The 126-year-old Saucony will eventually become the "FILA" of Xtep

The "Number One Running Brand in China" XTEP INT'L (01368) released a highly anticipated 2023 performance announcement on March 18.

According to the financial report, XTEP INT'L achieved a revenue of 14.346 billion yuan in 2023, a year-on-year increase of 10.9%. In terms of profitability, the company's gross profit margin further increased to 42.2% during the period, with an operating surplus of 1.58 billion yuan, a year-on-year increase of 7.9%. The net profit attributable to ordinary shareholders rose by 11.8% to 1.03 billion yuan, with basic earnings per share of 40.8 cents.

The Zhitong Finance and Economics APP noted that there was a significant "expectation gap" between XTEP INT'L's performance and its recent stock price trend. Some investors who were optimistic about XTEP INT'L's performance expectations bought XTEP INT'L stocks in advance. During the week of March 11-15, XTEP INT'L's stock price surged by 13.16% and hit a new high of 4.76 Hong Kong dollars in nearly 4 months.

Saucony Experiences Explosive Growth

The investment value of XTEP INT'L, which is highly recognized by investors, is largely due to the company's continued growth in a "strong cycle."

The financial report shows that in 2023, XTEP INT'L's main brand achieved revenue of 11.947 billion yuan, continuing to set historical records. At the same time, the company's new brands also maintained strong growth. Among them, the fashion sports brand achieved revenue of 1.603 billion yuan, a year-on-year increase of 14.3%, accounting for 11.2% of the total revenue; the professional sports brand achieved revenue of 796 million yuan, a significant year-on-year increase of 98.9%, with the professional sports brand accounting for 5.5% of the total revenue, an increase of 2.4 percentage points year-on-year.

According to observations by the Zhitong Finance and Economics APP, if XTEP INT'L's four major international brands represent the company's "second growth curve," then Saucony, the leading brand in professional sports, is the new "growth pole" in XTEP INT'L's new brand matrix.

Looking back to 2019, XTEP INT'L, which embarked on a path of multi-brand and globalization development, partnered with Wolverine Corporation to develop, market, and distribute Merrell and Saucony in mainland China, Hong Kong, and Macau, and fully acquired Gaisiwei and Paladin under the Yilien Group.

Among the four new brands, Saucony, with its highly competitive product range, has become the top choice for a large number of professional runners. Saucony ranks among the top three international brands worn by participants in multiple marathons. Reflecting on its business performance, Saucony has achieved rapid growth since 2021 and became the first new brand under XTEP INT'L to turn a profit in 2023. By the end of 2023, Saucony had 110 stores in mainland China, a net increase of 41 stores compared to 69 in 2022, representing a growth rate of 60%. It can be said that Saucony's "tipping point" has arrived According to reports, XTEP INT'L and Saucony brands are jointly focusing on the running track, with a market share of 40%, helping XTEP INT'L solidify its leading position as the top Chinese running stock in the capital market. Based on XTEP INT'L's 5th "5-year plan" released in 2021, the company plans to achieve target revenues of 20 billion yuan for the main brand and 4 billion yuan for the new brand by 2025, corresponding to 5-year CAGRs of over 23% and 30% respectively.

This means that the development potential of XTEP INT'L's running business has not been fully realized. At Saucony's current pace of development, it is highly probable to exceed the established development goals. Looking at the entire Chinese sports goods market, the significance of Saucony to XTEP INT'L is no less than that of FILA to Anta Sports.

Saucony: XTEP INT'L's "FILA"

According to the Securities Times app, the history of Saucony is very similar to FILA.

Founded in 1898 in Kutztown, Pennsylvania, USA, Saucony focuses on the design, research, and manufacturing of running shoes, pursuing the ultimate comfort of products. Saucony is not only one of the "four major running shoe brands" globally but also has the reputation of being the "first-class cabin for runners." In 2004, Saucony entered the Chinese market for the first time under the name "Saint Conny," but due to the brand's aggressive pricing strategy and overly optimistic estimation of the Chinese market, it failed. In 2015, Saucony teamed up with Taiwan's "Yong San Trading" as an agent to re-enter the Chinese market, but due to marketing strategy errors, development stagnated, and the cooperation ended after the contract expired.

In 2019, Saucony invested 10.1 million yuan in revenue under XTEP INT'L. In just 4 years, Saucony's revenue has grown exponentially, becoming profitable and achieving a remarkable turnaround in the Chinese market. Saucony has also become the most important "future industry" in XTEP INT'L's new brand matrix.

On the other hand, the FILA brand, founded in Italy in 1911, also has a century-old heritage. In the 21st century, FILA went through a long period of restructuring and turbulence. After the operating rights of FILA in China were acquired by Belle, it suffered losses for two consecutive years. In 2009, Anta Sports completed the acquisition of FILA's China business, quickly turning losses into profits and becoming a "cash cow" for Anta Sports. In the first half of 2023, FILA brand achieved revenues of 12.23 billion yuan, sitting on par with Anta brand's 14.17 billion yuan in revenue.

With FILA's past success, it undoubtedly makes people look forward to the possibility of Saucony becoming the next FILA. According to the "2022 Public Fitness Behavior and Consumption Research Report" released by the China Sporting Goods Industry Association, running is the most participated sport, accounting for 61.0%. This indicates that the running field is a highly promising blue ocean market with the potential to create industry giants From the perspective of XTEP INT'L, the company's inclusion of Saucony is not about taking over to inherit a century-old brand. On the contrary, Saucony, which enjoys the reputation of "first-class for runners", to a large extent, fills the gap in XTEP INT'L's main brand positioning, becoming a new choice for consumers in the trend of sports fashion. In other words, there can be a good synergy between XTEP INT'L and Saucony.

On the other hand, XTEP INT'L's emphasis on Saucony is unprecedented. In May 2023, the XTEP INT'L Shanghai International Headquarters was put into use, and Saucony immediately became the first brand to settle in. While XTEP INT'L continues to expand the Saucony retail network, it has also launched a new image store in mainland China. The first third-generation image store of Saucony opened in Shanghai in 2023, and its store layout has evolved from the original emphasis on professional sports image focusing on technology and functionality, to providing consumers with a multi-scenario experience, allowing customers to immerse themselves in a comprehensive sports venue of culture and life.

In terms of product development, as one of the world's four major running shoe brands, Saucony has professional quality and advanced technology. In 2023, the brand launched the new flagship marathon carbon plate running shoe "Endorphin Elite Winged Coffee", as well as the "Kinvara Essence 14" and "Triumph Victory 21" catering to the needs of professional runners, providing comfort and strong support for elite runners during running.

In the view of Zhitong Finance APP, in the fiercely competitive sports goods market, XTEP INT'L does not follow or blindly imitate, but focuses on doing its own thing well. XTEP INT'L attaches great importance to market segmentation, finding its own relatively advantageous track from market segmentation, upgrading product advantages in the identified track, establishing correct market marketing, and striving to be the first in the segmented market. This is the reason why XTEP INT'L occupies a leading position in the Chinese sports goods market amidst the fierce competition, and it is also the key for Saucony to become the next "FILA"