Everbright Securities: 2025 Annual Earnings Commentary: Healthy Growth in Performance, Successful Expansion of Super Stores

Revenue and net profit attributable to shareholders in 2025 increased by 11%/14% year-on-year.

361 Degrees released its 2025 annual performance results.The company reported full-year revenue of 11.15 billion yuan in 2025, a year-on-year increase of 10.6%, and net profit attributable to shareholders of 1.31 billion yuan, a year-on-year increase of 14%, which met expectations. Basic EPS was 0.63 yuan. The company plans to distribute a cash dividend of 0.113 Hong Kong dollars per share, adding to the interim dividend of 0.204 Hong Kong dollars per share, making the total payout ratio for the year 45%.

In terms of operating metrics,The gross margin remained flat in 2025 compared to the previous year, while the operating profit margin improved by 0.3 percentage points to 15.9% year-on-year, and the net profit margin attributable to shareholders rose by 0.3 percentage points to 11.7% year-on-year.

Revenue growth remained stable, with the number of premium stores successfully expanding to 127.

By category,In 2025, adult footwear, adult apparel, children's footwear, children's apparel, and other products (accessories and soles) accounted for 41.5%/30.7%/12.7%/10%/5.1% of revenue respectively. These proportions changed year-on-year by -1.1/flat/+1.8/-2/+1.3 percentage points, with revenue growing by +8%/+10.7%/+28.5%/-7.5%/+46.5% respectively.

Looking at different sales channels,In 2025, e-commerce channels generated revenue of 3.29 billion yuan, accounting for 29.5% of total revenue, a year-on-year increase of 26%. Offline channel revenue is estimated to have grown by approximately 5% year-on-year. Additionally, the children's business achieved revenue of 2.58 billion yuan, a year-on-year increase of 10%.

In terms of retail outlets, By the end of 2025, the company's 361 Degrees brand will have a total of 6,647 outlets (a net decrease of 6.6% from the beginning of the year), with 5,394 in mainland China (-6.2%) and 1,253 overseas (-8.2%). The 361 Degrees Kids will have a total of 2,364 outlets (-7.2%). Among these, by the end of 2025, the company will have opened 127 new super-product stores, including 105 adult stores in mainland China, 21 children's stores, and one store in Cambodia.

In terms of retail sales flow, The 361 Degrees brand’s retail sales flow increased year-on-year by more than 10%/approximately 10%/approximately 10%/approximately 10% respectively in Q1 to Q4 of 2025, while the retail sales flow for 361 Degrees Kids also grew by more than 10%/approximately 10%/approximately 10%/approximately 10% respectively.

Gross margin remained stable, expense ratio declined, inventory turnover slowed somewhat, and operating net cash flow increased significantly.

Gross margin: For the full year of 2025, the gross margin was 41.5%, unchanged year-on-year. By product category, the gross margins for adult footwear, adult apparel, children’s footwear, and children’s apparel were 43%/42.4%/41.7%/42.2%, increasing year-on-year by +0.1/+1.1/+0.3/+0.3 percentage points respectively.

Expense ratio: For the full year of 2025, the total expense ratio decreased by 0.6 percentage points year-on-year to 27.9%, with the selling/management/financial expense ratios at 20.2%/7.7%/0%, changing year-on-year by -1.7 percentage points/+0.7 percentage points/+0.4 percentage points respectively. In terms of expenditure nature, advertising and promotion expenses/staff costs/research and development expenses as a proportion of total revenue were 10.5%/8.4%/3.4%, changing year-on-year by -2.3 percentage points/-0.1 percentage points/remaining flat respectively. Operating profit margin: For the full year of 2025, the operating profit margin improved by 0.3 percentage points year-on-year to 15.9%.

Other financial indicators: 1) Inventory at the end of 2025 decreased by 2.1% year-on-year to RMB 2.07 billion, with the inventory turnover days for the full year of 2025 being 117 days, an increase of 10 days year-on-year. 2) Accounts receivable at the end of 2025 increased by 7.9% year-on-year to RMB 4.69 billion, with accounts receivable turnover days being 149 days, remaining flat year-on-year. 3) Operating net cash flow for 2025 was RMB 810 million, an increase of 1,067% year-on-year.

Sales growth and financial performance are healthy; maintain 'Buy' rating.

The company’s revenue and sales growth in 2025 were robust, with both adult and children’s businesses maintaining approximately 10% good growth across all four quarters of the year. Additionally, the company’s progress in opening new super-product stores has been smooth, reaching 127 by the end of 2025, with expectations to continue this momentum into 2026. From a profitability perspective, the company optimized its expense ratio control in 2025, showing healthy performance in operational metrics.

We maintain our net profit forecast for the company's fiscal years 2026-2027 and introduce a forecast for 2028 at RMB 1.49/1.67/1.8 billion, corresponding to PE ratios of 7/6/6 times for 2026-2028. Given the low valuation, we reiterate our 'Buy' rating.

Risk warnings: Persistent weak demand domestically and internationally; abnormal weather affecting offline foot traffic; slower growth in e-commerce channels; improper cost control or underperformance of investment; intensifying industry competition.

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