Huaxi: Maintains "buy" rating on XTEP INT'L (01368), with high single-digit growth in the main brand in Q4.

Huaxi has released a research report stating that it maintains a "buy" rating for XTEP INT'L (01368). The analysis points out: 1) In the short term, although the lack of consumer confidence in Q3 has affected revenue, there is a rebound in revenue in Q4 achieving high single-digit growth; 2) According to the company's announcement, in the future Saucony will continue to expand its product matrix, further develop retro and commuter series to meet different consumer needs, continue to open high-end stores in first- and second-tier cities, and after the acquisition of JV, the agency costs are expected to decrease, and Saucony's gross profit margin is expected to improve; 3) After selling the KP brand, the company will reduce the burden on its financial statements and focus on its three major brands. Huaxi's main points are as follows: Company announcement of 2024 Q4 and full-year operating data In Q4, the main brand's retail revenue increased by a high single-digit percentage year-on-year, with discounts ranging between 70% and 75%. In 24Q4, Saucony's retail sales saw an approximately 50% year-on-year increase. In 24 full year, the main brand's retail revenue increased by a high single-digit percentage year-on-year, with channel inventory at four months, and Saucony achieved over 60% year-on-year growth in 24, exceeding the market's expectations. 24Q4 main brand retail revenue increased by a high single-digit percentage year-on-year (1) Looking at different channels, in 24Q4, retail revenue increased by a high single-digit percentage, with the growth rate increasing compared to the previous quarter. The growth in Q4 accelerated mainly due to the relatively weak consumer environment in Q3. (2) In terms of operating data, the inventory and discounts in 24Q4 were at healthy levels. The retail discount in 24Q4 was 70-75% (with 75% in 24Q3/Q2/Q1), and the discount rate slightly decreased compared to the previous quarter mainly due to large promotions such as Double Eleven and Double Twelve, but it improved compared to 23Q4's 70%. The channel inventory turnover for the full year of 24 was at 4 months, slightly improving compared to the 4-4.5 months in 23. (3) Looking at different brands, Saucony and MELLE benefited from their superior performance in professional running and outdoor races, respectively, and are expected to maintain high growth. Saucony's growth rate in 24Q4 was about 50%, exceeding 60% for the full year of 24, exceeding expectations. According to the company's announcement, Saucony's brand positioning targeting elite runners and social elites in Chinese top-tier cities, with its participation rate ranking top three in domestic and international marathons, market share has also increased. Through the endorsement of Peng Yuyan, product innovation, channel upgrades, and other efforts, the brand's promotion is expected to be strengthened in multiple aspects to drive growth.