1Q25 results were roughly inline and FY25E guidance was maintained; therefore we maintain our BUY rating and TP. However, the inventory level in 1Q25 actually deteriorated QoQ and YoY, plus the rather weak management comments on Apr 2025, and we thus have turned slightly more cautious about 2Q25E outlook. The stock is trading at 14x FY25E P/E.
The trend of retail sales growth and discounts in Apr 2025 deteriorated. The sales trend was quite robust in Jan-Feb 2025 but kind of worsened in Mar 2025. According to management, the trend further deteriorated in Apr 2025 (negative growth in the offline channel, weaker than management’s target), likely due to the unfavorable weather (too cold at the beginning and too hot afterwards) and the macro environment (consumer confidence has been hit hard after trade war started). Therefore, management also saw retail discounts widened in Apr 2025, in order to drive more sales growth.
Despite various macro headwinds, the FY25E guidance remained unchanged. On one hand, management did notice the drags on consumer confidence by macro uncertainty. On the other hand, they also have some expectations on potential stimulus by the Chinese government. Therefore, for now, they are still keeping the FY25E target (flattish sales growth and HSD NP margin, as well as other guidance like: 1) flattish (or better) GP margin, 2) surge in A&P expenses (10%+ of total sales) in FY25E, and the store opening plan (10-20 net closures for direct retail/ 30-40 net opens for wholesale/ 100 net opens for Li Ning Young), are all unchanged. Noted that if the trend is positive and ahead of targets, many positive factors like: 1) potential improvements in retail discounts (likely in offline channel), 2) better channel mix (online sales has a higher OP margin and faster sales growth), and 3) gradual reduction in store closure-related impairments, may kick in and drive better margins.
Maintain BUY and TP of HK$ 19.81, based on 18x FY25E P/E (unchanged). The 1Q25 results were roughly inline and on track with the FY25E guidance, and we still maintain our view that the worst has likely passed and numbers shall bottom out in FY25E. However, since the retail sales growth is rather weak in Apr 2025, we have turned more cautious and will closely monitor if the overall trend might reverse. The stock is trading at 14x FY25E P/E, which is not too demanding, esp. when compared to 10- year average of 25x.
1Q25 retail sales growth inline with expectations. Li Ning’s retail sales grew by LSD in 1Q25, inline with CMBI est. of 2% and slightly ahead of the Company’s FY25E guidance of flattish sales growth. In the offline channel, direct retail sales growth (dropped by LSD) was weaker than the wholesales retail growth (increased by LSD), but this was only due to the store closures in the direct retail channel (the trends shall be highly similar if we adjusted for that). In the e-commerce channel, retail sales growth continued to be strong, at low-teens. Both offline and online retail sales growth recorded a QoQ slowdown in 1Q25. By sports categories, both retail sales growth for running (20%+) and training (10%+) remained robust, but basketball (10%+ decline) and lifestyle (10%+ decline) were rather sluggish. Retail sales growth for footwear (HSD increase) was better than that for apparel (LSD drop). By ASP and volume, both had a small LSD increase in 1Q25.
But inventory to sales ratio was actually a miss while retail discounts were inline in 1Q25. Inventory to sales ratio increased to 5 months in 1Q25, not only higher than CMBI est. of 4 months, but also increased YoY vs. 4 to 4.5 months in 1Q24 and QoQ vs. 4 months in 4Q24. But on the other hand, retail discounts in offline/ online channels both recorded a YoY improvement in 1Q25, better than the worsening/ flattish trend back in 4Q24. We believe management might have shifted their focus to profitability in the short run (rather than inventory level) because the consumers are much less sensitive to promotion than before. Anyhow, management did reiterate their target to keep the inventory to sales ratio at a reasonable level (4 to 5 months) by FY25E.