Q2 2026 Xtep International Holdings Ltd Earnings Call
Speaker #1: Last. I am Sophia from the IR department, now our management, including Chairman and CEO Mr. Ding Shuibo, Presidents Mr. Tian Zhong, Group CFO Mr. Ms. Ding—so in this webcast and conference call, well, this will be conducted in Mandarin with English simultaneous interpretation.
Speaker #1: The management will first present the 2026 interim results followed by Q&A session. Later on, I will explain the procedures for Q&A. Now I will pass the floor to our group chairman and CEO, Mr. Ding Shuibo.
Speaker #1: Please. Good afternoon, investors and media friends. Thank you for attending Xtep 2026 interim results presentation. I'm Ding Shuibo. In the first half of 2026, the domestic macroeconomic environment was complex and volatile.
Speaker #1: Industry competition continued. We remain focused on our core strategy: concentrate on improving operational quality and consolidate our foundation for development. China's sports consumption continues to expand.
Speaker #1: Within the sports industry, running remains one of the fastest-growing subsectors. Maintaining a strong performance in the first half of the year. Record-breaking registration numbers for top domestic marathons fully demonstrate the robust demand for sports consumption.
Speaker #1: Xtep continues to expand its leading advantage on the running sector. In major marathons across the country, including Xiamen Chongqing Wuhan and Wu Xi, Xtep consistently ranked first in overall wear rates, maintaining leading position in the industry.
Speaker #1: In March of this year, Feng Pei Yu wore Xtep's 160 Series at the Tokyo Marathon, setting a new speed record and leading Chinese marathons into the 2005 era.
Speaker #1: On 21 August, the group also launched the new 160 X8 racing shoes, and the top of the line cushioning flagship Zero Series in Shanghai realizing a full scenario layout from professional runners to running for everyone.
Speaker #1: Xtep main brand or core brand. We adhere to the strategy of focusing on running and influencing the public with professionalism to consolidate market advantages and leadership position.
Speaker #1: Saucony as a century-old running heritage brand it actively promotes a high-end strategy focusing on high-end elites and investing heavily in brand products and channels to achieve long-term high-quality growth.
Speaker #1: 2026 is the foundational year for the group. We'll focus on brand upgrades, and then for overseas and cross-border e-commerce, we achieved doubling growth. So 2026 is the foundation year for the group.
Speaker #1: We'll focus on brand upgrades, image renewal, channel optimization, and promotion of DTC. To fully unleash operational efficiency, and achieve high-quality growth for all brands.
Speaker #1: Thank you. Now I will hand over the time to Mr. Tian and Donna to give everyone a business and financial review. Welcome to Xtep's 2026 interim results presentation.
Speaker #1: In the first half of 2026, the domestic macroeconomic environment was complex and volatile, and the sports industry cycle also experienced some fluctuations. However, the group remains committed to its core strategy on focusing on running, consolidating foundation for development, and achieving long-term high-quality growth.
Speaker #1: Page 2. The group's overall revenue remained stable. Revenue was 6.795 billion in the first half of the year, mass sports segment saw a slight decrease of 2.2% to 5.92 billion.
Speaker #1: The professional sports segment performed relatively well, with revenue increasing by 11.4% to 875 million. The group's brand momentum is steadily improving. Gross profit margin has achieved a high-quality improvement, up 1.4 percentage point year-on-year to 46.4%.
Speaker #1: Our group net profit was 818 million, with net profit margin of 12%. The group has a solid financial position, with operating cash flow up 9.5% year-on-year to 847 million RMB, net cash was 2.326 billion RMB, up 36.3% year-on-year.
Speaker #1: The board recommended declaring an interim dividend of 0.18 HKD per share, increasing the payout ratio to 53.8%. Next page. On revenue. The group's business performance was solid.
Speaker #1: Total revenue of the first half was 6.795 billion, among them revenue from the mass sports division fell slightly by 2.2% to 5.92 billion, while e-commerce and kids businesses continued to lead the growth.
Speaker #1: Professional sports segment fully implemented high-end strategy. And achieved outstanding results. Revenue increased by 11.4% to 875 million, accounting for 12.9% of the group's total revenue, achieving high-quality growth.
Speaker #1: Next page. Gross profit and gross margin. The group achieved high-quality improvement in gross profit and gross margin. Gross profit increased 2.6% to 3.155 billion, gross margin improved by 1.4 percentage point to 46.4%.
Speaker #1: Among them, the gross profit margin of the mass sports division increased by 1.5 percentage point to 45.1%, mainly driven by improvement in gross profit margin of e-commerce and kids business, as well as the increase in share of functional products.
Speaker #1: Gross margin of the professional sports segment increased to 55.5%, mainly due to implementation of Saucony's premiumization strategy. Our increased accounts discounts on flagship products and the economies of scale in apparel and lifestyle products.
Speaker #1: Next slide. SG&A. In the first half, the group continued to implement refined cost control. A&P expenses accounted for 12% of revenue, down 0.6 percentage point year-on-year, which is at a healthy level.
