Anta Sports (Minutes): Niche high-end brands perform well

Anta Sports (Minutes): Performance of Niche High-End Brands is Good

The following are the minutes of Anta's FY24H2 earnings call. For the earnings interpretation, please refer to Anta Sports: Revenue Runs Through "Running Shoes", Profit Steps on "Laces"?

I. Core Information Review of the Financial Report

(1) Revenue and Market Share: In 2024, Anta Group's total revenue exceeded 70 billion for the first time, reaching 70.83 billion, a year-on-year increase of 13.6%, continuing to maintain the top position in the Chinese market. Profit attributable to shareholders was 11.9 billion, a year-on-year increase of 16.5%; revenue from the Anta main brand was 33.5 billion, an increase of 10.6%; FILA's revenue was 26.6 billion, an increase of 6.1%; other brands, led by Descente and KOLON, saw strong growth with revenue of 10.7 billion, a year-on-year increase of 53.7%. Both online and offline achieved double-digit growth, with online growth being even higher.

(2) Profit and Dividends: The board announced a final dividend of HKD 1.18 per share as of May 26, along with an interim dividend, totaling HKD 2.36 per share for the year, a year-on-year increase of 20%. The dividend payout ratio reached 51.4%. In addition, a share repurchase plan of HKD 10 billion announced last August has repurchased 2 billion so far and will continue to be promoted in the future.

(3) Gross Margin and Expense Ratio: The overall gross margin of the group was 62.2%, a decrease of 0.4 percentage points, mainly due to the decline in the gross margin of the Anta main brand. The gross margin of FILA decreased by 1.2%, mainly due to a high base in the previous period. In terms of expense ratio, employee costs remained stable; advertising expenses increased by 0.8 percentage points year-on-year, mainly because 2024 is an Olympic year with increased advertising spending. R&D expenses were 2 billion, a year-on-year increase of 20%, and the group has established six design centers, collaborating with over 250 suppliers to create a global open innovation ecosystem.

(4) Operating Profit Margin and Profit Contribution: The operating profit margin was 23.4%, a decrease of 1.2%, mainly due to the decline in Anta's gross margin and increased advertising spending. Amer Sports contributed 200 million in profit in 2024 and is expected to have better profit contributions in 2025.

(5) Operational Management: Inventory turnover days were 123 days, at a healthy level, with an inventory-to-sales ratio of about 5. The year-on-year increase in inventory was due to a low base in the previous year. Both accounts receivable and accounts payable turnover were at healthy levels.

II. Detailed Content of the Earnings Call

2.1 Key Information from Executive Statements

1. Market Interpretation

(1) Domestic Market: In 2024, China's economy and consumer market maintained low growth throughout the year, with total retail sales of consumer goods in December only growing by 3.5%, and the consumer confidence index during the Two Sessions was only 86.2. The government has prioritized expanding domestic demand, and it is expected that the consumer market will gradually warm up under policy support.

(2) Global Sports Industry: It is expected that the global sports industry and sports footwear and apparel industry, including China, will continue to grow steadily. The consumer market presents three main characteristics: First, consumer stratification continues with a trend of strengthening from groups to individuals, the high-end market maintains high consumption, and the mass market is returning to volume; second, certain categories such as running, outdoor, tennis, and golf are growing at double-digit rates; third, channel differentiation requires new layouts.

(3) Brand Market Landscape: Mature overseas brands are performing well in the sports industry. In the global market, Anta Group and Amer Sports' market share combined rises to third in the world; in the Chinese market, the concentration of the top five brands decreases, while Anta and Fila's market shares increase, and other international brands' market shares decline. High-quality products outperform the market, and the group's product mind share makes it the number one in the Chinese market. Some outdoor vertical brands achieve good growth due to outstanding products.

2. Brand Performance

(1) Anta Brand: Anta brand revenue reached 33.52 billion, a year-on-year increase of 10.6%. In 2024, new business formats will be launched, such as Anta Champion, trendy shoe collections, Anta flagship stores, and Super Anta, achieving breakthroughs. Anta Champion targets the high-end market, while Anta Fusion and Super Anta cater to the mass market. New retail channels, including Douyin, also achieve high growth. Products like KT7 have become bestsellers. The PG7 launched last July and sold nearly 2 million pairs within six months. Anta Kids introduced a new store format, with Anta Campus stores being twice the size of traditional Anta Kids stores, and online business for Anta Kids grew by 30%, with retail sales exceeding expectations.

(2) Fila: Fila brand revenue reached 26.6 billion, a year-on-year increase of 6.1%, with a revenue scale expected to exceed 30 billion in 2024. Fila adheres to a high-end fashion sports positioning, ranking first among sports brands in brand health index and fashion mind share. In 2025, it will focus on high-quality development, with annual guidance for mid-single-digit growth and an operating profit margin maintained at around 25%.

