19 Mar 2024

Xtep’s FY23 revenue was up by 10.9% YoY to Rmb14,346m, mainly driven by i) steady growth of 7.4% YoY from core brand Xtep to Rmb11,947m due to the robust demand of running products, and continual growth from kids business by 11% YoY with Xtep Kids POS up from 1,520 POS by end-FY22 to 1,703 POS by end-FY23; ii) S&M sales rose by 99% YoY to Rmb796m, accounted for 5.5% of the Xtep’s sales in FY23 (3.1% of FY22 revenue), with strong growth mainly driven by the strong market demand on Saucony products especially in the e-commerce channel; and iii) K&P sales up by 14% YoY to Rmb1,603m with sales in Chinese market increased by 224% YoY to Rmb465m. Overall GPM was up by 1.3ppt YoY to 42.2% mainly driven by the increase in sales of higher-margin functional products and the GPM improvement of K&P segment from 37.6% in FY22 to 44.8% in FY23 amid larger contribution from its DTC channel in China, which enjoyed a higher GPM than its overseas business. Meanwhile GPM of core brand/ S&M changed by +0.7ppt/-2.7ppt YoY to 42.0%/40.0%, which the drop in S&M was mainly attributable to the introduction of franchises. On the cost side, S&D ratio edged up 2.7ppt YoY to 23.5% on the rise in the A&P expenses from Rmb1,537m in FY22 to Rmb1,962m in FY23, alongside with the recovery in the number of marathons thus an increase in sponsorship, while admin ratio was down by 0.5ppt YoY to 10.7% on more efficient cost control. As a result, FY23 NP surged by 11.8% YoY to Rmb1,030m, inline with our estimates. Xtep declared a final-DPS of HK8.0 cents, representing a full year payout ratio of 50%.

CROSBY Research – Xtep International (1368 HK/BUY): Inline FY23 results ; Saucony achieved profitability