Speaker #1: We focused on sponsoring high-potential marathons and running events, and our comprehensively advancing Saucony's premiumization strategy, to improve overall marketing management efficiency. R&D expenses accounted for 2.7% of revenue, down 0.1 percentage point year-on-year.
Speaker #1: In the first half, Xtep core brand continued to upgrade, its flagship products and expand product portfolio. While Saucony also increased investment in apparel and lifestyle products.
Speaker #1: In the future, we'll continue to control R&D investment at around 3% of revenue. Next slide. Operating profit and operating profit margin. Excluding share-based compensation scheme expenses, the group's adjusted operating profit for the first half was 1.204 billion RMB, with adjusted operating profit margin of 17.7%.
Speaker #1: In terms of segment, operating profit, the mass market segment was 1.12 billion, down 7.3%, with operating profit margin of 18.9%, down 1.1 percentage point, mainly due to: one, rapid growth in e-commerce business has led to increased costs related to logistics and platform services; and Xtep core brand is actively promoting DTC transformation, resulting in increased direct sales related expenses.
Speaker #1: In the professional sports segment, business performance was strong, with continued release of economies of scale, profitability steadily improved, with operating profit increasing 15.5% to 19.78 million RMB, and operating profit margin was up 0.4 percentage point to 10.4%.
Speaker #1: Net profit. Affected by one-off expenses arising from DTC transformation and equity incentives, the group recorded net profit of 818 million RMB, with net profit margin of 12%.
Speaker #1: The board recommended declaring an interim dividend of 0.18 HKD per share, increasing the payout ratio, 0.18 HKD per share, increasing payout ratio to 53.8%, in an effort to achieve long-term and stable returns for shareholders.
Speaker #1: The group's total operating capital days are 112 days, an increase of 2 days compared to the end of 2025. Inventory turnover days increased by 28 days compared to the end of last year, reaching 105 days.
Speaker #1: The main reasons are for Xtep core brand during the peak season for marathons and running in the second half, both online and offline channels need to prepare inventory for flagship new products, and there is also an increase in inventory due to DTC transformation.
Speaker #1: For Saucony, business expansion new stores require additional inventory and number of SKUs in apparel and lifestyle receivable turnover days 123 days, more or less the same as at the end of last year.
Speaker #1: Going forward, we'll continue to improve operational efficiency and ensure that inventory and accounts receivable turnover remain at healthy levels. Cash flow. The group's financial condition remains healthy.
Speaker #1: Bank cash and deposits totaled 4.235 billion. In the first half, we continued to optimize our debt structure, with bank loans decreasing 460 million RMB.
Speaker #1: Excluding bank loans and convertible bonds, net cash increased significantly by 36.3% from the end of last year to 2.326 billion. In addition, operating cash inflow reached 847 million.
Speaker #1: Up 9.5% year-on-year, providing strong support for business development. That concludes the financial part. Now, I'd like to hand the time over to Mr. Tien.
Speaker #1: Thank you. Thank you, Donna. Investors, good afternoon. Now, I will review the group's operations for the first half of 2026. The group remains committed to our core strategy of continuously focusing on running.
Speaker #1: Xtep core brand. Deeply rooted in the mass market, using signature products as the engine to achieve professional influence on the mass. Saucony. Solidify its brand positioning as a century-old running heritage brand, advance its high-end operation strategy and continue to penetrate elite circles.
Speaker #1: Mero. Continue to focus on professional outdoor sports and seize growth opportunities in the outdoor market. The group will continue to increase operational investment in these three brands.
Speaker #1: Meet the diverse needs of its customers, consolidate Xtep's market leadership as China's number one running brand, and achieve high-quality growth. For running. Professional potential.
Speaker #1: Or performance. In the first half of the year, Xtep and Saucony continued to rank first among all brands in terms of overall wear rates in major domestic marathons, leading the industry.
Speaker #1: In particular, the wear rate exceeded 50% in Xiamen and Chongqing marathons. Over the past three years, we have helped athletes break the Chinese marathon record four times.
Speaker #1: Among them, Feng Pei Yu broke the Chinese marathon record at this year's Tokyo marathon and won the first place among Asia runners, leading China into the 2 minute 05 era.
Speaker #1: And in terms of products, we continue to upgrade our professional products. Last Friday, we released the new 160X8 Champion Edition running shoe series, which has significantly improved performance compared to the previous generation.
Speaker #1: At the same time, we continue to expand our product portfolio and launch the Lingyun top-of-the-line cushioning series to empower runners with cutting-edge technology and enhance influence in the mass market.
Speaker #1: For e-commerce. In the first half of the year, e-commerce business continued to lead the growth, mainly driven by signature products. Among them, the 2000KM series of carbon plate-free competitive training running shoes, which were launched simultaneously across all channels, starting in February saw sales increase by about 70% year-on-year in the first half, demonstrating outstanding performance.
Speaker #1: In the second half, we'll continue to improve our portfolio of best-selling products and maintain our growth momentum. Xtep core brand. As of 30 June 2026, we had 6,308 Xtep core brand adult stores in the first half.
