361 Degrees International Limited (361E) reported revenue rose by 15.7 percent to RMB2.56 billion in the first half ended June 30, driven mainly by growth in orders taken at trade shows that the company said signaled steady growth in the Chinese sportswear industry.

The leading international sportswear brand based in China said the volume and average wholesale selling price (AWP) of footwear it sold grew significantly and reached 45.1 percent of revenue. Apparel sales accounted for 41.2 percent of Group’s revenue. In addition, 361 Kids continued its strong momentum, with revenue up 16.5 percent to RMB272.1 million, or 10.7 percent of Group revenue.

Same store sales growth achieved high single-digit growth for six consecutive quarters as it continued to focus on China’s mass functional sportswear market, and adopted a multi-brand strategy with 361Es, 361EsKids and outdoor brand One Way, to capture multi-channel sales opportunities.

As of 30 June, the Group has a franchised network of 6,853 stores in China. The Group will focus on building a sustainable business model, increase investment in R&D, product differentiation, and upgrade terminal payment methods to enhance the efficiency and profitability of the stores. The Group also encourages the development of large-scale composite stores (with 361Es Kids), so as to enhance soccer and further drive sales.

Rapid growth in Kids, online sales and international

In the first half of 2016, the number of 361EsKids stores reached 2,416, with 1,134 located in adults’ stores.  361EsKids is highly acclaimed in the industry and among consumers, which won numerous awards during the review period, including “China’s Top Ten Kids Brands” and “China’s Best Kids Brands” and “March 15th Influential Brands in China Consumer Market and Industry”. With the full implementation of the two-child policy, the potential consumer group of 361EsKids and the kids market will continue to grow, the Group is confident in the expansion of the kids’ wear brand.

Internet and mobile sales have evolved to become an important driving force of all retail business in recent years, the Group has focused on building its contemporary e-commerce business. Currently, apart from 361’s official website, the Group has also entered major e-commerce platforms such as Tmall, Taobao, Jingdong and VIP Shop. In addition, the Group has launched online exclusive merchandises, including “361 + Baidu smart kids’ shoes” and “361 + iMate smart running shoes” to achieve product differentiation and create synergy between online shops and offline retail stores. During the review period, revenue from the sales of online exclusive merchandise to the Group’s e-commerce distributor grew 167 percent to RMB 166.4 million, or 6.5 percent of the Group’s total revenue, compared with just 2.8 percent in the year earlier period..

During the review period, revenue from overseas business more than doubled to RMB45.2 million from RMB20.5 million and contributed about 1.7 percent of the total revenue of the Group. At the 2016 Rio Olympics and Paralympic Games, the Group is supporting many athletes and delegates as an Official Tier-2 sponsor, making it the first Chinese sportswear brand that has ever been the sponsor of the events. At the end of the half, 361E had wholly-owned subsidiaries in Brazil and the United States and established 908, 180 and 52 points of sales in Brazil, the United States, and Europe respectively.

After Beijing’s successful bid to host the 2022 Winter Olympics, the Chinese government has implemented the “300 Million People Winter Sports Plan” to enhance public awareness of winter sports, which is expected to raise public interest in winter sports and the subsequent demand for related equipment. As such, the Group expects its high-end winter sports brand One Way to hugely benefit from this trend. As of 30 June 2016, One Way had 65 self-operated stores in 29 first-tier and second-tier cities of China.

Margins, cash on hand steady

Gross margin inched up 10 basis points to 41.4 percent during the period. Gross margin decreased by 30 basis points to approximately 40.7 percent in the footwear segment and improved to 43.1 percent and 43.0 percent at the apparel and kids segment, respectively.

During the review period, administrative expenses increased by 43.3 percent to RMB219.7 million, accounting for approximately 8.6 percent of the Group’s revenue, up from 6.9 percent in the first half of 2015. The increase was mainly due to the surge in research and development (“R&D”) expenses, the salary increases for management staffs of the overseas business development unit, and the depreciation cost incurred by the new Xiamen headquarter. R&D expenses rose to RMB72.4 million, or 2.8 percent of the Group’s revenue from 2.5 percent in the year ago period. Advertising and promotional expenses increased by 15.4 percent to RMB310.9 million, accounting for 12.2 percent of Group revenue.

After deducting finance costs, profit before taxes came to RMB427.2 million,  up 10.5 percent. After deducting the income taxes, profit attributable to equity shareholders grew 1.3 percent to RMB273.1 million, or  RMB13.2 cents per share.

361E generated net cash from operating activities of RMB372.4 million compared with RMB233.1 million a year earlier and ended the half with net cash and cash equivalents of RMB2.5 billion, down 7.4 percent from a year earlier. As at 30 June 2016, more than 89.3 percent of trade debtors were within 90 days, up from 75.7 percent a year earlier with none over 180 days.

“Its strong financial position stands the Group in good stead for future business opportunities in China’s sportswear industry,” the company said.

Outlook

The Chinese government announced the “National Fitness Program 2016-2020”, with an aim to promote sports consumption to reach RMB1.5 trillion by 2020. Looking ahead, China’s sports industry will further expand, and demand for professional sportswear will remain on a steady rise. Faced with fierce industry competition, 361Es is confident in the prospects of the Group. The Group will remain devoted to product innovation and R&D to maintain its leading position with product differentiation. In addition, the Group will expand its contemporary e-commerce business and boost online sales, and promote its emerging brand One Way. The Group will also improve overall operational efficiency to achieve long-term profitability, and strength its leading position.

“361Es will continue to target the mass market, and establish a sustainable business model,” said 361E’s President Ding Wuhao. “The Group will continue to leverage its multi-brand strategy to meet the needs of different customers. 361Es will consolidate flagship products for running, and develop products with bright prospects, such as soccer and winter sports. At the same time, the Group will expand its international business and compete with international brand with our superb product quality. In addition, the Group will continue to increase the proportion of e-commerce sales, and improve sales from online channels. We will also remain focused on product development, and maintain our leading position with cutting-edge technologies. The Group supports the Rio Olympics and Paralympics Games as an Official Supporter, I believe it will further help our brand gain huge prominence and bring it to new heights.”