Recently, Xtep International announced on the Hong Kong Stock Exchange that the company has signed an agreement with its controlling shareholder Ding Shuibo and his family to strategically sell its holdings of K· SWISS) and KP Global Investment Limited, a wholly-owned subsidiary of the Palladium brand, and undertook a series of restructuring of financing instruments aimed at optimizing the Group's portfolio and strengthening its core business operations.
Ding Shuibo, chairman and CEO of Xtep Group, said that the transaction will enhance shareholder value, and he also plans to pay a special cash dividend of $151 million to shareholders. At the same time, he stressed that he was confident that taking decisive action would simplify business operations and enhance profitability. "Create a stronger, more focused Xtep and strengthen the foundation for a new phase of dynamic growth." Ding Shuibo said.
In today's increasingly competitive market, it is normal for brands to lose money, and achieving profitability requires a stable market strategy and cycle, especially for acquired foreign brands.
In 2019, Xtep acquired the sports brands Gaisway and Paladin under the South Korean fashion retail group Yilian Group for US$260 million (about 1.642 billion yuan). In the same year, Xtep also established a joint venture with Wolverine Worldwide to develop, market and distribute the running shoe brands Saucony and Merrell in the domestic market. After the completion of the two rounds of acquisitions, Xtep Group has formed a preliminary brand matrix, Xtep's main brand Xtep is positioned in the mass sports market, Saucony and Melle are aimed at the professional sports market, and Gasway and Paladin are aimed at the fashion sports market.
However, for Xtep, whose performance growth has been slowing down in recent years, the continuous loss of Gasway and Paladin has become the burden of the group's performance growth. According to the reporter's understanding, the cumulative operating loss of the two brands since 2019 has exceeded 100 million US dollars, and the loss in the first quarter of 2024 will be about 9 million US dollars.
The strategic sale of Gasway and Paladin means that Xtep will further deepen and focus on the "running" track, allowing the company to focus its resources on the development of its high-margin brands – Xtep's main brand, Saucony and Myle.
According to iResearch, China is becoming the world's second-largest running market. There are 100 million core runners and 300 million mass runners in China, and the proportion of core runners in the runner population is increasing. Since 2020, the sales performance of the running shoes category has significantly outperformed other types of athletic shoes, and sports brands focusing on running, hiking, and walking categories will be the biggest winners. In the coming years, the diversification of running shoe products will be the focus of the brand's product design.
Since entering the running field in 2007, the market has gradually established the recognition of Xtep as "China's No. 1 running stock", and when it comes to running, the first thing that comes to people's minds is the Xtep brand. In September 2022, Xtep's main brand released the brand strategic positioning of "Xtep China's Running Shoes in the World", once again clarifying the future development direction of the brand.
According to Xtep International's 2023 financial report, its professional sports business segment represented by the Saucony and Melle brands performed well, especially the new brand Saucony achieved profitability for the first time in 2023, showing Xtep's running territory to the market more clearly.
If the transaction is implemented, Xtep International's business structure will be more streamlined and focused on the running sports track. Xtep's main brand is mass-market, and the strong cash flow generated will continue to support the growth of Saucony and Mellor. Saucony will continue to serve a high-end and sophisticated customer base, while Myle will focus on trail running and outdoor activities, and the synergies between the brands will be further strengthened.