Opening only 6 stores in six months, 361 DEGREES expands its brakes and turns "efficiency" to drive growth

In the environment of weak consumption recovery, some sports footwear and apparel companies have begun to re-plan their expansion pace.

On August 12, 361 Degrees (1361.HK) released its 2024 interim report, achieving a revenue of 5.14 billion yuan in the first half of the year, a year-on-year increase of 19.2%; achieving a net profit attributable to the parent company of 790 million yuan, a year-on-year increase of 12.2%.

361 Degrees announced a mid-term dividend of HKD 0.165 per share, with a total dividend of 341 million yuan, representing a year-on-year increase of 22.13 percentage points to 39.63%.

In terms of the path to achievement, 361 Degrees' revenue growth is not dependent on expanding stores, but on improving store efficiency.

In the first half of this year, 361 Degrees only opened a net of 6 stores in mainland China, bringing the total to 5,740 stores, with 5 new stores opened for 361 Degrees Kids, bringing the total number of 361 Degrees Kids stores to 2,550. The total revenue contributed by domestic offline stores was 3.815 billion yuan, a year-on-year increase of 21.2%.

In comparison, in the first half of last year, 361 Degrees opened a net of 162 stores in China.

Therefore, the average revenue per store for 361 Degrees in China is 664,600 yuan, a year-on-year increase of 19.1%, consistent with the overall revenue growth rate.

When asked by TradeWind01 about the sudden slowdown in store opening speed in the first half of the year, a person related to 361 Degrees stated, "Currently, the layout of 361 Degrees' main brand and children's brand stores is basically balanced. The company will continue to optimize channels, focus more on efficiency improvement while maintaining scale stability."

"Specific strategies include upgrading store image, closing inefficient small stores, and striving to open larger and better-looking stores. At the same time, there will be more optimized adjustments in store locations to enhance overall channel quality and consumer experience," added the aforementioned person related to 361 Degrees.

At the performance briefing after the financial report release, a senior executive of 361 Degrees provided a more direct explanation for the slowdown in store expansion speed: "Due to the weak economic environment and poor consumer sentiment, coupled with the fact that the company has not yet adopted a DTC (direct-to-consumer) model, we cannot force our partners or authorized distributors to actively open more stores in the main markets."

The senior executive of 361 Degrees expects the total number of stores for the whole year to remain the same as at the end of last year.

Regarding the direction of store location optimization, the aforementioned person related to 361 Degrees told TradeWind01 that the direction of 361 Degrees' store location optimization will closely follow consumer trends, increase the proportion of supermarkets and department store channels, adjust positions in core business districts, and expand formats such as outlets.

The potential reasons for 361 Degrees slowing down store opening pace may lie in the fact that during the inventory clearance cycle, people are becoming more cautious about consuming footwear and apparel products.

In the first half of this year, 361 Degrees invested more expenses, but the driving effect on sales did not increase proportionally.

Due to increased investment in advertising and marketing activities, sales and distribution costs (selling expenses) increased by 20.9% year-on-year to 916 million yuan, slightly faster than the revenue growth rate.

The selling expense ratio increased by 0.34 percentage points year-on-year to 17.67%, reaching the highest level in nearly a decade for the same period The erosion of large expenses has led to a year-on-year decrease of 1 percentage point in 361 Degrees' net profit margin to 15.4% in the first half of the year.

In terms of gross profit margin that reflects product discount levels, there was a year-on-year decrease of 0.4 percentage points to 41.3% in the first half of the year.

Both the gross profit margin of 361 Degrees' children's business and the gross profit margin of adult footwear products decreased by 0.7 percentage points year-on-year, attributed to the "launch of more cost-effective products."

According to relevant personnel from 361 Degrees, they explained to TradeWind01: "Our reductions are all within a controllable range, with gross profit maintained in the reasonable range of 40% to 42%. These slight adjustments are mainly due to the company actively launching high-quality products in the first half of the year, which not only use many high-quality materials but also incorporate advanced technology. Although the costs are relatively high, with outstanding quality and innovative technology, market demand is strong, and sales have significantly increased."

On the day after the financial report was released, 361 Degrees fell by more than 3% intraday, eventually closing flat at HKD 3.47 per share, with a year-to-date increase of 3.91%