CHINA LILANG Reports Revenue Growth but Declining Profits in H1 as Channel Transformation Raises Operating Costs

On August 17, CHINA LILANG (01234.HK) released its interim results for 2026. In the first half of the year, the company achieved revenue of RMB 2.0647 billion, a year-on-year increase of 19.5%; profit attributable to equity shareholders amounted to RMB 215.4 million, a year-on-year decrease of 11.2%. The rapid revenue growth contrasted sharply with the lack of synchronous improvement in profits, marking the most notable disparity in this financial report.

Pressure on profits stemmed primarily from gross margin. During the period, gross profit was RMB 1.0095 billion, a year-on-year increase of 16.3%, which was lower than the revenue growth rate; the gross margin decreased by 1.3 percentage points to 48.9%. The company stated that the increased sales proportion of cost-effective products and year-end promotional items led to a decline in the average selling price.

Channel transformation also drove up expenses. Selling and distribution expenses increased by RMB 140.9 million to RMB 687.2 million, with their proportion of revenue rising from 31.7% to 33.3%. Of this, expenses for directly operated stores and e-commerce increased by RMB 67.3 million to RMB 300.5 million. Consequently, operating profit decreased by 10.5% to RMB 232.8 million, and the operating profit margin dropped from 15.1% to 11.3%.

From a business structure perspective, growth was driven more by the Light Business segment and online channels. Revenue from the Main Series amounted to RMB 1.3418 billion, a year-on-year increase of 12.7%, with its share of total revenue decreasing from 68.9% to 65%; revenue from the Light Business and Other Series totaled RMB 722.9 million, a year-on-year increase of 34.7%, with its share rising to 35%. It is important to note that the company disclosed combined data for the "Light Business and Other Series," so the entire incremental growth cannot be attributed solely to the Light Business brand.

The company attributed the growth of the Main Series to improvements in Direct-to-Consumer (DTC) operations, a later Spring Festival that extended the peak sales season, and an increased supply of new retail and cost-effective products. New retail revenue grew by 39% year-on-year, significantly outpacing overall revenue growth.

Store expansion was not the primary source of revenue growth. As of the end of June, CHINA LILANG had a total of 2,820 stores, a net increase of 3 from the end of last year. Among these, there were 2,465 Main Series stores, a net increase of 19; and 355 Light Business and Other Series stores, a net decrease of 16. The number of Main Series stores operated under the DTC model increased from 284 to 367, with Hubei province added to the DTC system in the first half. The reduction in distribution layers brings the company closer to the end consumer, but also means that the brand bears more expenses and inventory risks.

Inventory at the end of the period was RMB 1.4389 billion, a decrease of RMB 13.3 million from the end of last year, keeping the scale largely stable; however, the average inventory turnover days increased from 231 days in the same period last year to 250 days. The company stated that this was related to the increased proportion of consignment and direct sales. Meanwhile, accounts receivable turnover days decreased from 37 days to 31 days, reflecting the other side of the declining proportion of distributed sales.

Multi-brand strategy and overseas expansion remain in the incubation stage. The golf brand Munsingwear opened 3 new stores in the first half; there are currently 5 stores in Malaysia, but overseas revenue was only RMB 5.9 million, accounting for 0.3% of total revenue, which has not yet altered the overall revenue structure.

CHINA LILANG has set a target for new retail revenue growth of 20% or more in 2026, and a target for overall retail sales value growth of no less than 10%. However, as the scale of DTC and e-commerce expands, whether sales growth can translate into profits and whether inventory turnover can improve remain key indicators to watch in the second half of the year.