Overall retail sales growth in 2Q25 was slightly weaker than expected, primarily due to the Anta brand, although the beat by other brands has partly offset that. But the larger negative impact came from discounts deepening, even though we do have some expectations ahead. Hence, we have turned slightly cautious about 2H25E and trimmed our FY25E-27E net profit forecasts by 3%-5%. However, thanks to exceptionally strong outdoor brands growth and competitive advantages over other sportswear peers, we maintain BUY but trim TP to HK$ 111.54, based on 23x FY25E P/E (cut from 24x). The stock is now trading at 18x FY25E P/E.
　　Retail sales growth in Jul 2025 has improved QoQ. According to the management, retail sales growth for both Anta and FILA brands (esp. Anta) has accelerated MTD in Jul 2025, compared to 2Q25.
　　Anta brand may have some reforms in the short run which may affect retail sales growth in 3Q25E, but management is still keeping the FY25E guidance of HSD. Anta brand has appointed a new head of e- commerce business (a manager who previously worked for Anta and other international brands), and will consolidate the business between interested- based (e.g. Douyin) and traditional platforms (e.g. Taobao, Tmall and JD), in order to refine the pricing strategy and overall inventory management. Anta will also reform its offline business by promoting more larger-sized stores (such as sharing the good experience of upgrading the retail space, product and operational management) or even transferring some of those (may be 1 for a few smaller stores) to the distributors. A few hundred stores will be involved each year and the programme will last until FY27E. These actions may dampen the sales growth in 3Q25E, but should benefit the performance afterwards. More importantly, Anta has been very mindful with the costs in FY25E. A&P expenses are under control as there are no major sports events, and staff costs are also manageable since the current labour market is quite oversupplied. Additionally, the rental fees should also be more negotiable given the relatively high vacancy rate in shopping malls. Therefore, even though the GP margin might be under pressure, OP margin reduction should be less in FY25E, in our view.
　　Maintain BUY but trim TP to HK$ 111.54, based on 23x FY25E P/E (cut from 24x). We have revised down FY25E/ 26E/ 27E net profit forecasts by 3%/ 5%/ 5%, in order to factor in a more conservative GP margin and operating leverage. The stock is trading at 18x FY25E P/E, not that demanding given its comparative advantages over its peers, compared to its 5-year average of 25x.
　　Anta’s retail sales growth missed CMBI estimates in 1Q25, both inventory and discounts have worsened slightly. Anta reported LSD retail sales growth in 2Q25, missing CMBI estimates of HSD and the Company’s FY25E guidance, also slowing down from HSD in 1Q25. Anta adult (offline + online)/ Anta Kids (offline + online)/ E-commerce sales growth was at LSD/ LSD/ LSD. The miss, in our view, was mainly due to: 1) subdued consumption demand, 2) weaker- than-expected reception of new products, 3) slower-than-expected e-commerce sales growth (esp. during the 618 and Jun 2025), 4) limited discounts offer when the industry competition intensified, etc.. Noted that the new store formats such as Champion stores (sales per store is 70% to 80% higher vs regular stores) and Super stores (e-commerce business has further strengthened) are still growing healthily, and we think the miss was largely online related. Inventory to sales ratio was at about 5 months in 2Q25, increased slightly from 4.5 to 5 months in 1Q25, a little bit weaker than expected. Retail discounts have also deepened slightly YoY, by 1ppt/ 1-2ppts for the offline/ online channel.
　　FILA retail sales growth in 2Q25 was inline with expectations, inventory level remained stable but discounts continued to be widened. FILA retail sales have increased by MSD in 2Q25, inline with CMBI estimates of MSD, as well as the Company’s FY25E guidance, but slowing down slightly vs HSD in 1Q25. FILA core (offline + online)/ FILA Kids (offline + online)/ FILA fusion (offline + online)/ E-commerce sales growth was at HSD/ MSD/ MSD/ Low-teens. We are still rather satisfied with FILA’s overall performance, given the macro conditions (e.g. trade war in Apr 2025) and new categories like golf and tennis are selling quite well. Inventory to sales ratio was at 5 months in 2Q25, staying the same vs 5 months in 1Q25. Retail discounts have also widened YoY strategically, by 2ppts/ 1-2ppts for offline/ online channels, in order to clear more inventories during the 618 festival in 2025.
　　Other brands retail sales growth was impressive, continued to beat guidance, and discounts remained very limited in 2Q25. Other brands’ retail sales growth was at 50%-55% in 2Q25 (about 40%+/ 70%+/ 30%+ for Descente/ Kolon/ Maia active), far ahead of the FY25E guidance and CMBI estimates of 30%+. Retail discounts for Descente and Kolon were mostly less than 10% off, as the brand stayed popular and the trend of winter sports and outdoor remained overwhelming in China. All in all, for 2Q25, we believe the sales beat by the other brands has almost offset the sales miss by the Anta brand, and therefore the group level sales growth was still at 10%+. However, since the retail discounts continued to be weak for both Anta and FILA, the overall GP margin has experienced greater-than-expected pressure in 1H25 (may even sustain into the 2H25E), and hence we are cutting our forecasts for FY25E and onwards.