Anta (Minutes): Outdoor brands will continue to maintain high growth rates

$ANTA SPORTS(02020.HK) The following are the minutes of Anta's FY25 H1 earnings call organized by Dolphin Research. For the earnings interpretation, please refer to "Anta Sports: Controlling Discounts, Clearing Inventory, Can the 'Slimming Plan' Succeed? - "

I. Review of Core Financial Information

1. Capital Expenditure

- In the first half of the year, the group continued to invest over 1 billion yuan in product research and innovation, conducting forward-looking research in new materials, new technologies, and new processes.

- The group also continued to strengthen its investment in terminals and channels, and plans to invest in product innovation in the second half of the year to build technological barriers and enhance product competitiveness, while increasing investment in AI technology to promote its application across all levels of the group.

2. Cash Flow

- The group's net operating cash inflow reached 10.9 billion yuan in the first half, an increase of 2.4 billion yuan year-on-year, with operating cash flow up 29% year-on-year. Free cash inflow was 7.548 billion yuan, roughly flat compared to the same period last year.

- As of June 30, the group's total cash and deposits amounted to 55.5 billion yuan, with interest-bearing liabilities of 24 billion yuan, resulting in net cash of 31.5 billion yuan, indicating a solid financial position.

3. Shareholder Return Plan

- The board announced an interim dividend of HKD 1.37 per share, an increase of 16.1% year-on-year, with a payout ratio maintained above 50% (specifically 50.2%), aiming to create sustainable and stable returns for shareholders.

4. Personnel Adjustment Plan

- In the first half of the year, the group strategically increased the budget for terminal retail employees' salaries and benefits, leading to a rise in employee expenditure ratio. In the future, the group will further empower its brands to enhance their decision-making capabilities, stimulate innovation, maintain organizational flexibility, and build a diverse and professional talent pipeline.

5. Future Guidance

- In the second half of the year, the group will continue to adhere to a single-focus, multi-brand, and globalization strategy, firmly driving sustainable development with a long-term perspective.

- The two core brands, Anta and FILA, will continue to focus on their must-win battles, with Anta committed to breaking through new retail formats and FILA pursuing sustained high-quality growth.

- Descente, Kolon, and Maya brands are expected to maintain high growth, continuously incubating quality products and expanding diverse channels.

- The newly acquired Jack Wolfskin brand has formed a joint management team and plans to formulate a revival plan for the next three to five years within this year, reshaping its product and brand system.

- In terms of digitalization, the group has launched a five-year AI strategic layout, continuously strengthening the integration of the three core elements of "people, goods, and market," promoting high-performance material research and disruptive process innovation, and increasing AI technology investment. Amer Sports is expected to achieve more stable returns for the year.

II. Detailed Content of the Earnings Call

2.1 Key Information from Executive Statements

In the first half of the year, the group's overall revenue increased by 14.35% year-on-year to 38.54 billion yuan, expanding its leading position in the Chinese market. The operating profit margin reached 26.3%, up 0.6% year-on-year, maintaining high-level performance. Profit attributable to shareholders increased by 14.5% year-on-year to 7.03 billion yuan.

1. Market Interpretation

a. Domestic Economy and Consumption: In the first half of the year, China's economy grew steadily by 5.3%, with total retail sales of consumer goods up 5%. The consumer confidence index in June was 87.9, although it has rebounded, it remains relatively low. The sports market has a large long-term space, with short-term growth outpacing overall consumption, and the outdoor track growing rapidly.

b. Consumer Market Characteristics:

- Increased Demand for Quality: High-end consumers focus on functionality, technology, and professionalism, benefiting Descente and Kolon. The mass market has strict requirements for price and quality, benefiting domestic brands like Anta.

- Willingness to Pay for Emotional Value, Experience, and Lifestyle: Benefiting mid-to-high-end and niche brands in fields like golf, tennis, and outdoor sports, such as FILA, Descente, and Kolon.

c. Industry Characteristics:

- Offline Stock Competition: Slowing customer flow and declining conversion rates put pressure on comprehensive brands, while outdoor and niche brands accelerate store openings.

- Online Market: Live streaming platforms expand new audiences, while traditional platforms delve into high-end customers, with mid-to-high-end brands and niche brands having an advantage.

