126-year-old Saucony will eventually become FILA (01368)

"China's Number One Running Brand" XTEP INT'L (01368) announced a highlight-filled performance report for 2023 on March 18. The financial report shows that XTEP achieved a revenue of 14.346 billion RMB in 2023, a 10.9% increase compared to the previous year. In terms of profitability, the company's gross profit margin further increased to 42.2%, operating surplus reached 1.58 billion RMB, a 7.9% year-on-year increase, and the net profit attributable to common shareholders increased by 11.8% to 1.03 billion RMB, with earnings per share of 40.8 cents. It is worth noting that there was a significant "expectation gap" between XTEP's performance and its recent stock price trend. Some investors who were optimistic about XTEP's performance expectations purchased XTEP shares in advance. In the week of March 11-15, XTEP's stock price surged by 13.16%, reaching a new high in nearly 4 months at 4.76 Hong Kong dollars. Saucony experiences explosive growth XTEP's investment value is largely due to the company's continued growth in a "strong cycle". The financial report shows that in 2023, XTEP's main brand achieved a revenue of 11.947 billion RMB, breaking historical records. At the same time, the company's new brands also maintained strong growth. Among them, the fashion sports brand achieved a revenue of 1.603 billion RMB, a 14.3% year-on-year increase, accounting for 11.2% of total revenue; the professional sports brand achieved a revenue of 796 million RMB, a significant year-on-year increase of 98.9%, and the professional sports brand accounted for 5.5% of total revenue, an increase of 2.4 percentage points from the previous year. It can be observed that if XTEP's four major international brands represent the company's "second growth curve", then the leading brand in professional sports - Saucony, is a new "growth pole" in XTEP's new brand matrix. Looking back to 2019, XTEP began its multi-brand and global development journey, and in partnership with Wolverine, launched the development, marketing, and distribution of Merrell and Saucony in mainland China, Hong Kong, and Macau. It also fully acquired Gigafleet and Paladin under the Yi Lian Group. Among the four new brands, Saucony has become the top choice for a large number of professional runners with its highly competitive product range. Saucony ranks in the top three international brand wearing rates in multiple marathons. Reflecting on its business performance, Saucony has achieved rapid growth since 2021. In 2023, Saucony became the first new brand under XTEP to achieve profitability. By the end of 2023, Saucony had 110 stores in mainland China, an increase of 41 net stores from 69 in 2022, representing a 60% increase. It can be said that Saucony's "inflection point" has arrived. It is understood that the XTEP brand and Saucony brand, focusing on running tracks together, have already captured a market share of 40%, solidifying XTEP's leading position in the capital market as China's number one running stock. According to XTEP's fifth "5-year plan" released in 2021, the company plans to achieve target revenues of 20 billion RMB for the main brand and 4 billion RMB for new brands by 2025, corresponding to 5-year CAGR of 23%+ and 30%+ respectively. This means that the development potential of XTEP's running business has not been fully realized. At the current pace of Saucony's development, it is highly likely to exceed the set development goals. Looking at the entire Chinese sports goods market, the significance of Saucony to XTEP is no less than that of FILA to ANTA SPORTS. Saucony: XTEP's "FILA" It can be observed that the history and development trajectory of Saucony and FILA are very similar. Saucony was born in 1898 in Kutztown, Pennsylvania, USA, focusing on the design, development, and manufacturing of running shoes, pursuing the ultimate comfort of products. Saucony is not only one of the "Top Four Global Running Shoes", but also has the reputation of "first class for runners". In 2004, Saucony entered the Chinese market for the first time under the name "Saint-Conny", but due to the brand's aggressive pricing strategy and overly optimistic estimates of the Chinese market, it ended in failure. In 2015, Saucony teamed up with Taiwan's "Everbright Trading" as an agent to re-enter the Chinese market, but due to marketing strategy errors, development stagnated, and the cooperation ended after the expiration of the contract. In 2019, Saucony joined XTEP with a revenue of 101 million RMB. In just 4 years, Saucony's revenue has grown exponentially and become profitable, achieving a remarkable turnaround in the Chinese market. Saucony has become the most important "future industry" in XTEP's new brand matrix. On the other hand, the Italian brand FILA, established in 1911, also has a hundred years of heritage. In the 21st century, FILA went through a long period of restructuring and turbulence. After its business operations in China were acquired by Belle, FILA experienced two consecutive years of losses. In 2009, ANTA SPORTS completed the acquisition of FILA's business in China, rapidly turning the losses into profits, becoming the "cash cow" of ANTA SPORTS. In the first half of 2023, FILA brand achieved revenues of 12.23 billion RMB, standing on par with Anta's revenues of 14.17 billion RMB. With FILA's success, it is inevitable for people to look forward to Saucony becoming the next FILA. According to the "2022 Mass Fitness Behavior and Consumption Research Report" released by the China Sporting Goods Industry Association, running is the most participated in sports activity, accounting for 61.0%. This indicates that the running field is a high-potential blue ocean market, with the potential to birth industry giants. From XTEP's perspective, the incorporation of Saucony is not a case of simply inheriting a century-old brand. On the contrary, Saucony, with its reputation of "first class for runners", to a large extent fills the gap in XTEP's positioning of the main brand, becoming a new choice for consumers in the trend of sport fashion. In other words, XTEP and Saucony can form a good synergy effect. Moreover, XTEP's level of attention to Saucony is unprecedented. In May 2023, the XTEP Shanghai International Headquarters was put into use, with Saucony being the first brand to enter. While XTEP continues to expand the Saucony retail network, it has also launched new image stores in mainland China. The first third-generation image store for Saucony opened in Shanghai in 2023.The layout of its stores has evolved from emphasizing a professional sports image focused on technology and functionality to providing consumers with a multi-scene experience, allowing customers to immerse themselves in a comprehensive sports venue that integrates culture and lifestyle.In product R&D, Saucony, as one of the world's top four running shoe brands, has professional quality and advanced technology. In 2023, the brand launched the new flagship marathon carbon plate running shoe "Endorphin Elite", as well as the "Kinvara Essence 14" and "Triumph Victory 21" that cater to the needs of professional runners, providing comfort and strong support for elite runners during their runs. In the fiercely competitive sports goods market, Anta does not follow blindly, instead focusing on doing well on its own. Anta pays great attention to market segmentation, finding its own relatively advantageous track in the market segmentation, upgrading product advantages in the determined track, establishing correct marketing strategies, and striving to be the leader in segmented markets. This is the reason why Anta holds a leading position in the Chinese sports goods market amidst the fierce competition, and is also the key for Saucony to become the next "FILA".