"Investor's Network" Xie Yingjie
In the context of the hot new retail concept, Kidwang Children's Products Co., Ltd. (hereinafter referred to as "Kid King", 301078. SZ) is betting on the experience economy and expanding rapidly through the big store model.
Kid King originally planned to establish a "goods + services + social" business model and commercialize services. To this day, the company still seems to have failed to achieve its wishes, and milk powder still accounts for about 80% of revenue. In the secondary market, the company suffered a reduction in the holdings of important shareholders, and the stock price fell for a long time.
The company is taking a series of measures to protect the disk. As of March 31, 2024, it has repurchased about 2.75 million shares, with a cumulative amount of about 19.65 million yuan, and the repurchased shares will be used for employee stock ownership or equity incentives.
In the special period of saturation of the maternal and infant market and the transformation of sales channels, how to solve the above problems is still a big challenge for the child king.
Fundraising projects are changing
According to public information, KidKing is the earliest maternal and infant retail brand in China with members-centered and hypermarket genes, and is known as the "Sam's Club" in the maternal and infant field. Up to now, the cumulative number of members of KidKing has exceeded 60 million, and the revenue contributed by members accounts for more than 96% of the company's total maternal and infant product sales revenue.
This model quickly opened up the market for the company. From 2020 to 2022, the company's revenue will reach 8.355 billion yuan, 9.05 billion yuan, and 8.520 billion yuan respectively, and the net profit attributable to the parent company will be 391 million yuan, 202 million yuan, and 122 million yuan respectively, with the latter showing a downward trend year by year.
According to the third quarter report of Kid King in 2023, the company's main revenue was 6.347 billion yuan, a year-on-year decrease of 0.58%, and the net profit attributable to the parent company was 117 million yuan, a year-on-year decrease of 22.95%.
"The company's revenue in the first three quarters of 2023 was basically flat year-on-year, outperforming the industry average, and if the impact of share-based payment expenses and convertible bond interest expenses is excluded, the net profit attributable to the parent company increased by 22.42% year-on-year, maintaining a good operating quality." ”
In July last year, the "Kid King Convertible Bond" was officially issued. At that time, Kid King released a strategic plan, planning to open 169 new stores in the next three years, promote the iterative upgrading of store functions and positioning, and cooperate strategically with large shopping malls.
The total amount of funds raised was 1.024 billion yuan, which was used for retail terminal construction projects and intelligent logistics center construction projects, and the raised funds invested were 764 million yuan and 260 million yuan respectively.
But now the fundraising project has changed dramatically. According to the latest announcement, Kidwang plans to reduce the number of stores in the retail terminal construction project, from 169 to 73, and the total investment amount will also be reduced by 513 million yuan.
The reduced proceeds accounted for 62.84% of the total funds raised. Among them, the investment amount of raised funds was reduced by 444 million yuan, and all the reduced funds were used for store upgrading and transformation projects, which planned to upgrade and transform the existing 120 offline stores in various provinces and cities across the country. At the same time, the total investment in the construction project of the intelligent logistics center will be reduced by 243 million yuan, of which the investment amount of raised funds will be reduced by 209 million yuan.
"The change in the use of raised funds is a reasonable adjustment made by the company in combination with the current market environment and future strategic planning, and carefully considering the company's business development needs, and the changed raised funds investment project meets the actual business needs of the company. The child king said so.
"On the one hand, it is planned to build a new 'Children's King North China Smart Logistics Base and Regional Settlement Center Project', on the one hand, to improve the degree of specialization of each link in the North China regional logistics system, so as to strengthen the order acceptance capacity of stores in North China; The child king said.
Single profitable project
Citing iiMedia Consulting data, Kidwang said that China's maternal and infant market will still maintain a stable growth trend in the future, and it is expected that the size of China's maternal and infant market will reach 7.63 trillion yuan in 2024, and the trillion scale of the maternal and infant market is still expanding. Although the birth rate has been declining in recent years, the peak of population growth in the past decade has occurred in 2016~2017, and children born at this stage are now entering the age of 6-year-old middle-aged and older children.
For this reason, the child king expanded against the trend. In terms of online channels, the Company continued to promote the store-to-home business model, and acquired a 65% stake in Leyou International Business Group Co., Ltd. (hereinafter referred to as "Leyou International") for RMB1.04 billion in cash in 2023, forming a goodwill of no less than RMB775 million.
"As of the end of 2023, Leyou International has opened 585 stores in Tianjin, Beijing, Shaanxi and other cities, and is one of the leading large-scale chain retail enterprises in the maternal and infant industry in mainland China. The acquisition also drove the continued growth of the private label. In the first three quarters of 2023, the revenue of Kidwang's own brand accounted for nearly 8% of the total revenue, an increase of 4.7 percentage points over the same period. The company told Investor.com.
The expansion of stores also contributed to an increase in expenses. The cash flow statement shows that the company's net operating cash flow has been positive in the past five years, but the net investment cash flow in the same period has been negative all year round, with a total of 3.362 billion yuan for the former and -2.161 billion yuan for the latter in the first three quarters of 2019 to 2023.
