Anta Sports: Revenue is sprinting ahead while profits are tripping over their laces

Anta Sports: Revenue is sprinting ahead while profits are tripping over their laces

$ANTA SPORTS(02020.HK) On the afternoon of March 19, Beijing time, Anta (2020.HK) released its full-year performance for 2024. Since Anta had already announced its operational performance for Q3 and Q4 of 2024 in January this year and October last year, the market's expectations for total revenue are relatively accurate. However, the core concern that has raised market worries is the decline in Anta's profitability.

Key points are as follows:

1. Overall Performance: Revenue Slightly Exceeds Expectations, Profitability Below Expectations: In H2 2024, the company achieved revenue of 37.09 billion yuan, a 13.4% year-on-year increase, slightly exceeding market expectations (35.65 billion yuan) compared to previously announced retail sales. The gross margin is basically in line with expectations, but due to intensified market competition, increased marketing efforts, and upgrades to existing stores, high expense growth has resulted in core operating profit falling short of expectations.

2. FILA Weak, Anta Steady, Other Brands High Growth: By brand, Anta's leading brand achieved revenue of 17.45 billion yuan, slightly exceeding market expectations (17.08 billion yuan). Dolphin Research believes this is mainly due to the introduction of high-cost-performance products in the second half of the year and increased displays in high-cost-performance store types—Super Anta. FILA's performance was basically in line with market expectations, with mid-single-digit growth, a significant drop compared to double-digit growth in the previous two years.

What impressed Dolphin Research is that other brands achieved a high growth rate of 64% despite a high base, with annual revenue exceeding 10 billion yuan, firmly establishing itself as the "third growth curve" after FILA, reflecting increasing consumer recognition of outdoor sports brands such as Descente, Kolon Sport, and Arc'teryx.

3. E-commerce High Growth, Proportion Further Increases: Due to the company's increased efforts in live streaming and short videos on major social platforms, online exposure has continued to rise, with e-commerce revenue growing by 19% year-on-year, achieving high growth and further increasing its revenue share to 36.3%, a record high.

4. Globalization Begins to Show Results: Following the establishment of the Southeast Asia International Business Unit in 2023, the company has accelerated its expansion in Southeast Asia, successfully establishing a presence in cities such as Singapore, Malaysia, Vietnam, and Thailand. Additionally, the company is entering the North American market for the first time in 2024, having reached strategic cooperation with several leading distributors and plans to open direct stores in North America. Currently, the company has opened a total of over 240 stores overseas.

5. Profitability Has Declined: Due to the company's increased layout of high-cost-performance products and store types (Super Anta), the gross margins of various brands have experienced varying degrees of decline in H2 2024, with FILA and Anta's main brand gross margins decreasing by 3.3 percentage points and 1.5 percentage points year-on-year, respectively, while high-end brands like Descente and Kolon Sport saw relatively lower declinesIn addition, regarding the expense ratio, on one hand, market competition is fierce, and Anta has increased its marketing efforts; on the other hand, factors such as store upgrades and new store openings have also led to an increase in the company's expenditure, resulting in a year-on-year decline of 3.4 percentage points in gross sales difference, causing Anta's core operating profit margin to drop to 17.1% (market expectation 22%).

6. Detailed financial report data overview:

Dolphin Research's overall view:

In the view of Dolphin Research, Anta's performance in 24H2 is essentially achieved by sacrificing gross sales difference for revenue growth, simply put, it is "exchanging price for volume."

In Dolphin Research's opinion, in the context of weak consumer power, whether it is Anta, Li Ning, or other sports shoe and apparel companies, increasing the proportion of cost-effective categories and launching high-cost performance retail store types to maintain sales volume and stabilize market share is understandable. Although this sacrifices short-term profits to some extent, it gains consumer brand loyalty and repurchase frequency, which is not a bad thing in the medium to long term.

Setting aside the short-term factor of declining profitability, the company's brand operation capability remains very strong among many sports apparel companies. From a valuation perspective, in horizontal comparison, Anta, currently at 19x, as a leader still enjoys a certain valuation premium, which is not cheap.

The following is a detailed interpretation of the financial report:

I. Revenue exceeds expectations, and outdoor brand performance is outstanding

The company achieved revenue of 37.09 billion yuan in 24H2, a year-on-year increase of 13.4%, slightly exceeding market expectations (35.65 billion yuan) compared to the previously announced retail sales. The core reason lies in the company's "exchanging price for volume," as it increased the launch of high-cost performance products and high-cost performance store types—Super Anta—in the second half of the year.

1. FILA is weak, Anta is stable, other brands show high growth

By brand, Anta's main brand achieved nearly double-digit growth despite a high base. Dolphin Research believes the core lies in two points:

1) Accelerating store transformation from "one size fits all" to "tailored for each store": Previously, all store types of Anta's main brand were the same, with low matching to consumer groups. After the reform, Anta has restructured its regular stores into five types based on different city levels, different business districts, and different consumer groups—Palace, Arena flagship stores, Anta Collection, Anta Champion, and Super Anta. On one hand, by successfully entering high-end business districts through new store images such as flagship and arena-level stores, the brand image has been enhanced. On the other hand, targeting niche markets, stores like Anta Champion (outdoor scenarios) and Anta Collection (mid-to-high-end trendy shoes) meet the specific needs of segmented groups.

For the mass market, Anta has also launched a new store type—Super Anta, which competes with Uniqlo, offering a full range of products for all seasons and age groups. By streamlining SKUs, focusing on the rigid demands of different sports scenarios, and optimizing the supply chain, it provides exceptional cost performance, achieving store efficiency more than three times that of conventional stores at prices 30% lower than regular stores.