2. Brand Performance

a. Anta Brand:

- Revenue in the first half was 16.95 billion yuan, up 5.4% year-on-year.

- Deepening DTC strategy, with online growth of 10%.

- Advancing mass positioning professional breakthroughs and brand upward strategy, empowering products with technology to consolidate leadership in the Chinese market and expand into international markets.

- New formats and store types saw high growth, enhancing contributions from high-line markets. PG7 running shoes sold 2 million pairs in half a year.

- Anta Kids' online business achieved double-digit growth, outperforming the industry, and launched arch running shoes.

- Strong overseas market: Nearly doubled growth in Southeast Asia, significant contributions from offline business in the US and Middle East, with overseas revenue up over 150% year-on-year.

b. FILA:

- Revenue in the first half was 14.18 billion yuan, up 8.6% year-on-year.

- Online business achieved double-digit growth.

- Focused on four tracks: professional sports, fashion lifestyle, trendy sports, and children's, creating high-quality innovative products.

- Actively promoting brand image reshaping, organizational management upgrades, strengthening product positioning and technology development, achieving steady growth and outperforming the industry.

- Committed to building a "One FILA" high-end sports fashion positioning, communicating with middle-class consumers.

- Product innovation emphasizes experience, creating super popular items in categories like polo shirts, dad shoes, and running shoes.

- FILA Kids targets the mid-to-high-end children's clothing market, with outstanding performance in children's shoes and tennis series.

- Channel construction: Replanning retail standards, promoting new image and store types, focusing on efficient stores to improve single-store operational efficiency.

c. Other Brands (Descente, Kolon, etc.):

- Revenue in the first half was 7.41 billion yuan, with strong growth of 61.1%.

- Descente: As a high-quality professional sports brand, achieved satisfactory growth through product innovation and high store efficiency model. Store efficiency increased from about 2.3 million to about 2.7 million, with stores achieving 50 million in store efficiency increasing from 16 to 33. Online revenue grew over 50%, with a discount rate of 90%, achieving high-quality growth. High-end running shoe sales exceeded 100,000 pairs.

- Kolon: An outdoor lifestyle brand, accurately grasping the trend of consumption upgrading in China's outdoor market, store efficiency exceeded 2 million in the first half, with offline revenue growth of over 80% and online growth of nearly 80%, with a discount of 85% or more, achieving high-quality growth both online and offline. Xiaohongshu volume doubled year-on-year, significantly enhancing the target customer group's mindset.

3. Other Business

a. Online Business and Channel Network

- As of the end of June, the number of stores: Anta Adult 7,187, Anta Kids 2,722, FILA Mainline 1,266, FILA Kids 590, FILA Trend 198, Descente 226, Kolon 199, Maya 50.

- Online business contributed 34.8% of total revenue, up 17.6% year-on-year.

- Online business is industry-leading, with FILA ranking among the top in transaction volume on Tmall and Douyin during the 618 period in the first half of the year.

- Among the top ten sports footwear and apparel brands, FILA, Anta, and Descente all ranked in the top ten.

b. Digital Application (AI)

- Steadily embedding AI technology into the group system, building an AI technology platform to enhance management decision-making, production efficiency, and end-consumer experience.

- Serving the Chinese national team: Obtaining sports data through digital motion capture and multi-dimensional sensors to customize personalized equipment.

- Product Design: Introducing AI-assisted design systems to complete appearance design and ordering in as fast as four days, significantly improving efficiency.

- Operation Management: Launching the industry's first "An Zhen Wu You System," using AI to achieve automated operation of single-store retail business.

- Marketing: Combining member information and store product characteristics, using AI analysis to establish a full-link customer monitoring system to enhance consumer experience and conversion rate.

c. ESG Performance

- Various brands launched multiple sustainable products (such as carbon capture fabrics, fluorine-free waterproof breathable materials), with sales exceeding 1 million pieces.

- Promoting sustainable concepts to retail operations: Anta zero-carbon stores achieved emission reductions, FILA stores promoted intelligent energy management systems.

- Clearly defined high-risk chemical substance substitution roadmap, becoming the first sports brand in China to proactively commit to eliminating PFCs.

