Huatai Securities: The rollout of super-premium stores is proceeding steadily in Q1 2026

361 Degrees released its Q1 2026 operational performance: Retail sales for the main brand and children's brand through offline channels both achieved a positive year-over-year growth of approximately 10%, continuing a steady growth trend despite a high base from the same period last year (Q1 2025: main brand grew by about 10-15% year-over-year, children’s brand by about 10-15%). In e-commerce channels, overall revenue flow in Q1 2026 achieved a mid-teens positive year-over-year growth (Q1 2025 grew by 35-40%). We believe the company will enhance its brand momentum through innovative products with high value-for-money and marketing empowerment. Innovative retail models like super-premium stores continue to gain market validation. A new round of strategic cooperation with the Olympic Council of Asia is expected to strengthen brand momentum. We maintain our 'Buy' rating.

Offline: New products continue to capture consumer mindshare, while the layout of super-premium stores keeps expanding By category, 1) In running, launched the China Urban Youth Track and Field Elite Competition, introducing products such as 'Speed 5 Pro', 'Track Ace', the 'Lifeng SL' super training shoes designed for hyrox sports needs, and the third generation of the Gale Family series including 'Gale MAX', 'Gale ET2', and 'Gale Light3'; 2) In basketball, star products like Nikola Jokic’s second-generation signature shoe 'JOKER2 GT' and Aaron Gordon’s series 'Zen 8' remain popular and are loved by consumers; 3) In children’s products, introduced national team-style jump rope shoes 'Lingyue 2.0v2', youth racing training running shoes 'Feiyan 1.0' and 'Drift 3.0', maintaining high value-for-money to capture consumer mindshare and sustain repurchase rates; 4) In outdoor and cross-training, outdoor revenue accounted for over 6%, with business growth accelerating. Trail running shoes 'Lingci 1.0' were showcased at the Hong Kong Ultra Trail Race, while 'Fenran 5' and 'Fenran 5 FUTURE' in new colorways debuted at the Tokyo Marathon Expo. The company continues to reinforce its positioning as a professional sports brand. During Q1 2026, 15 new super-premium stores were opened, bringing the cumulative total to 142 stores (including 22 children’s stores and one store in Cambodia’s AEON Mall). We estimate that per-store efficiency remains in the range of RMB 8-12 million, with a plan to open 100 new super-premium stores throughout 2026.

E-commerce: Revenue flow continues with double-digit steady growth, opening new cooperation channels with JD.com's instant retail In Q1 2026, the e-commerce channel continued its stable performance. We estimate that discount levels remained around 40-45% off, with exclusive online products accounting for about 85% of overall sales. In new retail channels, the company has fully integrated into instant retail through deep cooperation with JD.com's fast delivery services, with over 1,000 stores across more than 160 cities now available on JD.com's instant delivery platform. Previously, the company had also integrated into instant retail platforms such as Meituan and Taobao. We anticipate that 361 Degrees’ channel expansion will accelerate retail operation efficiency and continuously optimize the purchasing experience for end consumers.

Discount inventory remains at a healthy level, with operating quality steadily improving We expect the discount rate for adult and children's products in Q1 2026 to remain around 70% of the original price, with inventory-to-sales ratios staying within the 4.5-5x range, indicating an overall healthy status. Additionally, we anticipate that the company has locked in its order costs for Q1-Q3 2026 through trade fairs, mitigating the impact of geopolitical conflicts and international tensions. Regarding product development, while continuing to focus on core categories such as running, basketball, and outdoor activities, 361 Degrees places significant emphasis on footwear R&D to maintain competitive edge. With ongoing improvements in offline channels, particularly in super stores, we expect the company’s operating quality to improve steadily in Q2 2026. For earnings forecast and valuation, we maintain our projected net profit attributable to shareholders at 1.49/1.66/1.84 billion yuan for 2026-2028E. Referencing the average forward PE ratio of 12.5x from comparable companies on Wind (previously 13.1x), and considering 361 Degrees' current brand scale and market share are lower than industry peers, we apply a moderate discount, maintaining a target PE ratio of 9.8x for 2026E (exchange rate: HKD to CNY at 0.88). We reiterate our target price of HKD 8.0 and 'Buy' rating. Risk factors include intensified industry competition, slower-than-expected consumer recovery, e-commerce growth, and store adjustments.

E-commerce: Sales continue double-digit steady growth; new partnership established with JD.com's instant retail channel In Q1 2026, the e-commerce channel showed stable performance. We estimate the discount levels remained between 40%-45%, with exclusive online products accounting for approximately 85% of total sales. In terms of new retail channels, the company has formed an in-depth collaboration with JD.com's instant delivery service, covering over 1,000 stores across more than 160 cities nationwide, all integrated into JD.com's instant delivery network. Previously, the company also connected with platforms like Meituan and Taobao for instant retail services. We anticipate that 361 Degrees’ channel expansion will enhance retail operational efficiency and continuously optimize the purchasing experience for end consumers.

Risk factors include intensified industry competition, slower-than-expected consumer recovery, e-commerce growth, and store adjustments.

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