Text | Hong Kong Stock Research Agency
In the 2008 Beijing Olympic Games, Adidas became the official partner, and in the 2022 Beijing Winter Olympics, the domestic brand ANTA replaced Adi as the new official cooperation partnership; at the same time, domestic sports brands such as Li Ning and Peak frequently followed the athletes out of the circle. In the long river of history, the market pattern of domestic sports brands has undergone earth-shaking changes.
Since entering 2022, the overall trend of the Hong Kong stock market has been sluggish, and market confidence has been continuously impacted. According to Futu data, the sporting goods sector where Li Ning, Xtep, ANTA and other brands are located also shows a downturn as a whole.
Image source: Futu app
In this context, domestic sports brand Li Ning released its annual results for 2021: revenue in 2021 reached 22.572 billion yuan, an increase of 56% year-on-year; net profit reached 4.011 billion yuan, an increase of 136% year-on-year.
So, what data is worth paying attention to in Li Ning's financial report?
Online channels are favorable, and the revenue of the head domestic sports brand has risen
Judging from the disclosed financial report data, Li Ning's annual revenue in 2019, 2020 and 2021 was 13.87 billion, 14.457 billion and 22.572 billion, respectively, an increase of 32.0%, 4.2% and 56% year-on-year, respectively.
Looking at its revenue part, the domestic market revenue is 22.276 billion yuan, accounting for 98.7% of the total revenue, becoming the main source of Li Ning's revenue, and Li Ning's domestic business revenue accounted for 98.5% in 2020, in contrast, Li Ning's domestic business proportion is still growing.
Source: Li Ning's 2021 annual performance report
In the context of domestic product fever and economic recovery after the epidemic, national consumption has continued to increase, and the revenue of domestic sports brands such as ANTA, Li Ning, and Xtep has shown a good trend.
According to the data released by the National Bureau of Statistics, in 2021, the per capita consumption expenditure of residents nationwide was 24100 yuan, an increase of 13.6% over the previous year, and the actual increase was 12.6% after deducting the impact of price factors; of which the per capita consumption expenditure on clothing was 1419 yuan, an increase of 14.6%, accounting for 5.9% of the per capita consumption expenditure.
With the improvement of residents' consumption level, the expenditure in the people's livelihood consumption section will naturally increase, and under the support of the concept of "supporting domestic products", a large number of domestic sports brands will basically show a good trend in revenue in 2021.
According to the 2021 annual financial report released by Xtep on March 17, the company's revenue set a record of 10.013 billion yuan; according to ANTA's 2021 interim report, in the first half of 2021, ANTA Group's revenue of 22.81 billion yuan increased by 55.5% year-on-year; according to 361° International's 2021 interim financial report, 361° revenue in the first half of 2021 was 3.107 billion yuan, an increase of 15.7% year-on-year.
First of all, in terms of offline channels, according to Li Ning's financial report, the company actively promotes the landing of efficient large stores such as flagship stores, while continuing to optimize the visual image of stores and consumer sports experience, and the offline retail flow of new products has accelerated to record a high growth of 60%-70%. The significant increase in sales flow stimulated the rapid response of licensed dealers, the order volume and futures execution rate have increased this year, the sales revenue has increased by 56.7%, and the brand influence and market coverage have been further improved.
Secondly, in terms of online channels, benefiting from the gradual growth of electronic consumption in recent years, traditional sports brands such as Li Ning, Anta, Xtep and other domestic sports brands have made efforts to broadcast live e-commerce, and e-commerce channels have become a new increment.
Taking ANTA and Xtep as an example, according to ANTA's 2021 semi-annual report, ANTA's e-commerce revenue increased by 61% year-on-year in the first half of 2021; Xtep previously released its 2021 annual results, of which e-commerce business revenue accounted for more than 30% of all revenue of Xtep's main brand.
On the whole, the growth of Li Ning's revenue has benefited from the market environment and the influence of mass consumption trends to a certain extent, and like domestic sports brands such as ANTA and Xtep, under the boom of domestic products, the revenue in the entire 2021 has shown a good growth momentum.
In addition to revenue growth, the profitability of a company may be one of the criteria for judging the development status of a company.
The cost of sales increases, but R&D expenditure "shrinks"
But by analyzing the cost and gross profit parts related to profits, we can also see some of the problems that currently exist in the company.
First of all, through the data we can intuitively see that the company's gross profit and gross profit margin have improved, one of the reasons for the growth is the increasing proportion of DTC channels, according to Li Ning's 2021 interim report, the company's DTC channel revenue share (e-commerce + direct operation) Contribution has exceeded half in the middle of 2021.
According to the official disclosure data of each brand, in the whole of fiscal 2021, Adidas gross profit margin for the whole year was 50.7%; Nike's gross profit margin in the second fiscal quarter of 2022 increased to 45.9%. According to the 2021 interim results released by ANTA, the gross profit margin of ANTA in the first half of 2021 reached 63.2%.
It is true that the increase in gross profit can boost profits, but the profit geometry of a company needs to look more at cost expenditure. For sports brands like Li Ning, the control of the cost side is also more reflective of the company's profitability.
The reason for the increase in advertising costs may be that we can reverse the increase in revenue of its e-commerce sector. In 2021, Li Ning E-commerce continued to carry out a series of creative marketing activities through e-commerce festivals, new product sales, fashion weeks, etc., and at the same time cooperated with the company's key marketing strategies to promote and lay out live broadcast platforms such as Douyin.
This also means that Li Ning's increased advertising expenditure in 2021 is more important for online channels, of course, offline store optimization may also be one of the marketing expenditure parts.
According to an 2020 annual report previously released by ANTA, ANTA's R&D expenditure in 2020 was 871 million yuan, accounting for 2.45% of research and development; before Xtep released its 2021 annual results, the data showed that Xtep's R&D investment in 2021 also accounted for 2.5% of revenue.
Also as a domestic sports brand, Li Ning is slightly lagging behind in the proportion of research and development. From the perspective of research and development of the entire industry, according to Analysys analysis data, the research and development expense rate of the national tide head brand is also much lower than that of the international head brand, such as Nike and Adidas R & D expense rate is generally around 10%.
It is worth noting that at present, domestic head sports brands such as Li Ning, Anta, Xtep, etc., are all working on high-end, and price increases are the first step in high-end, but domestic brands want to raise prices, perhaps they need to enhance their own product strength through research and development, and from the current situation, there is still an objective gap between the research and development investment of domestic sports brands and foreign brands.
epilogue
At present, it is undoubtedly the best era of domestic sports brands, and it is also the era of domestic sports brands full of imagination. The domestic sports industry is floating and heavy, and domestic sports brands will also find the most suitable development route for themselves in the washing of history.
For domestic brands like Li Ning and ANTA, as the attention of domestic sports continues to rise, they may be able to ride this "east wind" and complete a new transformation. In this vast market, domestic sports brands have more directions and opportunities in terms of volume and professionalism.