- Included in the Hang Seng ESG 50 Index, becoming one of the top 50 companies in ESG performance among Hong Kong-listed companies.

2.2 Q&A

Q: What is Anta Group's view on the development trend of the domestic consumer market and the sports goods industry in the second half of the year? How is the retail flow performance in July and August?

A: Management pointed out that macro data in the first half showed a 5% growth in social retail, with clothing, shoes, and hats growing by 3%, while the sports goods and sports footwear and apparel track continued to lead. Anta Group achieved double-digit growth in the first half, further expanding market share. However, the retail market in July and August faced significant challenges, performing weaker than the second quarter and expectations. Management expects the situation to improve from September onwards, with recent weekly data showing a positive trend in achievement rates. The group remains firmly optimistic about the long-term development of China's sports goods industry.

Q: In the face of macroeconomic pressure, does Anta Group maintain its growth guidance for each brand for the full year?

A: Regarding growth guidance, the full-year guidance for the main Anta brand has been adjusted from high single digits to mid-single digits. FILA brand continues to maintain mid-single-digit growth guidance. Other brands such as Descente and Kolon, due to strong performance in the first half, have had their growth guidance raised from over 30% to over 40%. During July and August, high-end niche brands like Descente and Kolon also achieved significant growth of nearly 50%. Anta Group as a whole will still maintain double-digit growth guidance.

Q: The main Anta brand faced market pressure in the second quarter, and its performance in the first half still has room for improvement compared to other major brands. What specific measures will be taken in the second half to improve its performance?

A: Although the main Anta brand's growth rate in the first half outpaced similar-sized brands, it did not fully achieve the initial target. The main gap lies in the decline in customer flow in the franchise market and insufficient product allocation and platform integration during the 618 e-commerce event. Improvement measures for the second half include enhancing online business performance through product integration and organizational flexibility, and preparing in advance for Double 11. The franchise market will adjust incentive measures, encourage the opening of collection stores, county lighthouse stores, and sinking high-quality store types to capture stock market share.

Q: Regarding Anta's new formats, what are the management's plans for the second half of the year and the medium to long-term development prospects?

A: Anta is reaching different consumer groups through vertical innovation. Anta Champion (positioned as elite outdoor, with store efficiency exceeding 500,000) and Anta Portfolio SV (positioned as young crossover style, with store efficiency reaching 600,000) both performed well, with electric efficiency higher than traditional Anta stores. Super Anta (positioned for the mass market, providing a full-scene shopping experience) and high-level stores like PARIS and ARENA (average electric efficiency of 850,000) have also shown initial success. Management is confident in the development of new formats and believes they have achieved the preset positioning and functions.

Q: The main Anta brand performed well in terms of profit margin in the first half. How does management view the trend of operating profit margin in the second half? Will the 20-25% operating profit margin guidance remain unchanged?

A: Although the main Anta brand's gross margin slightly declined in the first half, operating profit margin still increased through other efficiency improvements and cost reductions. Looking ahead to the second half, the group plans to invest in internationalization and new formats. Despite these investments, management maintains the full-year operating profit margin guidance for the main Anta brand at 20% to 25%.

Q: FILA brand's revenue growth in the first half exceeded expectations, outperforming the market and dispelling doubts. What key measures did management take to accelerate its growth?

A: FILA's accelerated growth was mainly due to the new five-year growth strategy implemented by the new CEO since January 1. This strategy returns to the high-end sports fashion positioning, strengthens the main brand, and clarifies sub-brand growth targets. By clearly exploring opportunity categories, strengthening channel capability building, correcting past mistakes, and strengthening brand mindset, FILA also focuses on mid-to-high-end consumer groups, investing significant resources to create good products, including super IP and core category matrices, to enhance product and consumer stickiness.

Q: FILA's profit margin performance in the first half was outstanding. How does management view the trend of gross margin and operating profit margin in the second half and future?

A: FILA's profit margin performance in the first half was good, and management pointed out that retail discounts are the core key factor affecting gross margin. Although gross margin may fluctuate in the short term due to industry competition, inventory clearance, and product quality improvement, management is confident that through product adjustments, discounts will gradually increase, bringing gross margin back to ideal levels. The full-year operating profit margin guidance will remain at around 25%. Management is confident in FILA's healthy and sustainable development in the medium to long term.