2) High quality and affordability, in line with the characteristics of the times

In 2024, Anta focuses on cost performance as the core strategy, optimizing the product mix on the product side, mainly promoting high-cost performance IP products such as running shoes and jackets. Among them, the PG7 series cushioning running shoes have become a bestseller with over one million units sold. On the channel side, the offline layout of high-cost performance store types—Super Anta is being expanded, focusing on core business districts in second and third-tier cities, while online focuses on exclusive e-commerce products and other discount strategies to further amplify cost performance advantages, attracting a large number of price-sensitive consumers.

Rapid growth in e-commerce: Additionally, from the channel structure perspective, due to the company's increased efforts in live streaming and short videos on major social platforms, online exposure has continued to rise, with e-commerce revenue growing 19% year-on-year, far exceeding offline growth, and the revenue share further increasing to 36.3%, reaching a historical high. The DTC ratio has slightly decreased due to some store types still being immature and in the experimental stage.

FILA: The high growth period has passed, with a decline in growth rate. Due to the children's market entering a phase of stock competition and the trendy market facing economic downturn pressures, FILA overall has been weak, dragged down by the children's segment and the trendy brand FILA Fusion, with negative growth in Q3. In Q4, the company adjusted by reducing the number of stores, optimizing the offline channel structure, and expanding new categories, resulting in a significant improvement for FILA compared to Q3, returning to positive growth, with overall revenue in H2 2024 increasing by 5.4% year-on-year, which is significantly weaker compared to the double-digit growth of the previous two years.

Other Brands: Other brands achieved a high growth rate of 64% despite a high base, with annual revenue exceeding 10 billion, firmly establishing themselves as the "third growth curve" after FILA, outperforming both company and market expectations. Descente and Kolon Sport, as the two major outdoor sports brands under the group, focus on mass outdoor and professional outdoors respectively. On one hand, the outdoor sector maintains high growth, and on the other hand, it reflects the increasing recognition of outdoor sports brands such as Descente, Kolon Sport, and Arc'teryx among consumers, further validating Anta's multi-brand operational capability.

2. Differentiated Store Growth, Anta's Opening Speed Slows

In terms of store numbers, in 24H2, Anta's main brand added 15 stores, reaching 9,919, maintaining an expansion trend, but the pace has slowed compared to the previous two years. From recent actions, whether it is vigorously transforming to DTC to enhance control over offline stores, or through store renovations and stratification to finely meet the needs of different demographics and consumption abilities, it is clear that improving the efficiency of offline stores and driving brand momentum to boost online growth has become Anta's clear strategy, rather than simply opening stores to pursue market share in offline stores.

Considering that there are still many old stores nationwide with an annual efficiency of less than 2 million yuan (Anta's goal is to raise the average annual efficiency to over 10 million yuan), and in terms of the number of stores, Anta is already leading the industry by a significant margin (Li Ning currently has only 6,000 stores), therefore, controlling the speed of new store openings and optimizing the efficiency of old stores is more rational for Anta.

FILA added 79 stores, reaching 2,060, achieving the pre-pandemic store count (FILA closed several stores during the pandemic), focusing on recovery growth. Similar to Anta, FILA's emphasis is also on improving store efficiency.

Descente and Kolon Sport added 29 and 31 stores respectively, reaching 226 and 191, maintaining a high-speed expansion phase under a low base, and enhancing brand momentum through offline stores.

For the 2025 store opening guidance, for Anta's main brand, the company plans to reduce the number of stores to 9,500-9,700 (reducing 200-300 stores), eliminating low-efficiency stores, while FILA and other brands will maintain the same growth pace.

3. Balanced Growth Across Categories

From the category perspective, in 24H2, the company's footwear, apparel, and accessories all maintained double-digit growth. From an annual perspective, footwear grew faster, on one hand, due to the launch of the affordable high-tech PG7 running shoes in the first half of the year, which were prominently displayed in new store formats such as Super Anta and Anta Champion, increasing exposure, and in the second half, they saw significant growth, attracting a large number of price-sensitive consumers, becoming a hot-selling item. On the other hand, the company actively adjusted its product structure, reducing the order ratio of mature categories such as basketball shoes, while increasing the proportion of growth categories like running shoes and outdoor shoes. In addition, brands such as Descente and Kolon achieved good growth in niche markets like skiing and hiking by laying out professional sports shoes.

II. Increased proportion of cost-effective products + increased expenditure, declining profitability

From the perspective of gross profit margin, as mentioned earlier, due to the company's increased layout of cost-effective products and store types (Super Anta) in 24H2, the gross profit margins of various brands experienced varying degrees of decline in 24H2. Among them, the gross profit margins of FILA and the Anta main brand decreased by 3.3 percentage points and 1.5 percentage points year-on-year, respectively, while the decline of high-end brands such as Descente and Kolon Sport was relatively small, mainly due to lower discount intensity, maintaining the high-end brand tone.

In addition, due to intense market competition, the company increased its marketing efforts, with higher advertising expenditure. Coupled with upgrades and adjustments to existing stores, the marketing expense ratio increased by 2 percentage points. The decline in gross profit margin combined with the rise in marketing expense ratio significantly narrowed the gross sales difference, affecting the company's profitability.

Finally, from the perspective of turnover days, the company's inventory turnover days in 24H2 were 123 days, unchanged year-on-year. Compared to the economic environment in the second half of 2023, under the circumstances of declining consumer power in 2024, the company maintained its turnover rate by sacrificing gross sales difference. It will be important to observe the impact of the recovery of gross sales difference on turnover rate in the future.