Li Ning once fell seventy percent of its market value, and domestic sports brands were caught in a stock price defense war

Interface News Reporter | Qin Siyue

Interface News Editor | Shi Yiying

Li Ning fell again.

On December 11, Li Ning's share price fell sharply, falling more than 16% intraday to HK$17.88, a new low since March 2020. As of the close, Li Ning's share price fell 14.29%. The stock has fallen by more than 70% this year, making it the worst-performing component of the Hang Seng Index this year.

On December 10, Li Ning just announced that the company planned to acquire Henderson Land's North Point property in Hong Kong for HK$2.208 billion to use as its Hong Kong headquarters.

In fact, throughout the year, Li Ning's stock price has been declining.

Li-Ning's market capitalization trend. (Image source: Straight Flush)

In the one-year cycle from December 1, 2022 to November 30, 2023, Li Ning's market value plummeted by 64%, evaporating more than half.

In 2023, it will be a mixed year for most domestic sports brands, including Li Ning.

Judging from the existing semi-annual report data, the four major sports brands (Anta, Li Ning, Xtep, 361°) have all continued to rise in revenue: Anta led with a revenue of 29.65 billion yuan, followed by Li Ning with 14 billion yuan, and Xtep and 361° handed in a report card of 6.5 billion yuan and 4.3 billion yuan respectively.

The four companies joined forces to cut 54.4 billion yuan in revenue in the first half of the year, which seems to be very likely to lead domestic sports brands to break through the 100 billion yuan annual revenue mark again.

But in the face of such a booming revenue, the signal released by the capital market is not friendly. Since the beginning of this year, the sports sector of Hong Kong stocks has experienced many collective declines, and the stock prices of individual brands have "dived" by more than two percent.

To some extent, throughout the year, domestic sports brands have been busy defending their stock prices.

(Image source: Interface News/Fan Jianlei)

· What happened to Li Ning?

The most obvious drop in stock price is Li Ning, whose market value has evaporated by more than half in the past year.

However, judging from the financial report and various operating data, Li Ning seems to be "not guilty of this".

According to the latest announcement on the operating conditions of Li Ning in the third quarter of 2023, the retail turnover of Li Ning points of sale (excluding Li Ning YOUNG) on the entire platform recorded a mid-single-digit year-on-year growth.

In terms of channels, Li Ning's offline channels (including retail and wholesale) recorded high-single-digit growth, of which the retail (direct operation) channel recorded a low-single-digit growth of 20%-30%, and the wholesale (franchised dealer) channel recorded a low-single-digit growth.

For the first half of the year, Li Ning Group's revenue reached RMB14,019 million, an increase of 13.0% from the same period in 2022 (RMB12,409 million in the first half of 2022), and gross profit also increased by 10.3% to RMB6,839 million from RMB6,201 million in the same period of 2022.

In terms of cash flow, the Group's net operating cash inflow increased by 22.7% to RMB1.94 billion in the first half of the year, and the omni-channel turnover recorded a low-end growth of 10%-20%, indicating a relatively stable financial position.

The revenue data is acceptable, how did the capital market's confidence in Li Ning go away?

"Li Ning has slowed down. An analyst from Sanzhong Yihua told Jiemian News.

Li-Ning's turnover in the third quarter recorded a mid-single-digit growth, compared with a mid-range growth of 10%-20% in the same period last year. According to Li Ning's latest revenue guidance, the company expects full-year revenue growth to be only a single digit.

In fact, for Li Ning, which has a volume of more than 20 billion yuan, it is not surprising that its growth has slowed down.

From the perspective of the global market, there are few brands with a scale of more than 20 billion yuan that can maintain rapid growth year after year. For a brand of this size, after the period of rapid growth, the pursuit of growth rate will often give way to the importance and control of growth quality.

Clothes with the logo of "China Li Ning" used to be a must-have in the wardrobe of national fashion lovers. (Image source: Interface News/Fan Jianlei)

But for Li Ning, slowing down is not terrible, what is terrible is that Li Ning only has Li Ning.