Q: In balancing high-quality development and business growth, will the main Anta brand consider appropriately relaxing profit margin requirements in its strategy to accelerate growth, especially in the context of the overall poor performance of the basketball category?

A: Management stated that Anta Group's greatest advantage is its multi-brand strategy, with the main Anta brand being crucial. The main Anta brand maintains a balance between profit margin and long-term corporate development. The group has invested heavily in innovation, which has gradually shown product advantages, believing that innovation and quality products are the foundation for sustainable brand growth. Despite the global and Chinese market's downward trend in the basketball category, Anta will continue to increase investment in sports assets to ensure the success of the main Anta brand.

Q: After completing the acquisition and integration of Jack Wolfskin, will Anta Group continue its previous path of "doing one well before doing the next" when facing other potential high-quality acquisition opportunities in the market, or will it consider pursuing multiple acquisition projects simultaneously when opportunities are excellent?

A: Regarding the acquisition strategy, management pointed out that Anta's past acquisition success rate is very high. In the future, it is not necessary to follow the path of "doing one well before doing the next," as some acquisition targets are "rare opportunities." The group will continue to adhere to its strategic direction and evaluate suitable target companies based on the internal complementarity of multiple brands. Management emphasized that Anta's experience and comprehensive capabilities in acquisitions are more mature than before, and will consider opportunities accordingly.

Q: The two high-end outdoor brands, Descente and Kolon, both exceeded expectations in growth in the first half. What specific factors contributed to this significant growth?

A: Descente and Kolon brands experienced strong growth in the first half, with Descente's growth rate exceeding 40% and Kolon's growth rate exceeding 90%, with full-year guidance raised to over 40%. Their growth mainly stems from a high-quality growth strategy, Descente's same-store sales growth exceeded 30% in the first half, with store efficiency reaching 2.7 million yuan, and is expected to exceed 3 million yuan this year, achieving growth with low expansion. Product performance is excellent, with Descente's "high-end" sports image and high-end sports products that fit the Chinese body shape being well recognized. Kolon's store efficiency exceeded 2 million yuan, successfully expanding the market to East China, Central China, and South China, achieving a growth rate of up to 90%. In addition, precise brand positioning, circle operations, and an excellent team are also key to their success.

Q: How does management view the increasingly fierce market competition with the emergence of many new outdoor brands and other sports brands expanding into the outdoor category? How long is the high-speed development momentum of the outdoor market expected to last?

A: Management acknowledges the emergence of many new outdoor brands in the market, with increasing competition. However, management is confident that Kolon and Descente will continue to outperform the entire industry in the high-end outdoor field in the next two to three years. They believe that globally, it is not easy for a brand to stand out and succeed.

Q: After the acquisition and equity restructuring of the Jack Wolfskin brand in June, what specific plans does Anta Group have for its future development?

A: Anta Group's acquisition of Jack Wolfskin is based on its multi-brand strategy and values the brand's deep outdoor asset genes and its value in the Chinese market. Currently, Jack Wolfskin's management has been reorganized and plans to formulate a revival plan by 2035 within this year. The group is confident in reshaping the brand and plans to reshape Jack Wolfskin's brand image globally by September next year. Management believes that through a series of plans, Jack Wolfskin, especially in the Chinese market, will see good development.

Q: Anta Group has invested in the core business of Korea's Musinsa company. Can management provide details on the strategic considerations of this investment?

A: Anta Group invested in 40% of Musinsa's equity, not controlling, mainly focusing on the sports footwear and apparel track. Musinsa, as a multi-brand platform expanding from e-commerce to offline, provides Anta with insights into the integration boundaries of the fashion industry and sports industry. This cooperation aims to allow Musinsa to benefit from Anta Group's advantages in supply chain, retail, and brand management in China. At the same time, Musinsa's experience will also bring inspiration to the development of Anta Group's sports brands. Musinsa will serve as the global management entity, while Anta will provide empowerment.

Q: Amer Sports performed strongly in the first half, especially with Salomon's strong momentum in overseas markets. How does management view Salomon's development in China and overseas markets, and what are the reasons and drivers behind its growth?

