CICC has released a research report indicating that, considering the volatile retail environment, it has lowered its 2026 EPS forecast for XTEP INT'L (01368) by 3% while maintaining its 2027 forecast. The current share price corresponds to a 2026/2027 P/E of 7x/6x. The firm maintains its Outperform rating on the stock.
Taking into account industry valuation fluctuations, the brokerage has reduced its target price by 12% to HK$4.93, implying a 10x 2026 P/E ratio and representing a potential upside of 34% from the current share price.
Company Update
The company disclosed its operational performance for the second quarter of 2026. Retail sell-through for the core XTEP brand declined by a mid-single-digit percentage year-over-year, with retail discounts at 70-75% off. Channel inventory turnover stood at 4 to 4.5 months at the end of June. The Saucony brand saw its retail sell-through grow by a low single-digit percentage.
Volatile Retail Conditions Weigh on Core Brand Performance in Q2 2026
Retail sell-through for the core XTEP brand experienced a mid-single-digit year-over-year decline in Q2 2026. Within this, online channel sell-through grew approximately 10% year-over-year. The XTEP Kids business maintained steady growth, outperforming the overall brand. Retail discounts for the core brand remained stable sequentially at 70-75% off. Brand channel inventory turnover was at a healthy level of 4 to 4.5 months as of the end of June.
By category, performance in functional categories surpassed that of lifestyle categories. Running and outdoor categories sustained stable growth, with flagship running shoe series achieving double-digit growth. Management indicated subsequent plans to expand reach through initiatives like the "Glowing Plan" night runs and campus charity runs.
Proactive Adjustment of Core Brand Channel Structure
The offline channel network for the core XTEP brand is being gradually optimized and upgraded. Management stated that approximately 100 stores were reclaimed and converted to a Direct-to-Consumer (DTC) model in the first half of 2026, with plans to continue reclaiming around 400 stores in the second half. The 100 stores reclaimed in 2025 demonstrated better sell-through performance than franchised stores in H1 2026, providing preliminary validation of the DTC model's success.
Concurrently, the company net opened about 30 selected outlet stores in the first half, which exhibited strong monthly store efficiency. Management plans to increase the number of such stores to 70-100 by the end of 2026.
Steady Progress in Premiumization Strategy for Professional Sports Segment
The Saucony brand achieved low single-digit year-over-year growth in retail sell-through for Q2 2026, with offline sell-through maintaining 20% growth. On the discount front, the all-channel discount level improved notably in Q2, with offline store discounts remaining above 90% off and e-commerce discounts improving year-over-year.
Regarding products, the Triumph, Endorphin Elite, Kinvara, and Endorphin Pro series maintained stable growth, while the apparel category achieved double-digit growth. The brand continues its expansion from professional running into high-quality lifestyle categories.
For channels, the first flagship store in Hong Kong opened in Q2 2026, with its first-month performance exceeding expectations. Management plans to open over 10 flagship stores with annual sales exceeding ten million yuan each in core commercial areas of cities like Shanghai and Beijing during the second half of the year.
Risk Factors
Key risks include intensifying industry competition, terminal retail environment performance falling short of expectations, and channel transformation progress lagging behind forecasts.
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