the new business layout.
With favorable factors such as healthy inventory and the end of the investment period in large stores and the improvement of commercial operation efficiency, looking ahead to 2024, this also means that the company can be expected to move forward lightly.
summed
Judging from the sports industry circuit where Li Ning is located, the room for future growth is still quite imaginative. According to the “14th Five-Year Plan” sports development plan, the total size of China's sports industry is expected to reach 5 trillion yuan during the period, and it will gradually become one of the pillar industries of the national economy. In the medium to long term, the added value of the sports industry will account for about 5% of the gross domestic product, while the current share is only around 1%, and the sports industry is expected to grow faster than expected.
Today, after going through past inventory, Li Ning's various inventory operation indicators have returned to health and even reached new highs in the future. In the medium to long term, Li Ning's multiple running shoe IPs with sales of one million double levels form a professional product matrix, proving that the brand's expertise is highly recognized by the market. Continued to be optimistic about the professional category to drive growth. Combined with the current 15 times PE of Li Ning's Hong Kong stock, Li Ning may still have some growth opportunities where α and β (that is, its own advantages and industry sentiment) resonate in the future.