Key investment points
This week's observation: Deckers announced FY2024 financial year performance, and expected FY2025 revenue to increase 10% year on year. On May 23, Deckers announced FY24Q4 quarterly performance and FY2024 annual performance (as of March 31, 2024). FY2024， The company achieved a revenue of $4.288 billion, up 18.2% year on year, and 17.9% year on year at a fixed exchange rate. In terms of brands, in FY2024, UGG, HOKA ONE ONE, Teva and Sanuk respectively achieved revenues of $22.39 billion, $1.807 billion, $149 million and $0.25 billion, up 16.1%, 27.9%, - 18.9% and - 33.0% year on year. In terms of channels, FY2024, wholesale and DTC channels achieved revenues of US $2.432 billion and US $1.855 billion respectively, up 12.6% and 26.5% year on year. From a regional perspective, in FY2024, the revenue from domestic sales in the United States and international sales in the region was $2.864 billion and $1.424 billion respectively, up 16.8% and 21.1% year on year.
In FY2024Q4, the company achieved revenue of $960 million, a year-on-year increase of 21.2%, and a year-on-year increase of 21.1% at a fixed exchange rate. In terms of brands, in FY2024Q4, UGG, HOKA ONE ONE, Teva and Sanuk achieved revenues of US $361 million, US $533 million, US $53 million and US $07 million respectively, with year-on-year growth of 14.9%, 34.0%, - 15.6% and - 39.1%. In terms of channels, FY2024Q4, wholesale and DTC channels achieved revenues of $545 million and $415 million respectively, with year-on-year growth of 21.4% and 21.0%. From a regional perspective, in FY2024Q4, the revenue from US domestic sales and international sales was $648 million and $312 million respectively, up 19.4% and 25.2% year on year.
In FY2024, the gross profit margin of the company increased by 5.3pct to 55.6% year on year, SG&A accounted for 34.0% of the revenue, 1.7 pct year on year, and the net profit margin increased by 3.5pct to 17.7% year on year. By the end of FY2024, the company's inventory was 474 million dollars, down 11.1% year on year.
Looking forward to the 2025 fiscal year, it is expected that the revenue will increase by about 10% year-on-year to $4.7 billion, the gross margin will be about 53.5%, SG&A will account for 34% of the revenue, and OPM will account for 19.5%.
Industry trends:
1) On May 16, Under Armour announced its financial performance for the fourth quarter and the whole year of fiscal year 2024 as of March 31, 2024. In the fourth fiscal quarter, the revenue fell by 5% year-on-year to US $1.3 billion, 5% at a fixed exchange rate; The revenue of the whole fiscal year decreased by 3% year-on-year to US $5.7 billion, or 4% at a fixed exchange rate. By market, in fiscal year 2024, the North American market, EMEA, Asia Pacific market and Latin American market decreased by 8.3%, increased by 9.0%, increased by 5.8%, and increased by 7.6% year on year. Looking forward to the 2025 fiscal year, the revenue is expected to decline at a low double-digit percentage. Among them, the North American market revenue is expected to decline by 15% to 17%, because the company is trying to significantly reset its business in this market after years of highly promotional activities (especially in the direct consumer oriented business); The international business is expected to decline by single digit percentage due to initiatives taken due to more conservative macro consumer trends and protection of established brand strength. It is expected that the gross profit margin will rise by 75 to 100 basis points over last year, mainly due to the substantial reduction of promotional and discount activities in the company's direct to consumer business and the reduction of product costs.
2) On May 21, Amer Sports, a Finnish sporting goods group under Anta Group, announced its financial results for the first quarter of this fiscal year as of March 31, 2024. The Group's revenue increased by 13% year-on-year to US $1.2 billion (increased by 14% at fixed exchange rate); The adjusted gross profit margin rose to 54.3% from 53.2% in the same period last year; The adjusted net profit increased by 44% year-on-year to 39 million US dollars. By sector, the revenue of the technical clothing department was 510 million US dollars, up 44% year on year; The revenue of outdoor performance department was 400 million US dollars, up 6% year on year; The revenue of the ball and racket division was $270 million, down 14% year on year. In terms of market, EMEA, the Americas, Greater China and Asia Pacific (excluding Greater China) had revenues of US $359 million, US $410 million, US $310 million and US $104 million, up 1%, 0%, 51% and 34% year on year. By channel, the revenue of direct and wholesale channels was $489 million and $694 million, up 41% and - 1% year on year. Looking forward to 2024, Amer Sports is expected to grow in the middle and low single digits of its revenue, of which the technical clothing department is expected to grow by more than 20%, the outdoor performance department is expected to grow in the middle and high single digits of its revenue, and the ball and racket department is expected to grow in the middle and low single digits of its revenue.
3) Ralph Lauren announced the results of fiscal year 2024 and the fourth quarter as of March 30. The annual revenue increased by 2.9% to US $6631 million, the net profit increased by 23.52% to US $646 million, the gross profit increased by 6.4% to US $4431 million, and the gross profit margin increased by 190 basis points to 66.8%. In the fourth quarter, the revenue increased by 2% to $1.6 billion, and the net profit was $90.7 million, compared with $32.3 million in the same period of the previous year. In the whole year, the company opened 11 new self operated stores, a total of 564, and closed 12 franchise stores, a total of 699. By region, the annual revenue in North America fell by 2.3% to US $2.95 billion, the European market increased by 7% to US $1.968 billion, the Asian market rose by 9.8% to US $1.566 billion, and other markets fell by US $690 million to US $146 million. The company expects revenue growth to be between 2% and 3% in FY2025, while the market is expected to grow by 3.98% to US $6.89 billion.
