$LI NING(02331)$ Q1 business performance beat expectations.
Under the impact of the pandemic in 2022, Li Ning faced pressure from a high base in the first quarter, but inventory levels remained relatively healthy. The Li Ning brand (excluding Li Ning YOUNG) saw median year-on-year growth in retail sales across all channels in the first quarter, with direct-operated and wholesale channel sales increasing by mid-teens to low-twenties YoY for January-February due to incomplete recovery of foot traffic and consumer enthusiasm as well as a high base last year. As retail conditions gradually improved, offline sales growth further increased by nearly 30% in March. Net additions of 20/-109 stores were made this quarter compared to net additions of 273/61 stores at end-1Q22, easing pressure on same-store sales brought about by an increase in store numbers YoY. Due to a high base last year and foot traffic mainly concentrated offline after the pandemic, online channel sales decreased by double digits YoY but showed monthly improvement and returned to positive growth in March. In terms of industry promotions during 1Q23, discounts for Li Ning's offline retail increased by mid-single digits YoY. With spring clothing gradually being launched, inventory turnover ratio reached a relatively healthy level of 4.0-4.5 across all channels at end-March with new products accounting for 80-90% within six months.
Li Ning YOUNG achieved double-digit YoY growth in retail sales during the first quarter outperforming Li Ning's main products despite some decline seen on same-store basis due to higher base pressures and weaker retail environment; however it has already recovered its YoY growth rate since March.
55 stores were closed down resulting into total number reaching up-to 1253 shops at end-Q1; however since April onwards there has been continuous improvement observed regarding brand's overall sale performance. Since April, Li Ning's brand sales have continued to improve with YoY growth of more than 20% across all channels as of April 19th, with offline channel growth exceeding 30%. At the same time, excellent sales performance and new product launches have further improved discounting situation; retail discounts have reached over 70%, improving by low single digits YoY.
As retail conditions continue to improve and base effects decline in the second quarter of 2022 due to pandemic impact, Li Ning's revenue growth is expected to accelerate QoQ. Since March, the company's revenue growth has gradually accelerated for direct-operated/wholesale channels and discounting performance has also been better than expected. Meanwhile, excellent sales performance has boosted dealer confidence in placing orders; the fourth-quarter order fair was held at end-March and quick replenishment orders can be added later on.
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