In 2018, Li Ning, as the first Chinese sports brand to land in New York Fashion Week, received a lot of attention. After that, Li Ning frequently appeared on the "big show" by hot iron, so that Li Ning was closely linked with the "national tide". In 2021, Li Ning announced that star Xiao Zhan has become a global spokesperson for sports trend products, related topics have appeared on Weibo hot searches, and brand popularity has heated up again in the young market.
Recently, Li Ning (02331.HK) released its 2021 annual financial report. According to the financial report, Li Ning's revenue for the whole year of 2021 was 22.572 billion yuan, an increase of 56% year-on-year; the net profit was 4.011 billion yuan, an increase of 136% year-on-year, and the gross profit margin was 53%, an increase of 3.9 percentage points year-on-year.
This is a good looking "report card", but Red Star Capital has noticed that after the release of the financial report, it has not been able to stir up too much waves in the capital market. As of the close of trading on March 23, Li Ning's stock price fell 0.44% to HK$67.35 per share, while since September last year, Li Ning's stock price has shown an overall decline.
Why is Li Ning's stock price depressed? On the one hand, this is indeed affected by the international situation and other factors; but on the other hand, Li Ning's strategy of re-betting on the national tide and traffic stars, is the capital market willing to "pay for it"? This may be more worth pondering.
(i)
Revenue side: the first time to break 20 billion, behind the "pusher" many
In this financial report, one of Li Ning's biggest highlights is the substantial growth of the company's total revenue. According to the financial report, Li Ning's annual revenue in 2020 and 2021 was 14.457 billion yuan and 22.572 billion yuan, respectively, an increase of 4.2% and 56% year-on-year, respectively.
From the perspective of revenue structure, the Chinese market is still Li Ning's main source of revenue. In 2021, the revenue of the Chinese market was 22.276 billion yuan, accounting for 98.7% of the total revenue; in 2020, Li Ning's Chinese market business revenue accounted for 98.5%; in contrast, the proportion of Li Ning's domestic business further increased.
Source: Company earnings
So, what is the reason for the substantial increase in Li Ning's domestic revenue in 2021? And is it sustainable?
1, external: the short-term environment is good
At present, in the tide of domestic goods, the Beijing Winter Olympics and the economic recovery after the epidemic, the enthusiasm for national consumption has continued to increase, and the revenue of domestic sports brands such as Anta (02020.HK), Li Ning, and Xtep (01368.HK) 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, driven by "supporting domestic products" and "sports trends", a large number of domestic sports brands have basically achieved good results in revenue in 2021.
According to the financial reports of various enterprises, in 2021, ANTA achieved revenue of 49.33 billion yuan, an increase of 38.9% year-on-year; in 2021, Xtep's revenue was 10.013 billion yuan, an increase of 22.5% year-on-year, and it was also the first time that Xtep's revenue exceeded 10 billion yuan; in addition, according to 361 degrees (01361.HK) 2021 interim financial report, 361 degrees of revenue in the first half of 2021 was 3.107 billion yuan, an increase of 15.7% year-on-year.
Source: Company Financial Report, Red Star Capital Bureau
It can be seen that in the context of the overall market environment, the revenue of major domestic sports brands has risen, and Li Ning's revenue rise is also expected.
2. Internal: channel upgrade + price increase
In addition to the external industry background, from Li Ning's internal point of view, the channel upgrade of offline stores and online e-commerce and the price increase of products have become an important "pusher" for Li Ning's revenue increase.
First of all, on the channel, offline channels, according to Li Ning's financial report, the company actively promoted the landing of efficient large stores such as flagship stores, while continuing to optimize the visual image of the store and the consumer sports experience, the new product offline retail flow accelerated to record a high growth of 60%-70%, while the number of offline stores has also increased.
According to the financial report, as of December 31, 2021, the number of sales points of lining brand (including Li Ning core brand and Li ning YOUNG) regular stores, flagship stores, China Li ning fashion stores, factory stores and multi-brand collection stores was 7137, a net increase of 204 compared with December 31, 2020.
In terms of online channels, in recent years, benefiting from the continuous development of e-commerce live broadcasting business, traditional sports brands have now focused on the layout of related businesses. According to Li Ning's 2021 annual report, the company will continue to focus on the big data analysis system in 2021, and the emerging live broadcast platform will bring 58.4% revenue growth to the company.
In addition to channel upgrades, li ning's product prices have also risen.
About Li Ning's "price increase" and other related news has long triggered more discussion on the Internet, last year Li Ning officially released a new independent high-end sports fashion product line LI-NING1990, once again raised the ceiling of commodity prices.
According to li-ning1990 Tmall flagship store, the highest price in the store and the soul series of women's medium and long coats, the retail price has reached 4599 yuan, in the store 225 goods, more than half of the goods are priced at more than 1,000 yuan, a pair of classic series in the socks retail price is also as high as 110 yuan.
Source: LI-NING1990 Tmall flagship store
In response to this, Li Ning responded: "price increase" is not active, deliberately to increase the price of mass products, Li Ning's main brand of mass product pricing is still close to the people, in 2021 due to the new product (3 months) sold out rate, discount rate has increased, the goods have been sold before waiting for the price reduction after listing, consumers naturally feel that "price increase".
In summary, Li Ning's revenue has increased significantly this time, and there are many "pushes" behind it. The favorable environment, channel upgrades, and high-priced products have jointly achieved Li Ning's "good results" of breaking through 20 billion yuan in annual revenue for the first time.
(ii)
Expenditure side: marketing first or research and development first
Compared with revenue, the profitability of a company may be a more intuitive measure of the development of a company today.