Market review (2024.05.20-2024.05.24)
This week, the textile clothing sector underperformed the market, and the household goods sector underperformed the market: this week, the SW textile clothing sector fell 3.21%, the SW light industry manufacturing sector fell 5.71%, the Shanghai Shenzhen 300 sector fell 2.08%, the textile clothing sector lagged behind the market by 1.13 pct, and the light industry manufacturing sector lagged behind the market by 3.63 pct. Among the sub sectors, SW textile manufacturing fell 4.32%, SW clothing and home textile fell 2.81%, SW jewelry fell 2.56%, and SW household goods fell 7.23%. As of May 24, PE (excluding negative value of TTM, the same below) manufactured by SW Textile was 21.53 times, 89.33% of the quantile in recent three years; PE of SW clothing and home textile is 17.93 times, 63.33% percentile in recent three years; PE of SW jewelry is 16.90 times, 24.00% of the quantile in recent three years; PE of SW household products is 20.73 times, 20.67% of the quantile in recent three years.
Investment suggestions:
Textile and clothing: textile manufacturing sector. In 2023, textile manufacturing companies experienced the destocking cycle of downstream brand customers, and the orders were under pressure, but showed a quarterly improvement trend. The operating revenue generally recovered to positive growth in the fourth quarter of 2023. In 2024Q1, the sector's revenue growth rate has increased month on month, and the absolute value of revenue has exceeded the level of the same period in 2022. The recovery of capacity utilization has led to the year-on-year improvement of gross profit margin. Since the second quarter, the orders of textile manufacturing enterprises have continued to recover, and the recovery trend is expected to be better on a month on month basis. The leading textile manufacturing companies that are optimistic about their stable position in the supply chain of core customers, their share continues to increase, and their new customer expansion has achieved positive results, continue to recommend Shenzhou International, Huali Group, Weixing Co., Ltd., and suggest focusing on the flexible target of Zhejiang Natural Jiansheng Group, whose cotton socks orders are steady and the profit margin of seamless business is gradually recovering. Brand clothing sector: 1) China's brand clothing industry is mature, capital expenditure is limited, free cash flow is abundant, and dividend yield of companies in the industry is high. It is recommended to focus on the allocation value of companies with high dividend yield with sound fundamentals, including Hailan Home, Sima Clothing, Mercury Home Textile, Blum Oriental, Baoxinniao, Fuanna, and Luolai Life. 2) We continue to recommend the brand company Mingchuang premium products that are cost-effective and in line with the consumption trend of interest. The company's 2024Q1 performance slightly exceeded expectations, and the gross profit rate of a single quarter hit a new high. Among them, the same store sales of Mingchuang's Chinese business continued to repair, Mingchuang's overseas business quickly opened, the profit margin of the direct market continued to improve, and the opening goal of TOPTOY business was raised and profitability improved. The current valuation (CY2024E) is about 20 times, which is attractive. 3) In 2024Q1, the discount in the sportswear industry was stable and good, the inventory of each brand returned to a healthy level, and the retail flow performance met the company's expectations. In April, under the condition of high base in the same period of last year, the sports and entertainment category companies continued to grow rapidly, and the industry demand was resilient. They continued to recommend the Hong Kong stock sportswear companies 361 degrees, Bosideng, Anta Sports, and Li Ning.
Gold and jewelry: 2024Q1, under the condition of high base in the same period of last year, the revenue and net profit attributable to the parent company both achieved double-digit steady growth. In the middle of April and the first week of May, the gold price staged a correction after the rapid rise in the early stage, which has a short-term inhibitory effect on the demand for gold jewelry. After the first week of May, the gold price again stabilized and recovered, which is conducive to the re release of the terminal demand that was suppressed in the early stage. We are optimistic that gold jewelry companies with positive intention to open stores and continue to strengthen gold product technology will continue to increase their market share, and we suggest actively focusing on Zhou Dasheng, Lao Fengxiang, Chaohongji and Caibai.
Household goods: From January to April 2024, the newly started residential area in China was 170060000 square meters, a year-on-year decrease of 25.6%, the residential sales area was 245070000 square meters, a year-on-year decrease of 23.8%, and the completed residential area was 137460000 square meters, a year-on-year decrease of 21.0%. On May 17, the People's Bank of China issued a notice to reduce the interest rate of individual housing provident fund loans by 0.25 percentage points, adjust the interest rate of commercial individual housing loans, and adjust the minimum down payment ratio of individual housing loans, that is, for households who purchase commercial housing with loans, the minimum down payment ratio of commercial individual housing loans for the first housing is adjusted to not less than 15%, The minimum down payment ratio of commercial personal housing loans for two sets of housing is adjusted to no less than 25%, and the heavy positive policies in the real estate market are expected to boost the valuation level of the household goods sector. In 2024Q1, although the revenue level of the household goods sector has not fully recovered from the same period in 2022, the net profit attributable to the parent company has exceeded the same period in 2022, and the industry profitability has maintained an improvement trend. It is suggested to pay attention to Sophia, Xilinmen, Oupai Home, Zhibang Home and Good Wife.
Risk warning:
Domestic consumer confidence recovered less than expected; Real estate sales did not meet expectations; Less than expected brand inventory reduction; Price fluctuation of raw materials; The exchange rate fluctuated significantly.
