Guosheng Securities: Excellent performance in 2025, continuous channel optimization, and enhanced product strength

Revenue/net profit increased by 10.6%/14.0% year-over-year, with a stable dividend payout ratio.The company released its 2025 annual report, showing full-year revenue up 10.6% year-over-year to RMB 11.1 billion, with gross margin remaining flat at 41.5%. The sales expense ratio decreased by 1.7 percentage points year-over-year to 20.2%, while the administrative expense ratio increased by 0.7 percentage points to 7.7%. During the period, the company made approximately RMB 100 million in donations (compared to RMB 10 million in the same period of 2024), leading to an increase in the administrative expense ratio. Overall, net profit attributable to shareholders grew 14.0% year-over-year to RMB 1.3 billion, with net profit margin improving by 0.3 percentage points to 11.7%. The company distributed a dividend of 31.7 Hong Kong cents per share for the entire year, maintaining a payout ratio of 45%, reflecting its commitment to shareholder returns.

361 Degrees Adult Business: Growth driven by enhanced product strength and brand power, with flagship store expansion exceeding expectations.In 2025, revenue from 361 Degrees' adult footwear and apparel increased by 8.0%/10.7% year-over-year to RMB 4.63 billion/RMB 3.423 billion respectively. 1) From a category perspective: In 2025, the product strength and brand power of 361 Degrees' running and basketball categories continued to improve. In the running segment, the company actively sponsored domestic and international marathons as well as independent events such as 'Track 3,' while launching new professional racing products like Feiyan 5 and Feiyan 5 FUTURE. In the basketball category, endorsements by NBA stars Nikola Jokic and Aaron Gordon helped drive brand building and global expansion. 2) From a channel perspective: By the end of 2025, the number of 361 Degrees adult stores decreased by 356 year-over-year to 5,394, with average store size increasing by 16 square meters from the beginning of the year to 165 square meters. At year-end, the company intensified channel optimization, reducing the number of stores, while the total number of large-format flagship stores reached 105 nationwide, exceeding expectations for expansion speed. This differentiated channel strategy laid the foundation for brand growth.

361 Degrees' children's business: solid positioning as a youth sports expert, with steady growth expected by 2025.Revenue from the children's business reached 2.58 billion yuan in 2025, up 10% year-over-year, accounting for 23.2% of the company’s total revenue. 361 Degrees Children continues its professional sports heritage, offering products across multiple categories such as running, basketball, and jump rope. By the end of 2025, the number of children's stores totaled 2,364, a decrease of 184 stores year-over-year, with an average store size of 124 square meters, up 12 square meters from the beginning of the year. The latest fifth-generation stores were implemented in 366 locations, alongside 21 flagship children's apparel stores, significantly enhancing terminal image and shopping experience.

361 Degrees e-commerce business: notable growth in 2025, contributing 29.5% to group revenue.E-commerce revenue grew by 26% year-over-year to 3.29 billion yuan in 2025, accounting for 29.5% of group revenue. The company effectively differentiated its online products from offline offerings, strengthening its e-commerce advantage through product differentiation. Additionally, it actively expanded into instant retail channels, further broadening the growth opportunities for its e-commerce segment.

Improved cash flow recovery; future performance is anticipated.Inventory at the end of 2025 amounted to 2.066 billion yuan, down 2.1% year-over-year, while inventory turnover days increased by 10 days to 117 days. Accounts receivable stood at 4.693 billion yuan by the end of 2025, up 7.9% year-over-year, with accounts receivable and bills turnover days remaining stable at 149 days. Net cash flow from operating activities was 815 million yuan in 2025, compared to 70 million yuan in the same period in 2024. We believe that the company may have increased its e-commerce inventory reserves at the end of 2024, leading to a lower base for operating cash flow. Over the medium to long term, we expect the company’s cash flow situation to continue improving as it strengthens inventory and accounts receivable management.

Looking ahead to 2026, we expect the company’s revenue and net profit attributable to shareholders to maintain steady growth.In 2025, driven by continuous improvements in product strength and channel operational efficiency, the company delivered excellent revenue and performance. Based on the results of recent order meetings, we currently project 9% revenue growth and 11% net profit growth attributable to shareholders for 2026.

Earnings forecast and investment recommendation:As one of the leading companies in the sportswear sector, 361 Degrees has demonstrated exceptional earnings growth. We forecast net profits attributable to shareholders to reach 1.455 billion, 1.624 billion, and 1.796 billion yuan for 2026-2028 respectively. At current prices, this corresponds to a 2026 P/E ratio of 7x. We reiterate our 'Buy' rating.

Risk Warning:The pace of store expansion and renovation has fallen short of expectations, the recovery of the consumer environment has been slower than anticipated, and fluctuations in the Renminbi exchange rate have led to performance volatility.

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