On the eve of the separation of the two brands, XTEP INT'L seeks growth through "efficiency improvement" in the first half of the year

Another sportswear brand has decided to expand steadily.

On August 20, XTEP INT'L (1368.HK) released its mid-term performance for 2024. It achieved a revenue of 7.203 billion yuan, a year-on-year increase of 10.4%; and a net profit attributable to the parent company of 752 million yuan, a year-on-year increase of 13%.

XTEP INT'L announced a mid-term dividend of 15.6 HK cents per share, with a dividend payout ratio of 50.25%, which is basically flat compared to the same period last year.

In terms of brands, the main XTEP brand contributed revenue of 5.79 billion yuan, a year-on-year increase of 6.6%, accounting for 80.4% of the revenue; the professional sports brand composed of Saucony and M.Life contributed revenue of 590 million yuan, a year-on-year increase of 72.2%, accounting for 8.2% of the revenue; the fashion sports brand composed of Givova and Paladin contributed revenue of 820 million yuan, a year-on-year increase of 9.7%, accounting for 11.4% of the revenue.

In May of this year, XTEP INT'L announced that in order to focus resources on developing high-profit brands such as the XTEP main brand, Saucony, and M.Life, it has signed a final agreement with controlling shareholder Ding Shuibao and his family to sell and privatize the parent company of Givova and Paladin brands, KP Global Investment Limited, for a transaction price of 151 million US dollars.

This transaction has two potential impacts.

On the one hand, XTEP INT'L is able to focus more on the professional sports track after divestiture. The Saucony brand under XTEP is one of the world's top four running shoe brands;

On the other hand, Givova and Paladin brands are currently still in a loss-making state, contributing a combined net loss of nearly 100 million yuan in the first half of this year.

Officials from XTEP INT'L told TradeWind01 that the divestiture transaction of KP Global is expected to be completed in the second half of this year.

In terms of profit performance, benefiting from the increased proportion of XTEP brand's e-commerce business and the higher gross profit margin of professional sports brand revenue, XTEP INT'L's overall gross profit margin increased by 3.1 percentage points year-on-year to 46%.

In terms of expansion pace, following 361 Degrees (1361.HK), XTEP INT'L also slowed down its expansion pace in the first half of the year. It only opened a net of 7 XTEP adult stores and 3 XTEP children's stores.

In comparison, in the same period last year, XTEP INT'L opened a net of 130 and 68 stores respectively.

An executive of XTEP INT'L stated at the briefing, "In the current market environment, we will not open stores on a large scale, but will focus more on improving store efficiency."

This is consistent with the explanation given by 361 Degrees executives regarding the slowdown in expansion speed in the first half of the year.

"Due to weak demand and poor consumer sentiment, coupled with the fact that the company has not yet adopted a DTC (direct-to-consumer) model, we cannot force our partners or authorized distributors to actively open more stores in the market," the executive said.

XTEP INT'L may face greater growth pressure, and it needs to improve store efficiency to make up for the performance gap caused by divesting the two brands.

After the financial report was released, XTEP INT'L's stock price rose significantly after the midday break on August 20, rising by more than 5% at one point and closing at 5.08 HK dollars per share