CICC: Maintains Outperform rating on XTEP INT'L (01368), lowers target price to HK$4.93.

CICC released a research report stating that considering the volatile retail environment, it has lowered XTEP INT'L (01368) 2026 EPS forecast by 3% and maintained the forecast for 2027. The current stock price corresponds to 7/6 times the 2026/27 P/E ratio, and it maintains an outperform industry rating. Considering the industry valuation fluctuations, the bank has lowered the target price by 12% to HKD 4.93, corresponding to a 2026 P/E ratio of 10 times, indicating a 34% upside potential from the current stock price. CICC's main points are as follows: Company Overview The company announced its operating performance for the second quarter of 2026: XTEP's main brand retail revenue declined year-on-year by a single-digit percentage, with retail discounts ranging from 7% to 7.5%, and channel inventory turnover at 4 to 4.5 months by the end of June. SKECHERS brand retail revenue increased year-on-year by a single-digit percentage. Fluctuations in the retail environment affected the performance of XTEP's main brand revenue in 2Q26. 2Q26: XTEP's main brand retail revenue decreased year-on-year by a single-digit percentage, with online channel revenue increasing by about 10% year-on-year. XTEP's youth business retail revenue showed stable growth, outperforming the overall performance. XTEP's main brand retail discounts remained at 7 to 7.5%, maintaining stability. By the end of June, brand channel inventory turnover was at a healthy level of 4 to 4.5 months. In terms of product categories, functional categories outperformed lifestyle categories, with running and outdoor categories maintaining stable growth. The flagship running shoe series achieved double-digit growth, and management plans to break through in the future through activities such as the "Glowing Plan" night run and campus charity run. Optimistic adjustment of the main brand channel structure XTEP's main brand offline channels are gradually being optimized and upgraded. Management stated that in 1H26, 100 stores have been converted to the DTC model, with plans to further convert approximately 400 stores in 2H26. The performance of the 100 stores recovered in 2025 outperformed the distribution stores in 1H26, preliminary verifying the success of the DTC model. Additionally, approximately 30 selected outlet stores were opened in the first half of the year, with impressive monthly store efficiency. Management plans to increase this number to 70-100 stores by the end of 2026. Steady progress in the high-end strategy of the professional sports sector SKECHERS brand retail revenue increased by a single-digit percentage in 2Q26, with offline revenue maintaining a 20% growth. In terms of discounts, there was a noticeable improvement in the overall discount level in 2Q26, with offline store discounts remaining above 9%, and e-commerce discounts improving year-on-year. In terms of products, the Victory, Faye Wing, Jinghua, and Faye Peng series maintained stable growth, with clothing categories achieving double-digit growth. The brand continues to break through from the professional track to high-quality lifestyle categories. On the channel side, the first flagship store in Hong Kong opened in 2Q26, with performance exceeding expectations in the first month. Management plans to open more than 10 flagship stores in core business districts in Shanghai, Beijing, and other cities in the second half of the year. Risk warning: Intensified industry competition, a retail environment worse than expected, and channel transformation falling short of expectations.