(3) Other Brands: Other brands led by Descente and KOLON achieved revenue of 10.68 billion, a year-on-year increase of 53.7%. Descente's revenue is expected to grow over 35% in 2024, with a sell-out rate exceeding 80% and active members exceeding 1.4 million. The store efficiency model is evolving towards 50 million, with an expected growth of over 30% in 2025. Arc'teryx is the fastest-growing brand in the group for 2024, with growth exceeding 60%, new endorsements enhancing brand awareness, and shoe revenue doubling, with more balanced regional development.

2. Other Businesses

(1) Online Business: In 2024, online business accounted for 35.1% of total revenue, a year-on-year increase of 21.8%, leading the industry on the three major platforms of Tmall, JD.com, and Douyin, with both Fila and Anta ranking in the top five in sales on these platforms.

(2) Digital Applications: In 2023, the group began applying AI in operations, continuing to create greater value in 2024. In product design, AI-assisted product design exceeded 2 billion, improving efficiency and quality; in marketing, algorithms boosted sales conversion rates by about 20% compared to previous manual experience; online sales utilized digital human live streaming to create diverse application scenarios, contributing an additional GMV of 120 million In 2025, research on the application of AI in different areas of the company will continue.

2.2 Q&A

Q: At the end of the third quarter of last year, the country stimulated the economy and consumption. Has the consumer market improved in the fourth quarter, and can this upward trend continue throughout 2025? Will the growth of the consumer and sports markets in the first quarter of 2025 be better than last year, how is the retail situation, and what is the growth guidance for various brands?

A: Over the past year, everyone has been talking about uncertainty, and there were concerns about the Chinese economy. However, from the development of different brands, the situation in China is relatively better. Looking at the consumption industry from the past to the present, the overall growth in the past five years has still been low, and competition mostly revolves around existing businesses. Amid the uncertainty, sports products have stronger certainty. Last year, Anta Group and Anta Sports achieved dual-driven growth, achieving the best results in history with revenue exceeding 10 billion. The key to achieving such results lies in the company's correct strategy, which is "single focus, multiple brands, globalization." The company has numerous brands that meet different consumer needs through differentiated positioning and high-quality products; after years of effort, it has formed multi-brand management capabilities. The company has a strong long-term perspective, having invested over 2 billion in the past, and plans to continue increasing investment in innovation and R&D in the next five years, possibly investing another 2 billion. Anta and Fila have established six R&D centers and formed the first joint innovation studio with 70 higher education institutions and top external experts. The PG 7 running shoes launched last year sold over 2 million pairs, and this year a 300 yuan product is selling better than an 800 yuan one, with the peak burst single SKU sales exceeding 1 million. The company firmly believes that sports products are the most certain area in an uncertain consumer market and is confident in the Chinese economy. After the Two Sessions, the country will continue to promote consumption. The company announced a buyback of 1 billion shares last August, and has already repurchased some and will continue to create value for shareholders. As the first quarter comes to a close, all businesses are on track and expected to meet goals, and the company remains confident in achieving its targets amid uncertainty.

Q: What is the performance guidance for each brand in the first quarter and for the whole year?

A: There are only a few days left in the first quarter, and the front-end data has been confirmed. Despite significant weather fluctuations, the overall completion situation is good, and there is great confidence in achieving the set goals, especially for high-end niche brands, which are growing as strongly as last year. For the annual guidance, the State Council released an action plan to promote consumption a few days ago, with many provisions related to the sports industry, expanding consumption, cultural tourism consumption, and skiing-related consumption, and I believe that localities will formulate detailed plans. The annual guidance for the Anta main brand is high single-digit growth, while brands like Kolong will see strong growth of 30% for the year. Of course, this guidance will be dynamically managed and adjusted based on actual consumption conditions.

Q: What new strategic directions can we expect from the Anta brand this year, and how do you view the overseas layout of the main brand this year?

A: In 2024, the revenue growth of the Anta brand will reach high single digits, outperforming the industry, thanks to the effectiveness of the brand's upward and mass positioning strategy. In 2025, on one hand, there will be a strong development of the well-established Anta Champion business model; on the other hand, the Super Anta format is a focus, although the model is not yet fully mature, some adjusted stores have achieved significant improvements In terms of overseas business, the Southeast Asian market will enter a period of rapid development and stable models by 2025; a company has been established in the Middle East to expand the Middle Eastern market; in the European and American markets, products such as Owen are being expanded, having entered about 110 mainstream channels in Europe and America. The goal is to achieve a 15% share of Anta brand business in overseas markets within five years.

