CICC: 361 degrees continues to grow rapidly in 1Q24, and annual revenue is expected to be achieved well

361 degrees released 1Q24 business conditions: 361 degree's offline retail sales increased by 10-20% year on year, offline retail sales of 361 degree children's clothing increased 20-25% year on year, and retail sales on e-commerce platforms increased 20-25% year on year.

► Professional attributes drive major brands and children's clothing to achieve rapid growth.The company continues to cultivate the mass market and continuously enhance its brand power and product power through professional scientific and technological innovation. The 361 degree brand 1Q24 offline retail sales increased by 10-20% year-on-year. Supported by professional products, combined with comfortable wearing experience and creative design, offline retail sales of 361 degree children's clothing increased 20-25% year-on-year in 1Q24. Influenced by traditional promotion seasons such as the Spring Festival during the period, competition in the industry was fierce. The company's average offline discount was about 30% off, which was basically the same as the previous month (4Q23 offline discount was about 71% off). As of the end of March, the company's inventory sales ratio was around 4.5-5x positive, and management plans to continue optimizing inventory to a healthier level.

► Online growth continues to grow rapidly, and the differentiated layout continues to advance.1Q24's online channel retail sales increased 20-25% year over year under a higher base (1Q23 online retail sales increased about 35% year over year), continuing the rapid growth trend, mainly driven by new product sales. The company is committed to building a complex e-commerce system integrating product sales, brand promotion and consumer communication and co-creation to expand the “interested e-commerce” market. Online products are separated from offline products through exclusive offers. In 2023, the proportion of online exclusive offers reached 87%.

► Focusing on cost performance and functionality, revenue is expected to grow well throughout the year.The company continues to promote the development and development of cost-effective and functional products. Running shoes such as Flying Fire and Shifun series, as well as AG and BIG series basketball shoes, are selling well, and launched a series of products such as soccer. Product upgrades and innovations have also led to good sales. Management said that offline sales increased by about 30% year-on-year on the day of the Ching Ming Festival (April 4, 2024 vs. April 5, 2023). On the brand marketing side, the company uses sponsorship of events such as marathons and high-quality sports star spokespersons to enhance consumer recognition and stickiness. Management expects 2Q24 sales to maintain the 1Q24 growth trend and achieve a revenue target of 10 billion yuan for the whole year.

Keep the company's 2024/25 EPS forecast of 0.52/0.60 yuan unchanged. The current stock price corresponds to 8/7 times the 2024/25 price-earnings ratio, maintaining an outperforming industry rating. Considering the increase in investment sentiment in the industry, the target price was raised 26% to HK$6.03, corresponding to 10/8 times the 2024/25 price-earnings ratio, and there is 24% upside compared to the current stock price.

Competition in the industry has intensified, the terminal retail environment has fallen short of expectations, and raw material prices have fluctuated.