Speaker #1: We actively optimized our channel structure, upgraded store image, opened large stores in suitable business districts, and increased the proportion of shopping malls and outlet malls.
Speaker #1: Our selected outlet malls now have over 60 stores, with ideal monthly store productivity. DTC is progressing smoothly. With over 200 stores already recovered and revenue performance continued to improve.
Speaker #1: For overseas development. Overseas business continued a strong growth, with cross-border e-commerce more than doubling in the first half. We are focusing on developing the Southeast Asian market in the first half of the year.
Speaker #1: We opened 13 flagship stores in Malaysia, Indonesia, and other countries, to enhance our brand presence in those regions. In the second half, we'll steadily advance our store opening plan in Southeast Asia.
Speaker #1: While sponsoring running events, in Malaysia and Vietnam. Fully empowering the conversion of online traffic into offline sales and continuing to achieve rapid growth. XYoung.
Speaker #1: Continues to focus on helping children and teenagers pursue higher levels in sports, as its core strategy driving stable business growth. In the first half, the flagship product Xtep A+ rose shoes performed brilliantly, with sales doubling.
Speaker #1: In July, we also released a new generation of growth sneakers, which provide better stability and bounce efficiency. In addition, last year, we launched growth stores equipped with foot measuring devices, which provided a differentiated consumer experience that was well received by consumers and led to continuous improvement in store efficiency.
Speaker #1: In terms of branding, Li Yongqiu, the brand ambassador for XYoung, won the global championship in a world-class street dance competition in France. Leveraging this momentum, we launched XYoung Dancing to the Stars, program, to reach world-class street dance competitions and enhance the brand's international influence.
Speaker #1: As of 30 June 2026, XYoung had 1,455 stores in mainland China. Professional sports segment. Saucony. This year, Saucony is fully advancing its premiumization strategy, focusing on investment in brand products and channels.
Speaker #1: At the same time, through strict price management, we're increasing discounts on Mindshare-related products. To further consolidate brand's premium image and high-quality profits, laying a solid foundation for long-term healthy growth.
Speaker #1: So, in terms of products, in the first half of the year, we have organized a number of events and for six consecutive years, we sponsored the Hutu Coast China Relay in Shanghai.
Speaker #1: For Saucony, we take active part in a number of running events, and then in Shanghai, and Shenzhen, we our team achieved very good results.
Speaker #1: Many media in the reviews rated our Saucony shoes number one. So, in terms of products, Saucony has always focused on professional running, so we launched in the first half of the year a number of running shoe styles, which have received very positive customer feedback.
Speaker #1: And then for lifestyle, products and apparel products, we launched 1898 commuter series, and we gradually moved from a professional track to a high-quality lifestyle.
Speaker #1: In relation to channels, in the first half of the year, we focused on offline channels. This year, we adopted premiumization and this should be the most important breakthrough points.
Speaker #1: In June, we opened the first image store in Hong Kong, and brand awareness has significantly improved since opening the store has consistently exceeded expectations.
Speaker #1: In the second half, we'll continue to focus on core business districts in high-tier cities, create larger and newer stores, continue to improve store efficiency, and drive rapid offline growth.
Speaker #1: As of 30 June, Saucony had 180 stores in China. Professional sports division, Mero. Mero continues to focus on professional outdoor sports field, keenly grasping the market opportunities brought about by the current outdoor sports trend.
Speaker #1: And in this way, we can also drive strong performance growth by focusing on three core series, hiking, trail run, and outdoor lifestyle. In terms of sustainable development, the group continues to focus on three main areas: environmental protection, sustainable value chain, and people-oriented.
Speaker #1: In terms of environment, we launched 1608's 7.0 Pro environmental protection series in the first half, which reduces carbon emissions by 12.7 grams per pair, and total amount of waste textile recycled in the supply chain reached 92 tons.
Speaker #1: We also carried a number of carried out a number of environmental protection, public welfare activities. Regarding sustainable value chain, we have published the Sustainable Chemicals Management Manual and conducted special training on supply chain ESG management to promote establishment of transparent chemical management system.
Speaker #1: In terms of putting people first, the group donated cash and materials worth more than $14 million RMB in the first half, and successfully held the project HOPE Xtep campus charity initiative, demonstrating our corporate responsibility through practical measures.
Speaker #1: Finally, I would like to summarize the group strategy. The group will continue to focus on running, driving the continuous improvement of the momentum and market share of multiple brands.
Speaker #1: Xtep core brand will continue to delve deeper into the running category and adhere to the principle of professional to mass influence by creating outstanding signature products we can accelerate expansion of our reach to a wider audience.
Speaker #1: And further solidify our professional running mindset. We will also continue to optimize our channel structure, promote D2C, and refine the operations and achieve improved quality and efficiency.
Speaker #1: Saucony's premiumization strategy is progressing smoothly. Firmly targeting elite consumers and enhancing brand awareness with its century-old running heritage. For Mero, we focus on the outdoor channel, and we also actively seize the growth opportunities in the outdoor market and continue to invest in products and e-commerce channels.
