Guosheng: Focus on TOPSPORTS (06110) brand partners to clear inventory and maintain a rhythm of introducing new products. Maintain a "buy" rating.

Guosheng has released a research report stating that TOPSPORTS (06110) is a leading sports shoe and apparel downstream channel company, with optimized terminal store structure, digital transformation driving retail efficiency improvement, and efficient membership operations continuously consolidating user stickiness. The bank expects the company's net profit attributable to shareholders for FY2026-FY2028 to be 12.29/13.79/15.33 billion yuan respectively, with the current price corresponding to a PE of 14 times for FY2026, maintaining a "buy" rating. The company has released its quarterly business announcement, reporting that in FY2026Q3 (September to November 2025), the company's total channel sales (retail turnover and wholesale shipment amount, including taxes) decreased by a high single-digit percentage compared to the same period last year, and the gross sales area of direct stores decreased by -1.3%/-13.4% month-on-month/year-on-year. Guosheng's main points are as follows: Facing fluctuating foot traffic and channel closures, there may still be pressure on offline sales in FY2026Q3 In FY2026Q3, the company's sales decreased by a high single-digit percentage, with the bank predicting that retail turnover will outperform wholesale shipment performance. However, in the retail business, the bank expects that offline sales may still decline due to: 1) closure of offline channels, with a net closure of 332 stores in FY2026H1 to 4688 stores. As of the end of November 2025, the gross sales area of direct stores decreased by 13.4% year-on-year and by 1.3% month-on-month compared to the end of August. 2) Fluctuating consumption environment and market competition, the bank believes that there may still be foot traffic and discount pressures in offline stores. Regarding the future trend of retail business, the bank believes that after the store adjustments in FY2025 and FY2026H1, the net closure of stores in FY2026H2 is expected to decrease compared to FY2026H1, and the average quality of stores is also expected to improve concurrently after the clearance of inefficient stores. The bank expects continued growth in e-commerce in FY2026Q3 With the company's outstanding e-commerce operations, online sales are expected to maintain growth. The company continues to strengthen its e-commerce system building, leveraging offline stores to expand the online boundaries of physical stores and establishing channels for store live broadcasts, Xiaohongshu, WeChat mini programs, instant retail, etc.; while enhancing the fine operational capabilities of platform e-commerce and content e-commerce. Regarding the outdoor and running tracks, the company is advancing new brand/format layouts The company mainly deepens the brand layout of the running and outdoor segmented tracks, continuously cooperating with running brands such as Norda, soar, Ciele, and outdoor brand Norrna to meet the differentiated demands of consumers. Meanwhile, the company has established the running ecological brand ektos and opened a store in Shanghai. During the period, ektos made its debut at the Shanghai Marathon, attracting attention from runners. In the medium to long term, TOPSPORTS will leverage its advantages in marketing, retail, and other aspects to help new brands expand in the market and share the track opportunities. Outlook for the FY2026 financial year The bank expects a possible decrease in the company's net profit attributable to shareholders, with a medium to long term focus on Nike's inventory clearance and new product sales performance. The bank assesses that the current consumption environment continues to be volatile overall, potentially causing negative pressure on the company's terminal sales. Based on the performance in the first three quarters, the bank predicts a 7% decline in the company's revenue and a decrease of about 4% in net profit attributable to shareholders for FY2026. Among the company's main brands, adidas may have relatively excellent sales performance in the Greater China region (with a 6% increase in revenue in the Greater China region from July to September 2025 on a currency-neutral basis). Nike is still in the process of inventory clearance in the Greater China region (with a 16% decrease in revenue in the Greater China region from September to November 2025 on a currency-neutral basis). To address inventory issues for retailers, Nike is repurchasing old inventory and cautiously shipping 2026 spring/summer products. In the long term, as a globally leading sports brand, Nike's brand strength is outstanding and its product structure continues to improve, with its operating performance in the Greater China region expected to gradually improve. Risk warning: Slowing terminal sales; operational risks arising from changes in brand collaborations; store optimizations falling short of expectations.