From a strategic point of view, Li Ning Group adheres to the strategy of "single brand, multi-category and multi-channel", and its main brand positioning is "a world-class professional sports brand with fashion".

In recent years, although the group has established sub-brands such as Li Ning 1990 and Li Ning YOUNG (Li Ning children's clothing line), these sub-brands all carry the name of Li Ning.

The analyst told Jiemian News: "In the period of rapid growth, it is a period of prosperity. Li Ning has made a name for the national tide, and other sub-lines have also risen with the tide. However, when the national tide has passed and the main brand stalls, there is no other brand that can fill the gap left, which is a loss. ”

The analyst believes that the controversy over last year's Li-Ning show and this year's poor performance of Li-Ning Esports Club (LNG) at the World Championship have directly reflected the impact of these controversial events on the brand's stock price and sales the next day.

This seems to be the general view of brokers: "over-reliance on the main brand" and "lack of new growth points" have become the hidden worries of Li Ning Company.

Morgan Stanley lowered its revenue and profit forecasts for Li Ning in the next three years in its latest report; JPMorgan Chase's report also lowered Li Ning's profit forecast for this year to the year after; and Daiwa directly downgraded Li Ning's investment rating from "buy" to "hold".

At the same time, Li Ning's excessively high inventory has also made the capital market less confident in it: as of the end of the first half of 2023, Li Ning's inventory amount was as high as 2.1 billion yuan.

Li Ning was clearly aware of the uneasiness. In the investor conference call held in early November, Li Ning's management responded directly to the inventory problem, saying that it has taken active measures to improve the problem of channel inventory and goods channeling, and made a commitment to return to healthy inventory levels by the end of this year.

At the same time, with the "single brand" strategy unchanged, Li Ning is making a new attempt: the British footwear brand Clarks acquired by Viva Lingyue (formerly "Viva China") has begun to make money.

Thanks to the addition of Clarks, Viva Lingyue's revenue in the first half of this year reached HK$5.444 billion, a year-on-year increase of 627.03%, and the gross profit reached HK$2.491 billion, compared with only HK$245 million in the same period last year.

However, Viva Lingyue, headquartered in Hong Kong, is chaired by Li Ning and is an associate of Li Ning. Viva Lingyue is the largest shareholder of Li Ning, holding 271 million shares of Li Ning, accounting for 10.3%.

In other words, it is unrealistic to expect Clarks to lead the extraordinary and then make blood for Li Ning.

(Image source: Interface News/Fan Jianlei)

· Anta, a multi-brand brand, also has to defend its stock price

Li Ning cannot rely too much on Li Ning's main brand, and needs to play a new situation. And taking a multi-brand strategy does not mean that you can sit back and relax.

With the two main forces of Anta and FILA, and in recent years, Anta Group, which has cultivated the third growth curve such as Cologne and Descente, has always been regarded as a successful case of multi-brand integrated sportswear group.

But judging from the stock price, Anta has not had a very comfortable year.

Although in the same one-year cycle (December 1, 2022 - November 30, 2023), Anta's market value fell by only 6%. However, during this period, Anta's share price has "dived" many times, and its market value has shrunk by more than HK$200 billion.

ANTA's market capitalization trend. (Image source: Straight Flush)

The market value chart shows that in mid-April this year, Anta's market value ushered in a sharp decline. At that time, it was the time when the domestic sports giant announced the turnover in the first quarter of this year.

In the first quarter of 2023, both the ANTA brand and FILA recorded only single-digit year-on-year growth in retail value.

In the 2022 annual report, FILA is even more rare to "stall": after a surge of 25.1% in 2021, FILA's growth rate slowed down in 2022, with an annual income of 21.52 billion yuan, a year-on-year decrease of 1.37%.

Xtep's market capitalization trend. (Image source: Straight Flush)

Xtep, which is also a long-term brand, has recently been in a cliff-like decline.

On November 14, Xtep's share price closed down 16.49%, the company's biggest one-day decline since the end of March 2019. This point in time is after Xtep announced the Double 11 report.

