HONG KONG — XTEP International Holdings Limited (Stock code: 1368) announced 2017 annual results. 2017 marked the completion of the Group’s three-year strategic transformation, enabling it to gain full control of its entire retail channel and boost its retail sales efficiency.
Financial highlights as follows:
– Proposed final dividend of HK 4.5 cents per share, and 10th year listing anniversary special dividend of HK 10.0 cents per share to thank shareholders for supporting the Group for the past 10 years.
– Total dividend increased by 39.4% to HK23.0 cents per share (2016:HK16.5 cents). Annual dividend payout ratio increased to 103.8% (2016: 60%)
– Strong net cash position, with RMB2,933.8 million of net cash and cash equivalents, equivalent to 55.1% of net assets
– Average trade receivables turnover days reduced to 130 days from 164 days as at 30 June 2017, trade receivables amount reduced to RMB1,719.0 million from RMB2,224.4 million
– Basic earnings per share amounted to RMB18.81 cents
– Revenue dropped slightly to RMB5,113.4 million mainly due to retail channel restructuring
– Gross profit margin expanded for the 5th year in a row, by 0.7pp to 43.9%, attributable to effective streamlining of business divisions, and increased contribution from e-commerce
– Net profit declined by 22.7% to RMB408.1 million, mainly due to one-time loss on buy-back of inventories amounted to RMB120.8 million (buyback already announced 08 December 2017)
– Profit excluding loss on buy-back was RMB529.0 million, higher than 2016 (RMB 527.9 million)
Operational highlights as follows:
– The Group is at the end of its three-year strategic transformation after gaining full control of the retail channel, and transforming XTEP exclusive distributors from wholesalers to partial retailers
– Retail sales showed positive performance, with SSSG averaging mid-single-digit for the year, exclusive distributor directly-owned stores sales efficiency increased over 10%, and newly renovated sportive stores sales up over 10% per square meter
– E-commerce continued to hold top sales volume position for running footwear and became top domestic casual sports footwear brand sales by volume on Tmall, and now accounts for over 20% of the Group’s revenue
– Recognized as the “Chinese Runners’ Favorite Brand” with XTEP topping domestic brand ranking in the top three marathons in China again, gaining market share as XTEP held 10.5% market share in Beijing Marathon, 9.1% in Guangzhou Marathon and 20.0% in Xiamen International Marathon(Source: Joyrun, market share of footwear worn by runners who completed the full marathon)
– Organized the second annual XTEP 321 Running Festival, which attracted over 20 million participants and tied XTEP brand ever-closer to running
– Combined multiple performance sports technologies into 3 new user-oriented running footwear series and 6 technical apparel platforms
“2017 was the last stage of our 3-year strategic transformation from a fashion sportswear company to a professional sports brand that strives to be the “Chinese Runners’ Favorite Brand”. The benefits of the changes have been visibly reflected in increased retail sales efficiency. With strong control over the entire retail network, a well-recognized professional sports brand identity, and international standard products, we are confident that the successful transformation will yield positive results starting in 2018.” Ding Shui Po, XTEP Chairman and CEO said.
Optimized Retail Channel to Boost Efficiency
The Group has gained full control of the retail channel, changing from managing a distribution channel to managing a retail network that consists of approximately 6,000 stores. The Group decides store location and layout, product ordering instructions, universal sales price, discount ranges based on detailed store tiering, and provides training for all retail store staff. Exclusive distributors have been transformed from wholesalers to partial retailers, their directly-managed stores are now over 60% of the total XTEP store count. These stores have seen over 10% sales efficiency improvement. During the channel flattening process, the Group has voluntarily extended the trade receivable credit period to exclusive distributors to help quicken the pace of transformation, as the transformation is nearing completion, the Group intends to retreat its trade receivable credit period to close to the 120 days level on contract. As at 31 December 2017, its average trade receivables turnover days have been reduced to 130 days as compared to 164 days as at 30 June 2017.