A: Amer Sports maintained strong growth momentum in the first half, benefiting from its unique professional high-end brand matrix. Salomon's accelerated growth, Arc'teryx's continued strength, and the stable development of ball equipment business jointly drove performance. Salomon's growth core lies in the popularity of innovative products, especially in the two core categories of sports trends (outdoor sneakers) and outdoor performance. It achieved rapid development in China and the Asia-Pacific region, with 38 new stores added in Greater China in the first half, bringing the total to 234, and is expected to reach 290 for the year. The European market successfully entered mainstream channels through strategic cooperation with retailers like JD Sports and Foot Locker, and opened independent stores in Paris, London, and Milan, performing excellently. The company pioneered the "Modern Outdoor Sneaker" category in the global market, especially favored by young female consumers.

Q: How does management view Salomon's long-term development space globally?

A: Management is confident in Salomon's global long-term development space. It is expected that store expansion will continue to be effectively promoted in the medium to long term. Salomon has opened a good development path in the global sneaker market, especially through its pioneering "Modern Outdoor Sneaker" category, which is warmly welcomed by young female consumers. The company believes that it will continue to promote Salomon's better development in the global sneaker market in the future.

Q: Anta Group's free cash flow is stable, and net cash remains above HKD 30 billion. What specific plans does the company have for future dividend payout ratios?

A: Management stated that creating long-term stable and sustainable returns for shareholders is the group's core philosophy. Given the uncertainty of the global macro environment, maintaining ample liquidity is crucial. The group is still in a high-speed development stage, requiring continuous investment in existing brand businesses and seizing potential acquisition opportunities. Therefore, maintaining a payout ratio of over 50% is considered the optimal and responsible policy. It was specifically mentioned that starting from the 2025 year-end dividend, the dividend calculation base will not include Amer Sports' profits until it starts paying dividends, to better reflect the group's actual cash generation ability and ensure financial stability.

Q: How is the progress of the share repurchase plan announced by the company last year? What pace will be followed for future share repurchases?

A: As of the end of June, Anta Group has repurchased and canceled nearly HKD 2 billion worth of shares. Future repurchase plans will depend on the overall priority of the group's capital use. The company adheres to a clear and rational capital allocation logic: first, continuously investing in existing businesses and brands (such as products, digitalization, innovation, retail transformation) to enhance profitability. Secondly, actively seeking cooperation and potential acquisition opportunities to consolidate the multi-brand matrix. On this basis, maintaining a stable payout ratio and advancing repurchase plans when market conditions are suitable to further optimize the capital structure.

Q: What specific performance and future development goals does the Anta brand have in overseas business?

A: Anta brand's overseas strategy is clear, with Southeast Asia as the first stop for going abroad, achieving a growth rate of over 100% in the first half, and gradually establishing a complete business model, team, and retail layout. The Middle East market has formed a development strategy for the next few years after preparation in the first half, expected to become the second growth point. The European and American markets have also been laid out through retail channels and online sales, with products like PG7 being well-received overseas, with sales prices even slightly higher than domestic, demonstrating product competitiveness. Future plans include opening the first Anta store in Los Angeles and conducting marketing activities to leverage global influence to support overseas business goals.

Q: Besides innovation in retail formats, from a product perspective, which categories does management believe will perform better in the future to further expand market share?

A: From a product perspective, management believes that the running shoe category will perform better. Anta has currently built a rich and complete running shoe matrix, including the C family, Mach series (targeting young people, campus physical tests), and P77 cushioning running shoes, which can reach a broader consumer group. In addition, the launch of Super Anta stores also promotes category expansion. These stores are positioned to provide a full-scene shopping experience, offering various professional sports products that traditional Anta stores cover less, better reaching consumers through the combination of categories and store types.

Q: The high-end outdoor brands under Anta (Descente, Kolon) achieved record-high operating profit margins in the first half. What is management's outlook for mid-term profitability levels? What are the main drivers behind it?

A: Management is optimistic about the profitability levels of high-end outdoor brands, pointing out that Descente and Kolon not only have high sales growth but also high discount rates. Currently, the total average discount for these brands has reached 90%. Therefore, management expects future profit margins to remain at current levels and align with scale growth.

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