"Three-year goal" encounters cold in the first year? ANTA's retail sales growth slows in the first half of the year

The "Olympic year" has not significantly boosted the sales of sports shoes and apparel.

On July 8th, ANTA SPORTS (2020.HK) released its operating data for the second quarter and first half of 2024, showing that the retail sales of ANTA brand recorded a high single-digit growth year-on-year in the second quarter; FILA brand recorded a mid-single-digit growth; other brands including Descente and KOLON achieved a growth of 40%-45%.

In the first half of this year, apart from the main ANTA brand, the growth rates of various brands' retail sales were mostly lower than the same period last year.

Compared to the 10%-20% growth in retail sales from the same period last year, FILA brand's growth slowed down in the first half of this year, only recording a high single-digit growth; ANTA brand maintained a mid-single-digit growth compared to last year; while the growth of other brands decreased from 70%-75% to 35%-40%.

This is not in line with the annual growth targets set by ANTA's management after the financial report, as they had previously expected a revenue growth of 10-15% for ANTA and FILA brands in 2024.

TradeWind01 reached out to relevant personnel at ANTA for confirmation of the above growth targets but did not receive a response.

However, the company indicated that at the global investor conference in 2023, ANTA set out revenue growth targets for its brands for the next three years (2024-2026):

• ANTA brand to maintain double-digit revenue growth
• FILA revenue to reach 40-50 billion
• Descente and KOLON to "strive to create the third billion-dollar brand".

However, in the first year after setting these three-year targets, ANTA is now facing the challenge of overall weak consumer demand.

A recent report by Jefferies pointed out that after showing weak demand in May and June, Chinese sportswear brands face downward risks in retail sales targets for 2024. Even with adjustments based on the changes during this year's 618 promotion period, overall demand for sportswear in June was weaker than in May. Factors such as consumer downgrading, insufficient product innovation, and ineffective Olympic marketing have all impacted sales.

Another evidence of sluggish demand for footwear and apparel is ANTA's increased discount efforts in online channels.

Data from Feigua in the first half of this year shows that both ANTA and FILA brands have increased their discount efforts, with the average selling price on Douyin channels declining year-on-year.

Taking FILA brand as an example, the average selling prices on Douyin in April to June this year decreased by 10.12%, 34.49%, and 6.17% respectively. The significant drop in May's average selling price may be due to the early start of the "6.18" shopping festival in May.

However, the online discounting to clear inventory has shown significant results.

Feigua data shows that in the second quarter, FILA's sales on Douyin increased significantly by 75.82% year-on-year, while the sales of ANTA's main brand increased by 134.76% year-on-year.

TradeWind01 learned from sources close to ANTA that FILA brand's online sales accounted for approximately 30% In addition, private equity investors in the East China region have indicated to TradeWind01 that ANTA's online discounts are usually larger than offline, especially during live broadcasts where discounts may be even greater. Compared to online channels, offline channels faced greater challenges this year, especially street-side stores in lower-tier markets, where foot traffic has been noticeably diverted.

In the second half of this year, aside from the potential boost to ANTA's performance from the Olympics, another focus is on the sales performance of the product line endorsed by NBA star Kyrie Irving under the ANTA brand. ANTA signed Irving in July last year, with Irving participating in the design of his personal product line as Chief Creative Officer (COO).

According to information obtained by TradeWind01 from relevant sources at ANTA, the collaboration between ANTA and Irving is expected to last around five years, with the possibility of renewal based on actual circumstances. The collaboration model is similar to that of AJ and Nike, where Irving receives royalties from product sales.

In the second quarter of this year, ANTA began to increase the market presence of Irving's basketball shoe products, but they remain in high demand with limited availability in the market.

An employee at an ANTA flagship store informed TradeWind01 that only three stores in Shanghai have released Irving's basketball shoes, with each store having over 200 pairs available for sale. This quantity is considered large compared to the usual stock of 20-30 pairs per style for regular products. However, due to most of the released shoes being bought up by resellers, it is still difficult to purchase Irving's shoes at ANTA stores.

During a performance exchange meeting following the release of operational data, ANTA's management mentioned that Irving's products are relatively trendy and are expected to gain momentum in the second half of the year. However, they emphasized the need for selective distribution channels, stating that their shoe products will "slowly explode."

For ANTA, whose retail data in the first half of the year fell slightly below expectations, it is crucial to show signs of an "explosion" to instill confidence in investors.

On July 9th, ANTA's stock price fell by 5.4% intraday, hitting a new low since February this year, and closed down by 2.31% at HKD 69.7 per share, marking a year-to-date decline of 6.82%