During 4Q25, retail sell through of Xtep core brand and Saucony recorded flattish / >30% YoY growth respectively, showing the polarisation of mass market and premium market. Still, we see Xtep performed relatively better among the peers of domestic brands, given strong performance of running products industry-wise. We also notice Xtep is nurturing the premium brand Saucony properly, and we expect Saucony to remain a key driver in 2026-2027. Hence, while the overall sportswear market may still be under pressure in 2026, we expect Xtep could achieve moderate growth thanks to Saucony. We suggest paying attention to its 2026 guidance in March 2026, and still see the current valuation reasonable.
Key Factors for Rating
4Q25 polarised performance largely in-line with expectations. For the Xtep core brand, retail sell through was flattish YoY while operating metrics such as channel inventory level (at 4.5 months) and retail discount level (25-30% off) remained largely stable. In the meantime, Saucony also achieved a >30% YoY retail sell-through growth. The performance unveiled some divergence between the two brands, where Xtep faced deceleration amid a weaker consumer market while Saucony’s growth accelerated as the Company revamped the operations of e-commerce. Nonetheless, running-related products supported the companywide volume growth, and Xtep’s 4Q25 sell-through numbers have outperformed peers of domestic brands, reflecting its relative competitive advantages and better positioning.
Good momentum of Saucony likely sustainable. We see the stronger performance of Saucony likely sustainable in 2026, and supportive to its target of 2027 revenue to be doubled of 2024 (2024-2027 CAGR of 26% implied). During 4Q25, its retail sales in physical stores remained robust, reflecting effective store expansion strategy in premium districts, while the refinement of e-commerce products is also proven to be working as sell-through rebounded QoQ. We expect Saucony’s richer product offering should entice more customers with higher spending power in 2026, especially its running shoes have achieved higher penetration rate among elite runners in 2025.
2026 guidance likely more conservative than 2025. Mgmt. viewed that 2025 top-line guidance (Xtep core brand: +ve growth; Saucony: >30% YoY) has already been met after the 4Q25 performance, hence we expect 2025 NP growth should also be within their guidance of >10% YoY. Nonetheless, considering weaker performance of its peers and goods consumption still likely under pressure in 2026, we expect its 2026 guidance to be more conservative. Hence, we lower our 2026-2027 EPS forecast by 3% to factor in such weakness.
Key Risks for Rating
Downside risks: (1) unsuccessful multi-brand strategy; (2) deteriorated retail sell-through for core brand, especially under DTC; (3) unexpected spike in advertising spending; and (4) higher costs related to new brand expansions.
Valuation
We revised our 2026-2027 EPS forecast by 3% to mainly factor in: (1) weaker core Xtep brand revenue assumption even DTC transformation is considered; (2) higher SG&A assumptions to factor in more competitive industry landscape as peers increase efforts in advertising and promotion, research and development.
Our TP is lowered to HK$6.50, based on 10.5x 2026E P/E (previous: 11.5x) and HKDCNY rate of 0.90 (previous: 0.93). We assign a lower target multiple to Xtep as we expect the competitive landscape of sportswear market may worsen in 2026, which could lower earnings visibility and investor appetite.
Nonetheless, we see Xtep’s valuation still attractive (at 8x 2026E P/E and 6% 2026E dividend yield while offering 16% ROE if Xtep core brand remains stable while Saucony provides growth), which should see some support to its share price once earnings visibility is improved, especially if its 2026 guidance is communicated in March 2026 earnings call. Maintain BUY.