[Dongwu Textile Service] 361 degrees: Q4 flow accelerated month-on-month, and annual performance is expected to recover steadily

The leading sportswear brand in China has now recovered its performance since 2021.The company targets mass-market sports and leisure footwear accessories for adults and children. Since the pandemic, its performance has experienced a process of decline and then recovery. In 2020, revenue due to the pandemic fell 8.3% year on year, and net profit to mother fell 4.01% year on year. As the impact of the epidemic weakens, 2021 H1 revenue and net profit have all returned to pre-epidemic levels. Revenue was 3.15 billion yuan/yoy +17.09%/+28.5% compared to 2019 H1, and net profit to mother was 401 million yuan/yoy +32.9%/+45.9% compared to 2019 H1.

On a quarterly basis, the Q4 flow rate for all products increased month-on-month.2021Q1-Q4, 361º main brand turnover recorded year-on-year high double digits/ 15%-20%/low double digit/ high double digit growth; 361º children's clothing brands had a year-on-year increase of 20%-30% low segment/ 30%-35%/15% -20%/25%-30% year-on-year respectively. Based on the four-quarter turnover performance, the company's revenue in 2021 is expected to reach the middle double digit level year-on-year.

By category, children's clothing is growing faster than adult clothing.2021 H1 adult wear/children's clothing revenue was 25.83/498 million yuan respectively, +14.46/ +23.99% year on year, accounting for 83.14/ 16.03% of revenue, respectively, and +2.47/ -2.15pct compared to 2020. In adult clothing, revenue from footwear, clothing, and accessories increased 22.47/6.09/ 21.09% year-on-year respectively in 2021, accounting for 44.43/37.58/ 1.13%, respectively, and +3.84/-1.46/+0.10pct, respectively, compared with 2020.

By channel, online acceleration and offline channel optimization.In 2021, H1's online/offline revenue was 488/2,619 million yuan, +53.9/+10.6% year on year, accounting for 15.7/ 84.3% of revenue, respectively, and +0.3/-0.3 pct compared to 2020.1) On the online side,In 2021, the self-developed applet “Youyan Youdu” was launched, and online exclusive products were sold on multiple platforms such as Tmall, Kuaishou, and Douyin. In 2021, the sales volume of Tmall's official flag increased by more than 40%, and the total sales volume of the new ambassador Gong Jun's Trajectory series products exceeded 10 million.2) On the offline side,The number of stores in 2020H1/2020/2021H1 was 5289/5165/5155, respectively. While stores were shrinking, offline revenue continued to grow, which reflected an improvement in store efficiency (YoY +10.6% of the same store revenue in 2021-H1). In the future, the company will continue to implement the “close small stores and open big stores” strategy to optimize store image and enhance store efficiency. Since June 2020, the number of ninth-generation image stores and 2020/2021 H1 stores launched is 294/694, respectively.

The 2021 H1 gross margin reached its highest level in nearly three years.The 2021 H1 company pulled back the average wholesale price for distributors, compounded by the company's production efficiency optimization. The 2021 H1 gross margin rebounded 4.0 pct to 41.8% year on year. Among them, the gross margin of footwear, clothing, and children's clothing increased 1.8 /5.2 /6.0 pct year on year to 43.1/41.2/42.0 percent, respectively. Due to repeated domestic outbreaks in the third and fourth quarters, we expect gross margin to remain flat or decline slightly in the second half of 2021.

Profit forecasts and investment ratings:As a leading sportswear brand in China, the company effectively improved its business conditions and profitability by strengthening brand promotion and channel adjustments after the epidemic. In 2022, the company will release three-state 2.0 running shoes and AG2X professional basketball shoes. Its technological strength will help the company expand its high-end product line and enhance its brand power. We expect the company's revenue to increase 15.5%/11.3%/10.3% respectively in 2021-2023, and net profit to mother will also increase 24.8%/13.3%/11.6%, respectively. The corresponding PE will be 12.7X/11.2X/10.1X, respectively. For the first time coverage, a “gain” rating will be given.