Insufficient inventory pressure on local sports apparel brands

The data released by local sports brands recently showed that the data for the fourth quarter of 2013 was not satisfactory. Among them, orders for 361 degrees in 2013 winter orders decreased by about 17% year-on-year, and Xtep International's orders for the fourth quarter of 2013 (calculated at wholesale value) fell by approximately 15% to 17% compared with the same period in 2012. The amount of ANTA Sports orders also fell by 5% to 15% year-on-year.

China Investment Research Fellow Xiong Xiaokun told the reporter that the continued decline in orders in the fourth quarter means that the “winter season” in the apparel market for domestic sports brand enterprises is not yet over, and major sporting goods companies still need to continue to compete with “high stocks”.

Orders meeting difficulties difficult to improve 361 degrees The announcement of the recent changes in net operating results announced that the first quarterly results had a significant year-on-year decline, and it is expected that the mid-term net profit as of June 30, 2013 will be significantly affected.

The 361-degree aspect indicated that the first-quarter earnings decline was mainly due to the substantial reduction in orders received from the recent orders, increased production costs, and increased competition resulting in lower gross margins. In addition, the expiration of all the tax concessions enjoyed by 361 Degrees in the past also led to an increase in the effective tax rate.

As for the poor performance of the trade fair, 361 degrees said that the orders for the 2013 winter fair held recently have decreased by about 17% compared with the previous winter trade fair.

In fact, the order slip in the fourth quarter was more than 361 degrees.

Xtep International’s announcement showed that the amount of orders (in terms of wholesale value) of its order for the fourth quarter of 2013 was about 15% to 17% lower than in the same period of 2012.

Xtep International stated that in order to maintain the competitiveness of its distribution channels in terms of operating performance and profitability, the Group has adjusted the supply of products of distributors and franchisees and encouraged them to adopt prudent order policies. At the same time, Xtep will continue to integrate its distribution network to optimize the allocation of resources and increase the overall operating efficiency of the distribution channel.

Anta Sports said that its performance in the fourth quarter of 2013 will have improved compared to the first three quarters of 2013. However, the amount of orders in the fourth quarter still fell.

It is understood that according to the ANTA Group's first quarterly 2013 trade fair, the new wholesale discount rate policy was calculated, and the order amount for the 4th quarter of 2013 saw a decrease of approximately 5% to 15% year-on-year.

It is worth noting that, this time, Li Ning, who had no “list”, will no longer publish the quarterly trade fair data after the announcement of the precedent in the August 2012 performance briefing. Subsequently, another sports brand listed on the Hong Kong stock market, Peak Sports, also announced in March this year that it no longer announced the results of order orders from the third quarter of 2013.

Continuing inventory pressure In addition to the ordering situation, the situation is still grim. The pressure on local sports brands that began to vigorously clean up inventory last year has not eased.

Xtep International disclosed that with the implementation of a number of stringent measures to address the problem of excess inventory, its domestic same-store sales performance in the first quarter of 2013 was flat with the same period in 2012. However, it will continue to reduce retail inventory.

According to some media reports, Xtep International Co., Ltd. and Chief Executive Officer Ding Shuibo recently stated at the shareholders’ meeting that although the same store sales were the same in the first quarter, it is difficult to comment that the worst time has passed and it is necessary to keep an eye on the situation in the next few months.

Ding Shuibo said that dealers and retailers have increased their discounts to stimulate sales to inventory. He had earlier expected to affect gross margin by 1 percentage point. He pointed out that at present, the special step-by-step sales ratio is about 5 times, and there is still some distance from the health level.

According to data released by Peak Sports, as of March 31, 2013, the number of authorized retail outlets of Peak in China was 6,358, a net decrease of 125 compared with the end of 2012.

Some industry sources have told reporters that the biggest reason for the continued decline in the current performance of these companies is that China’s macroeconomic trends have not rebounded sharply. The apparel market demand has not recovered and remains in a depressed state. Destocking is not optimistic.

In Xiong Xiaokun's view, the trend of the apparel market is closely related to macroeconomics. If there is no reversal signal in the macro economy, local sports goods will hardly recover.

“In these companies, Xtep, Anta, etc. are expected to be the first to escape difficulties. On the one hand, these brands are positioned in the low-end market and have a larger market capacity; on the other hand, their own inventory is lower than the industry average inventory, and inventory pressure is relatively Smaller, explains Xiong Xiaokun.