Xtep (1368) H1 2024 earnings summary

Executive summary

• Revenue increased 10.4% year-over-year to RMB 7.203 billion, with net profit up 13% to RMB 752 million and gross profit margin at 46.0%, driven by core brand and professional sports segment growth.

• Strategic divestiture of K-SWISS and Palladium announced to focus on core, Saucony, and Merrell brands, aiming to maximize profitability and streamline operations.

• Interim dividend declared at HKD 0.156 per share, maintaining a 50% payout ratio, with a scrip option available and potential special dividend pending approval.

• MSCI ESG rating upgraded to "A" in July 2024, the first in China's sporting goods industry; joined United Nations Global Compact.

• Net operating cash inflow surged 211.6% to RMB 826 million, with net cash and cash equivalents at RMB 1.414 billion.

Financial highlights

• Gross profit margin rose 3.1 percentage points to 46%, with gross profit up 18.5% to RMB 3.314 billion.

• Operating profit increased 10.9% to RMB 1.094 billion; net profit margin at 10.4%.

• Basic EPS up 12.5% to RMB 29.7 cents.

• Net asset value per share rose to RMB 3.57.

• Net cash and cash equivalents increased to RMB 1.414 billion as of 30 June 2024.

Outlook and guidance

• Focus on expanding the running business and leveraging synergies among Xtep, Saucony, and Merrell to drive growth.

• Full-year sales may not reach initial targets but are still expected to grow, with profit growth targeted above 20%.

• Professional sports segment growth target raised to 50% for the full year.

• Expense and inventory management to be tightened in the second half of 2024.

• Plans to accelerate Saucony store openings in higher-tier cities and broaden product offerings for premium and outdoor segments.