According to the financial report, Li Ning's net profit for the whole year of 2021 increased by 136% year-on-year to 4.011 billion yuan, gross profit rose by 68.7% to 11.969 billion yuan, and the overall gross profit margin of the group reached 53.0%, up 3.9 percentage points from 49.1% in 2020.
At the digital level, Li Ning's profitability has indeed been steadily improved on the basis of 2021. The improvement of gross profit can promote the rise of corporate profits, but more also need to look at the cost expenditure, for Li Ning, the control of the cost side can also better reflect the company's profitability. In this regard, Li Ning's "drawbacks" have also been revealed.
According to the 2021 annual report disclosed by Li Ning, from the perspective of expenditure, Li Ning's annual sales cost in 2021 was 10.603 billion yuan, while the expenditure in 2020 was 7.363 billion yuan, an increase of 44% year-on-year. In addition, in 2021, advertising and marketing cost expenditure reached 1.78 billion yuan, compared with the full year of 2020 advertising and marketing expenditure increased by 39.1% year-on-year.
Source: Corporate Earnings
On the other hand, although Li Ning's R&D investment has increased, the R&D expense rate has declined significantly.
According to the financial report, Li Ning's R&D expenditure in 2021 was 414 million yuan, an increase of 28.2% year-on-year; but the ratio of R&D expenditure to total revenue fell from 2.2% in 2020 to 1.8%.
Compared with competitors, the financial report shows that INTA's R&D expenditure in 2021 was 1.13 billion yuan, accounting for 2.3% of total revenue; Xtep's R&D expenditure in 2021 was 252 million yuan, accounting for 2.5% of total revenue. As an established sports brand, Li Ning lags slightly behind in the R&D expense ratio.
From the perspective of research and development of the entire industry, according to Analysys 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 about 10%.
It is worth noting that at present, Li Ning is constantly laying out high-end, but high-end is not only reflected in product prices. In the long run, if you want to obtain the bargaining power of commodities, you still need to enhance the core competitiveness of your own products through research and development.
In summary, In 2021, Li Ning's advertising and marketing expenses soared by nearly 39.1%, while the R& D expense ratio fell from 2.2% in 2020 to 1.8%, which may also add a lot of risks to the company's later profitability.
(iii)
Li Ning, what are the long-term challenges?
The long-term challenges faced by Li Ning can be summarized as the risk of "cooling" faced by a single brand and the difficulty of finding a second growth curve in the short term.
First of all, as far as the brand is concerned, Li Ning, who has turned around with the "national tide", has chosen the route of "single brand, multi-category, and multi-channel".
However, on the one hand, the layout of high-end, high-end and low-end products in single-brand multi-categories has led to mutual "restraint" between major categories, which is a strong challenge to Li Ning's innovation ability; at the same time, the single-brand operating risk is also larger, and for negative events, the company's anti-risk ability is weak.
On the other hand, a single brand is also easy to cause trouble to consumers, Li Ning sells low-end prices is the general perception of consumers, but at the same time Li Ning also sells high-end prices, the price is numerous, which will cause confusion to consumers. What are the differences between Li Ning, China Li Ning and LI-NING1990, which may also make enterprises face greater challenges in consumer recognition.
It is worth mentioning that with the cooling of the "national tide", Li Ning also targeted the endorsement of "top-notch" artists to "harvest" the fan economy, but the fan economy effect is relatively limited, and the market evaluation of this is also mixed.
On March 26, 2021, Li Ning's official website released the news that Xiao Zhan became the global spokesperson for Li Ning's tide clothing products, and then Li Ning listed a number of Xiao Zhan-related products, and the product prices were mainly concentrated in the range of 300-800 yuan, mainly positioned as mid-priced commodities.
After Xiao Zhan's endorsement, the sales of the same product reached a peak in April, but there was a cliff-like decline the following month, so it can be seen that Xiao Zhan's endorsement has a limited effect on Li Ning's overall sales, and the purchase continuity of the same product is limited.
Therefore, the Li Ning brand itself is still facing multiple challenges brought about by user recognition, and neither the national tide nor the traffic star supports the long-term value of the enterprise.
Secondly, in terms of strategic deployment diversification, Li Ning's former "one brother" status has long been occupied by Anta for many years. The reason why ANTA will be successful is inseparable from the multi-brand strategy of ANTA in the later stage, for example, ANTA has formed a business strategy of "one high and one bottom" between FILA and ANTA's parent brand.
Although, in recent years, Li Ning has also begun to try to "open a trumpet" like ANTA, such as first rebranding the brand through Extraordinary China's acquisition of the sports and leisure brand Baoshilong in 2020; in March 2021, Extraordinary China joined hands with Lane Capital to obtain control of the British footwear brand Clarks; in November of the same year, Extraordinary China also announced the acquisition of Sitoy AT, taking down the Italian luxury leather goods brand "Iron Lion Tony".
The market has been paying more attention to whether Li Ning can recreate a "FILA", but it is still unknown, which is also a long-term challenge facing Li Ning.
brief summary
Qian Wei, co-CEO of Li Ning Group, once said in public that Li Ning's goal will be to be a "muscle-type" enterprise, that is, an enterprise that can efficiently and continuously generate kinetic energy.
But at present, Li Ning's product strength and brand power compared with foreign head enterprises still have a big gap, before they can find the revenue "baton", how many consumers are willing to continue to pay for it? This made Li Ning feel pressured.
Red Star News reporter Yu Yao Liu Mi
Edited by Yang Cheng
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