Zheshang: Maintains "Buy" rating on 361 DEGREES (01361); 26Q3 premium stores progressing better than expected

Zheshang released a research report maintaining a "Buy" rating on 361 DEGREES (01361), expecting the company's revenue for 26/27/28 to grow +8%/7%/7% to RMB 12.0/12.9/13.8 billion, and net profit attributable to parent to grow +9%/9%/9% to RMB 1.43/1.56/1.70 billion, corresponding to PE of 6.4/5.8/5.3X. As a leading mass sports brand with high quality-to-price ratio, its growth rate leads the industry, and the subsequent expansion of super premium stores and internationalization are worth anticipating. The company is expected to maintain a dividend payout ratio of 45% in 26, corresponding to a dividend yield of 7%, combined with growth potential, valuation level, and dividend appeal. Zheshang's main views are as follows: Q3 retail sales grew mid-to-high single digits, with discounts and inventory both remaining healthy The company released its 26Q3 operating update. In 26Q3, offline large-ticket retail sales grew mid-single digits year-on-year, childrenswear offline retail sales also achieved mid-single-digit growth, and e-commerce retail sales achieved mid-to-high single-digit growth, achieving resilient growth despite variable weather and a weak retail environment. By category, in 26Q3 the running category maintained good growth, the basketball category still grew amid intensifying competition, and in addition the newly launched tennis shoes in Q3 received good response. In 26Q3, offline discounts were around 70% of original price, e-commerce footwear and apparel discounts remained stable, and the inventory-to-sales ratio remained stable at 4.5-5X, with both discounts and inventory in a healthy state. Super premium store rollout progressing smoothly, full-year net opening target completed ahead of schedule In 26Q3, 21 super premium stores were added, bringing the total number of domestic super premium stores to 208, plus 2 overseas. Since the beginning of 2026, a cumulative net 83 stores have been opened, already completing the full-year 26 net opening target for super premium stores ahead of schedule. Super premium stores have performed excellently overall, with outstanding results in lowering operating costs, improving store efficiency, and recruiting new members; the new member recruitment ratio rose to 75%, a notable improvement from the previous 65%. Overseas business retail sales continue high growth, medium-to-long-term share target clear In 26Q3, overseas retail sales continued to maintain high-speed growth. The company has sponsored five consecutive Asian Games; the 26 Nagoya Asian Games sponsorship in Japan helps the brand's exposure in Japan. 361 DEGREES brand running ambassador Wang Jiahao significantly refreshed his PB at the Berlin Marathon on September 27. Since 2023, 361 DEGREES has set up a booth in Berlin for four consecutive years, enhancing the brand's international visibility. It is expected that overseas revenue will account for 4%-5% of total in full-year 26, and the overseas business as a whole remains profitable. The company is actively seeking incremental opportunities to drive continuous expansion of the overseas business scale, and it is expected that the overseas revenue share will increase significantly in the next 3-5 years. Risk warnings: risk of changes in consumption trends, overseas business expansion falling short of expectations, and super premium store rollout falling short of expectations