Huatai Securities: Continued strong revenue growth despite headwinds

361 Degrees released its 4Q25 operational performance: The offline retail sales of the main brand and children's brand both achieved a year-on-year growth of approximately 10%, maintaining steady growth despite a high base (4Q24: Main brand +10% YoY, Children’s brand +10-15% YoY). On e-commerce platforms, overall sales in 4Q25 achieved a high double-digit year-on-year growth (4Q24: +30-35% YoY). We are optimistic about the company enhancing its brand momentum through innovative products with high quality-price ratios and marketing empowerment, leading channel upgrades with the “Super Store” model, while deepening its international layout by opening its first overseas Super Store. Combined with a high dividend yield (2026E 6.2%), this will enhance shareholder returns, and we maintain our 'Buy' rating.

Offline: Full-scale push from the tech product portfolio, Super Store effectiveness continues to show
In 4Q25, the offline retail sales of the 361 Degrees main brand and children's brand both achieved a year-on-year growth of approximately 10%, which remained largely stable compared to the sequential growth rate in 3Q25. By category, 1) In running, the new speed racing family, 'Feiran 5' and 'Feiran 5 FUTURE,' were launched, accelerating iteration; 2) In basketball, Nikola Jokic's second-generation signature shoe 'JOKER2' and Aaron Gordon's sixth-generation signature shoe 'AG6' hit the market, converting star influence into strong sales momentum; 3) In outdoor and cross-training, the 'Windbreaker Jacket' and down jacket series continued to attract market attention. From a channel perspective, the foundation in lower-tier cities remains solid, with Super Stores and vertical outdoor outlets driving continuous offline growth. We expect lower-tier cities to remain an important driver of sales growth (with large-sized stores/children’s stores in lower-tier cities accounting for over 75%/65%, respectively), while we also predict that Super Stores as offline highlights will play a significant role in city expansion and customer acquisition. It is expected that Super Stores will account for around 50% in first- and second-tier cities, with new customer proportions reaching 60%-70%. Both sell-through rates and add-on sales rates outperform regular stores. As of 4Q25, the cumulative number of Super Stores in mainland China reached 126 (including 21 children’s stores), with the first overseas Super Store opened in Cambodia. ONEWAY, the Finnish outdoor brand under the company, positions itself as a high-quality, cost-effective brand, with store count maintained at six, mainly concentrated in Northeast and North China regions with strong outdoor demand. The standalone store model and operational data meet expectations, and the brand is expected to benefit from the high prosperity of the outdoor segment.

E-commerce: Sales recorded high double-digit growth, instant retail strategy accelerates further
In 4Q25, the overall sales flow of 361 Degrees’ e-commerce platform products achieved a high double-digit year-on-year growth, continuing a robust performance with stable discount levels and balanced old-to-new product ratios. Instant retail initiatives accelerated further, with 1,000 stores joining Taobao Flash Purchase in 4Q25, marking the launch of a new instant retail strategy. Through the integration of online and offline omnichannel efforts, the company has further improved retail efficiency and consumer experience.

Discounted inventory remains at a healthy level, with operating quality expected to steadily improve by 2026.
We expect the terminal discount rate in 4Q25 to stabilize within the 7.0-7.1 range, with inventory-to-sales ratio maintaining a healthy level of 4.5-5.0x. Continuous efforts in accounts receivable collection and inventory management are anticipated to result in an improved cash flow performance year-over-year. Looking ahead to 2026, the company will continue its partnership with the Asian Olympic Council for enhanced brand exposure, while consistently iterating on products in running, basketball, and outdoor categories, alongside developing niche but high-growth categories such as tennis. Offline, the advantage of super stores will continue to be leveraged. We expect robust order growth (mainly volume-driven) for the 26Q1-Q3 pre-order meetings, with further room for improvement in retail discounts. Operating quality is likely to steadily improve throughout 2026.

Profit Forecast and Valuation
We maintain our net profit forecasts of RMB 1.31/1.49/1.66 billion for 2025-27E. According to the consensus 26E PE ratio of 12.9x for comparable companies on Wind, and considering that the current brand scale and market share of 361 Degrees are lower than those of its peers, we apply a moderate discount and assign a target PE of 10.1x for 2026 (at an exchange rate of HKD to CNY of 0.91). We set a target price of HKD 8.0 and reiterate our 'Buy' rating.

Risk Warning: Intensified industry competition, slower-than-expected consumption recovery, e-commerce growth, and store adjustments.