Last year, Xtep's cumulative online turnover on Double 11 was 910 million yuan, a year-on-year increase of 30%. And this year, Xtep's 11.11 growth slowed down.

After that, Xtep lowered its full-year guidance, expecting revenue and net profit to grow by about 10% year-on-year this year. A number of investment banks, including CICC and Huatai, reacted quickly and lowered their target prices for Xtep.

Li Bai, a consultant of a consulting agency very close to the sports sector, told Jiemian News that the consulting industry has not been optimistic about this highly dependent model of mergers and acquisitions in the past two years.

"Both Anta and Xtep added a lot of leverage when they acquired them, and the liabilities brought to the group were still very large. Like Amalfen, when it was acquired by Anta, it had a debt of more than 1 billion yuan, although Arc'teryx and Salomon have been marketed in China in the past two years, but the actual sales are far from being able to fill this hole. Xtep is the same, most of the sub-brands not only have no positive income, but also are not well-known. Li Bai said.

This idea represents the current wait-and-see attitude of the capital market. Although the two major groups are booming in the promotion of their brands, a careful dismantling of the financial reports can still reveal many hidden concerns.

(Image source: Interface News/Fan Jianlei)

Taking Anta as an example, in 2022, of the annual revenue of Anta Group of 53.651 billion yuan, the revenue of Anta's main brand and FILA brand together accounted for 49.24 billion yuan. The remaining 4.411 billion yuan belongs to Descente, Kolon and Amalfen.

Descente revealed that this year's revenue in the Chinese market has made a breakthrough, and KOLON has also increased its revenue this year as it celebrates its 50th anniversary. It is conceivable that the revenue of Amalfen is not much.

This is the problem that Anta is currently facing: FILA is stalling, and the group urgently needs Descente and Kolon to become the third growth curve. At the same time, the popularity of Archaeopteryx and Salomon under Amalfen has greatly increased, but the volume has obviously not kept up, and the uncertainty of development still exists.

"Many people wonder why Amalfen is going to IPO now. One is that it is not too difficult to list on the US stock market, and the other is that the group does need financing to relieve the pressure. Li Bai told Interface News.

According to reports, perhaps sensing that the signals released by the market are not positive, Anta and Xtep have asked a number of leading consulting institutions about strategic adjustment plans.

"Their problems are basically focused on the design of the organizational structure. In other words, they want to ask, based on a multi-brand business model, how can the company transform?" Li Bai said.

(Image source: Interface News/Kuangda)

· How to defend the stock price?

Although "deheating" is an overall trend in the sports sector, for each domestic brand, the problems they face are different, and it is difficult to summarize the commonalities.

Li Ning needs new growth points, Anta is highly dependent on mergers and acquisitions, Xtep needs to nurture mature multi-brands, and other sports brands have been named by major brokerages and consulting reports due to different reasons such as aging channels, loss of freshness of national tide, and inventory turnover.

Taking Xtep as an example, its main brand is under pressure because of inventory: in the third quarter of this year, the inventory turnover time of Xtep's main brand channel is still as long as 4.5-5 months, which is not optimistic.

While various brands have a headache to defend their stock prices, some national brands are still entangled on the edge of IPOs: the IPOs of Peak and Zhongqiao have failed many times. Zhongqiao Sports also disclosed its prospectus on the Shanghai Stock Exchange in March this year, but the news of the official IPO has not come out for a long time.

A number of financial media believe that the "copycat" brand on Zhongqiao Sports is too deep, and the acquired Umbro brand has not yet become a climate, and the capital market is still in a wait-and-see state.

According to public data, China's sports shoes and apparel market is expected to maintain a double-digit growth rate in the next few years. Judging from the data, the market size will reach about 700 billion yuan by 2030.

"In terms of strategic adjustment, each company needs to analyze specific problems on a case-by-case basis. In terms of growth momentum, in the past, it mainly focused on channel distribution. But now, in the face of the impact of diversified consumer demand and fragmentation of the purchase decision-making chain, this will change again. Li Bai told Interface News.

(At the request of the interviewee, Li Bai is a pseudonym)