Industrial: Maintaining a "buy" rating on TOPSPORTS (06110) with FY25Q3 sales trends improving compared to the previous quarter.

Industrial released a research report maintaining a "buy" rating for TOPSPORTS (06110), with forecasted net profit for the mother company for FY25/26/27 being 14.00/15.30/16.71 billion Yuan respectively, with year-on-year changes of -36.7%/+9.3%/+9.2%. The company faces challenges in the end sales environment, with inventory management being the top priority. Progress is as expected, and the full-year guidance remains unchanged. The new CEO of Nike is focusing more on cooperation with distribution partners and planning to refocus on professional sports categories. More changes can be expected in FY2026. Key points from Industrial include: The company released operating performance for FY25Q3 up to November 30, 2024: The total sales amount for retail and wholesale business decreased year-on-year in single digits; the gross sales area of self-operated stores decreased by 2.1% compared to the previous period and by 4.4% year-on-year. E-commerce promotions started earlier, leading to a narrowing of the sales decline in FY25Q3 compared to FY25Q2. Offline customer traffic trends slightly improved compared to the previous period, but still face challenges; this year's promotions started early, and the company leveraged its omni-channel layout advantage and directed more products to online channels to seize business opportunities. The bank estimates that FY25Q3 online pre-tax sales will grow by double digits year-on-year, leading to a narrowing of the overall channel sales decline to single digits. Retail channel and wholesale channel sales trends in FY25Q3 are basically consistent, with retail channel performance slightly better. Managing inventory is a top priority, with the bank estimating a deeper year-on-year discount in self-operated stores in FY25Q3, and inventory management progress meeting expectations. There is a strong promotional atmosphere in the industry, with the bank estimating that the main reason for the deeper discount in FY25Q3 is the increase in online sales as a percentage of total sales. The bank estimates that the proportion of online pre-tax sales in FY25Q3 increased further compared to FY25Q2, impacting the increase in discounts in self-operated stores, similar to the trend in FY25H1. Continuing to optimize stores and enrich store types. The company continues to adjust and optimize inefficient stores, with the bank estimating a high single-digit decrease in the number of stores at the end of FY25Q3, similar to the first half of the fiscal year. The average store area increased compared to the previous period. In August, TOPSPORTS launched a new store type for Adidas called FOS (Future of Style), focusing on avant-garde sports and leisure series; in October, they launched a HALO concept store, positioned as Adidas's highest-end retail store, to continue enriching store types and enhancing omni-channel retail capabilities. Risk warning: Risk of inventory backlog, risk of brand business adjustments not meeting expectations, risk of supply chain tension.