The Group remodeled more than half of XTEP stores to international-style “6s” generation sports store design, in which the new sportive stores saw over 10% increase in retail sales per square meter. Moreover, a new big data team utilized full ERP system coverage over the whole XTEP store network to monitor inventory level and sales performance in real-time. Retail inventory levels are at a very low 4 months level as compared to industry average of 4-6 months.
Mutual Benefit through True Omni-Channel Retail
While all of these positive changes in the Group’s offline retail channels were taking place, the Group’s online retail remained robust. XTEP maintained top sales volume position in running footwear products, as well as became the top casual sports shoes seller among domestic brands on Tmall.com in 2017. XTEP is one of the first and only sports brand companies that operates a truly integrated O2O (online-to-offline) platform in China. With the Group’s proven success in e-commerce, O2O is a win-win situation where XTEP products are aligned, branding and promotional efforts see exponential effect, inventory levels are better controlled and profit increased for both the Group and its exclusive distributors. For the year ended 31 December 2017, e-commerce contributed to over 20% of the Group’s revenue.
Chinese Runners’ Favorite Brand
XTEP continued to carry the title of the sportswear sponsor for the most number of marathons in China for the third consecutive year in 2017, with 29 major marathons and other 11 additional mass-participation running events sponsored, including 10 XTEP Penguin Runs in cooperation with Tencent and the XTEP 321 Running Festival. 40 running events total attracted 670,000 runners, and XTEP Penguin Runs had over 90 million invitees, and XTEP 321 Running Festival had over 20 million participants.
The Group has signed additional entertainment celebrities, Zhao Liying and Lin Gengxin, they are both highly ranked in their ability to generate media and social media hot topics, and their popularity helps to promote XTEP products to those who are only starting to or considering to engage in a more active lifestyle.
Consumer Centered Products to Best Serve Chinese Runners
XTEP products have become increasingly technical in the running category, and products are structured around Chinese runners, combining different technologies, in comparison to sports brands traditionally focusing on singular technologies. Footwear technologies were combined into three core series of running shoes in 2017, which are RUN FAST, RUN STRONG and RUN FIT, to better serve advanced runners, intermediate runners and beginner runners respectively. For performance apparel, the Group consolidated the technologies into six core technology platforms, which are XTEP-DRY, XTEP-COOL, XTEP-WARM, XTEP-SHIELD, XTEP-COMFORT and XTEP-STRONGER, to match different weather conditions and motion states runners encounter. For lifestyle sports products, XTEP has retailored its products from casual to international style fashion, and the categorization will change from aged based series of “campus” and “urban” to three categories of “urban”, “street” and “active” based on style.
To bring the Group’s products to truly international level in both design and technology, the Group has built China’s first dedicated running research laboratory, led by international scientists and employs global leading research technologies, to develop and optimize the functions and technologies of products. The Group has built a team of designers led by international design talent and cooperated with leading international fiber material developers, such as the Dow Chemical Company, 3M, INVISTA, and Toray to co-develop fiber technology for XTEP’s exclusive use. The Group has successfully created gold medal winning cleats for the fastest man in China, Xie Zhenye, as well as first-place winning marathon shoes for runners during multiple international level marathons in China.
2017 marked the last year of XTEP’s strategic transformation, where its professional sports brand image has been widely accepted by consumers, and positive effects such as increased retail sales efficiency has been readily visible. In 2018, the Group will broaden its brand loyalty beyond products, and have new proprietary technology launches in footwear based on research from its laboratory. In the next 1-2 years, the Group plans to open no more than 10 directly-owned XTEP experience centers to showcase its new professional sports image and to connect directly with consumers. These flagship experience centers will show consumers that XTEP is truly a brand with international standards, in terms of both technology and design, and also shopping experience. As the Group has largely completed the three-year strategic transformation of its own XTEP brand, it will begin to seek brand portfolio expansion targeting the high-end market as well as other unique sports retail channels.