"This does not directly indicate that the cash earned by the company's operations cannot fully compensate for the expenditure of investment cash. Second, there are many elements to investing cash flow. For example, in recent years, in order to improve the logistics layout, the company has invested in the construction of 3 large warehouses. The company chooses to invest part of the funds in wealth management products with moderate risk and stable returns, and these investment behaviors will be reflected in the company's investment cash flow. Due to the different maturity times of wealth management products, this will lead to a difference between the amount of cash inflow and outflow. ”
One of the reasons is that the average income of the Kid King store has been declining. In the first half of 2023, the average store income of the Children's King store will be 7.2627 million yuan, and the ping efficiency income will be 3134.8 yuan per square meter, a year-on-year decrease of 4.98%. Around 2020, the average revenue of the store will reach more than 20 million yuan.
"In recent years, due to the decline in fertility rate and the impact of the macro environment, the average income of stores and the efficiency of the square foot have declined, but the number of middle-aged and large children has ushered in large-scale growth, the maternal and infant market still has a dividend period, the proportion of three children has increased, and the number of families with multiple children has increased." ”
According to the plan of Kid King, it uses offline physical stores as the drainage entrance, and users are guided to become members after arriving at the store, forming a private domain traffic pool of the brand. The brand has a dedicated parenting consultant to provide follow-up services for users, including providing a full set of parenting services such as parenting knowledge, confinement meal matching, nutrition guidance, etc., so as to increase the unit price of customers and increase customer stickiness and activity.
However, after several years of operation, the company has not succeeded in commercializing services on a large scale, and the profit project is still single, and the main source of revenue is still the sale of maternal and infant products. In the first half of 2023, milk powder will account for more than 80% of operating income.
As the company's products are mainly high-frequency repurchase products such as milk powder and diapers, they have high substitutability, resulting in the stagnation of such goods, such as maternal and child services, supplier services, advertising services, etc., which account for single digits and below in total revenue.
In response to this problem, the company proposed a solution: "In 2024, Kidwang will officially open its franchise business and share the core capabilities of existing store digital management and member precision marketing. Leyou will also take advantage of the advantages of Kid King in the supply chain, membership marketing, and store digitalization to vigorously strengthen the development of small store franchises. The franchise business of large stores and small stores in the children's king system was opened at the same time. ”
The goods sold have been exposed to quality problems
Back in October 2021, the stock price of Children's King reached 23.3 yuan per share on the day of listing, an increase of more than 300% from the issue price of 5.77 yuan per share, and the market value exceeded 25 billion yuan. In the past two years, its share price has hovered around 13 yuan/share, and recently rebounded after hitting a record low of 5.5 yuan/share in February this year. As of the close of trading on April 3, the stock was quoted at 6.79 yuan per share, with a total market value of 7.5 billion yuan.
In order to reverse the decline, KidsKing has taken a series of measures to launch a self-developed AI parenting consultant model - KidsGPT in 2023, which functions similarly to a "smart parenting consultant" with intelligent dialogue, intelligent drawing, and intelligent product and service recommendation functions.
At the same time, important shareholders are also in the process of reducing their holdings. According to the announcement, in 2023, shareholders Fully Merit Limited will reduce their holdings by a total of 8,853,200 shares, and HCM kW (HK) Holdings Limited will reduce their holdings by 11,135,100 shares. Nanjing Weiying Venture Capital Partnership reduced its holdings by 26,564,300 shares.
"The reduction of the company's individual shareholders is due to their investment or capital needs, not a change in confidence in the company, and they still firmly recognize and support the company's future development. The child king explained.
The company is taking a series of measures to protect the disk. As of March 31, 2024, it has repurchased about 2.75 million shares, with a cumulative amount of about 19.65 million yuan, and the repurchased shares will be used for employee stock ownership or equity incentives.
In addition to the business challenges, Kid King also had to look at other issues brought about by rapid expansion.
In March 2023, the State Administration of Municipal Supervision notified that the physical and mechanical safety performance of the children's garden shoes under the inspection unit was unqualified for the Chengxi Yintai Store of Hangzhou Children's King Children's Products Co., Ltd. and the production unit was Jiangsu Sanhe Footwear Co., Ltd.
In March 2022, the organic rice noodles for babies and toddlers sold in Ningbo Children's King Century Oriental Store were exposed to be unqualified, in January 2022, the crawling mats sold by Children's King Linyi Taisheng Plaza Store were exposed to be unqualified, and in February 2022, the "Yiwei" original nutritious rice noodles sold by Xiamen Children's Federation Children's King were exposed to be unqualified.
The company explained: "As a leading enterprise in the circulation link of the maternal and infant industry, Children's King has always strictly controlled the quality of goods, and has not had many problems and has been punished repeatedly. The spot checks reported by name are mainly aimed at production-oriented enterprises, and the child king is the non-event reporting subject of the inspected unit. Deeply cultivated in the maternal and infant industry for more than ten years, the company has always had 'zero tolerance' for product quality problems, and has clearly defined the quality terms and corresponding penalty standards in the purchase and sales contracts signed with all suppliers. After the occurrence of quality problems, the company will be removed from the shelves as soon as possible, held accountable, and put the relevant goods on the 'blacklist', and at the same time help consumers to protect their rights. ”
It is unknown whether the addition of Leyou International will bring the second growth curve to the child king, but there will never be a shortage of myths in the capital market, and the track of the maternal and infant market is becoming more and more crowded. However, some research institutions are still optimistic about the company's future development prospects, believing that with the company's strategy continues to be sorted out and clarified, product iteration and upgrading, business is expected to recover.
Guotai Junan Securities pointed out in the latest research report that the company actively promotes the upgrading of store layout and children's living halls, and plans to promote the franchise plan, which is expected to further promote market share increase. (Produced by Thinking Finance)■