Q: What is the direction of Anta brand's operating profit margin, and what marketing arrangements are there this year?

A: This year, there are fewer sports events, and sales will focus on good products and telling good stories, such as sponsoring significant sports events in the Greater Bay Area. The guidance for the Anta brand operating profit margin is 20 - 25%.

Q: FILA has replaced its brand CEO; what are the new CEO's goals, and what changes will be promoted?

A: The former CEO, Mr. Yao, has reached retirement age, and this change is a normal process. The successor, Ms. Zhang, has been cultivated by the group and has rich brand management experience, having successfully developed Anta Kids and previously served as the general manager of the FILA fashion brand. I believe she can lead the team to enhance FILA's positioning as a high-end brand and promote its healthy and sustainable development.

Q: In what ways have the FILA fashion brand and FILA Kids dragged down FILA's performance, and what are the current rhythms and plans to better develop these two sub-brands, along with the timeline?

A: For the FILA fashion brand, a series of adjustments were made in the third quarter of last year, achieving double-digit growth, and the start of 2025 looks good. For FILA Kids, its unique positioning is relatively high in shopping malls, with the largest adjustments planned for 2024. The first quarter of 2025 has maintained high growth, and the adjustments have been completed with good results. The company will strive for a high-end sports fashion positioning and high-quality development for FILA in the future.

Q: Regarding FILA's operating profit margin, previously, the investment in products reduced profit margins; will this trend continue in 2025, and will there be pressure on profit margins or opportunities for improvement?

A: In 2025, under the context of high-quality development, FILA's profit margin will be maintained at around 25%, while last year's profit margin was over 20%. After adjustments, the company is very confident in FILA's growth.

Q: Descente and KOLON achieved significant growth in 2024; what is the growth trend for the next three to five years, and will the mid-term target scale be increased? What is the profit margin situation for these two brands, and is there room for improvement in 2025?

A: These two brands belong to the company's multi-brand strategy, positioned as high-end niche brands that will not change. Over the past two to three years, niche brands have performed well in the market, and the company has achieved great success in the layout, shaping research and development, and products of niche brands. Last year, the revenue of these two brands exceeded 1 billion, with Descente's single-store output reaching 2.4 million and KOLON's single-store output reaching 1.6 million. This year, the growth of these two brands will exceed 50%. Regarding future profit margins, the current profit margins are relatively high, and the company will ensure brand value without pursuing excessively high-profit margins. It will increase R&D investment in Hong Kong and improve the retail experience to enhance the brand. The company is very confident in these two brands, and the actual results will be better than the guidance Q: What has Anta done right in promoting Amer Sports to achieve differentiated high-speed growth in recent times? What is the development strategy in China? What are the main development focuses? What are the key points for each core brand and core region?

A: There are three core reasons for promoting Amer Sports' development over the past five years. First, the company made significant changes to its business model. Before the acquisition, Amer Sports used a matrix management approach, which shifted to a brand-oriented direct operational management model post-acquisition, introducing CEOs for the three main brands to oversee the end-to-end value chain, achieving great success. Second, there was a significant transformation from the traditional wholesale model to increasing the development of DTC channels. At the beginning of the acquisition, DTC channels accounted for less than 20% of the total business, which has reached 44% by 2024. This transformation has driven the entire group's business, allowing brands to better serve customers and consumers. Third, leveraging Anta's mature retail and brand operation system in China, the business of Amer Sports in China has increased from 5% of global business before the acquisition to 25% by 2024. Over the past four years, Amer Sports China has achieved a compound annual growth rate of over 50%, becoming the market leader in outdoor sports brands in China last year. By 2025, the group will continue to grow globally at a scale of 13% - 15%. Besides the Chinese market and the Asia-Pacific region, there are good growth plans for Europe and North America. Operating profit margins will improve by 50 to 100 basis points based on 2024, and earnings per share will increase from 47 cents per share in 2024 to 64 - 69 cents per share, with more robust and high-quality business growth.

Q: When will the next explosive growth period for FILA be?

A: Anta Group is very satisfied with the past performance of FILA's management, including aspects such as growth and operational efficiency. The group adheres to a high standard and progressive management culture, believing that now is the best time for FILA's transformation. It aims to firmly position itself in high-end sports fashion within the group's multi-brand strategy while considering the competition faced and its role within the group to make transformations and changes. At the 2023 Beijing Investor Conference, it was mentioned that after the brand scale exceeds 10 billion, achieving high-speed growth becomes difficult, and this is true for the global market as well. FILA has exceeded 30 billion, and the company believes that achieving reasonable growth is sufficient. The company emphasizes that FILA should maintain stable and healthy growth, without specifying the timing of the next explosive growth period.

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