Xtep International Holdings Limited, together with its subsidiaries, reported that Group revenue rose 29.1 percent to an all-time high of RMB12.93 billion in 2022, compared to RMB10.01 billion in 2021. Revenue of the core Xtep brand hit a record high of RMB11.13 billion for the year, a 25.9 percent increase compared to RMB8.84 billion in 2021.
“Against the backdrop of the pandemic and macro uncertainties, our business continued to demonstrate strong resilience,” the company said in its annual report summary.
Athleisure Segment
K-Swiss and Palladium. Gradual recovery from the pandemic and supply chain disruptions provided support to the improvement in the overseas business operations of K-Swiss and Palladium. In 2022, revenue from the Athleisure segment increased by 44.4 percent to RMB1,402.5 million, accounting for 10.8 percent of the Group’s revenue.
“As we continued to optimize the product mix and designs to alter consumers’ perception of K-Swiss and enhance competitiveness, the brand saw a vast improvement in the productivity of its pilot stores and other operational metrics in Mainland China during the year,” the company said. “Since the launch of the first store in January 2022, we accelerated store openings in higher-tier cities in the second half of 2022.”
At year-end, there were 72 K-Swiss branded stores in Asia-Pacific, including Mainland China.
Palladium persisted in focusing on business priorities that make a difference, including optimizing the retail network and product portfolio for its stores in Mainland China, according to the annual report. More new image stores with fine-tuned products were rolled out in premium shopping malls during the year to raise brand awareness.
There were 56 Palladium branded stores in Asia-Pacific, including Mainland China, at year-end.
Professional Segment
Saucony and Merrell. Revenue in the Professional segment surged 99.0 percent to RMB400.0 million in 2022 from RMB201.0 million in the prior year.
During the year, Xtep said they directed their efforts towards expanding Saucony’s retail network through the Xtep Running Clubs and new store openings in iconic and premium shopping malls in higher-tier cities in Mainland China. The increased brand exposure, together with excellent product design and superior performance, were said to have enabled Saucony’s running shoes to gain the attention of professional runners in Mainland China. The company said the brand’s popularity was evidenced by “the outstanding wear rate at various large-scale marathons.” It was said to be ranked top three among all brands based on its overall wear rate at the 2022 Shanghai Marathon. In addition, its overall wear rate reportedly placed it among the top three and top four among all international brands in the 2022 Xiamen Marathon and Beijing Marathon, respectively.
There were 69 Saucony branded stores and four Merrell branded stores in Mainland China at year-end.
Xtep Adult
Xtep was described as “the most preferred brand among Chinese runners” in the summary. The company said the core Xtep brand “strengthened its leading position in running through the well-established running ecosystem, covering best-in-class running products, marathon sponsorships, Xtep Running Clubs and Xtep Runners Club members.” The company claimed that Xtep running shoes registered a 35 percent overall wear rate, and ranked first among the top 100 male marathoners of all brands.
At year-end there were reportedly 6,313 Xtep Adult branded stores mainly operated by authorized distributors of the Group in Mainland China and overseas.
Xtep Kids
The company reported that the successful restructuring, spanning products to branding and retail network management, of the Step Kids business has laid a solid foundation for the robust growth in recent years amidst the pandemic. Riding on the government’s support for enhancing fitness accessibility among children, the company said it swiftly increased investment in the Xtep Kids business in 2022 to take advantage of the emerging market opportunities.
At year-end, there were 1,520 stores mainly operated by authorized distributors of the Group in Mainland China for Xtep Kids, up from 1,179 POS at year-end 2021.
Profit Picture
Operating profit of the Group increased moderately by 4.9 percent to RMB1.46 billion in 2022. Operating profit of the core Xtep brand grew by 9.4 percent to RMB1.76 billion. Profit attributable to ordinary equity holders of the company reached RMB921.7 million, a slight 1.5 percent increase from RMB908.3 million in 2021. Net profit of the core Xtep brand increased by 10.7 percent to RMB1.35 billion from RMB1.21 billion in 2021. Basic EPS was RMB36.6 cents per share in 2022, a tiny improvement from RMB36.4 cents generated in 2021.
Prospects
Looking ahead, the company said with Mainland China’s swift reopening after nearly three years of stringent epidemic control, the government’s unprecedented efforts to promote sports development, and steady growth of sports participation and running population in the country, the sporting goods industry is exhibiting a positive outlook.
These favorable national policies and market trends are expected to create “tremendous opportunities for best-in-class running products, thus strengthening the Group’s confidence in its business performance for 2023 and beyond.”
In addition to possessing strong product technologies guided by the new “World-class Chinese Running Shoes” strategic positioning, the core Xtep brand is expected to continue to solidify its unique brand equity by creating an “international standard running ecosystem,” from building one of the largest and most active branded running groups in Mainland China and sponsoring sporting events to partnering with high-profile athletes and offering running incentive schemes.
“Meanwhile, the Professional sports segment lived up to expectations with a remarkable performance during the year,” the report shared. “Saucony, in particular, shrugged off the impact of COVID-19 with its cutting-edge technologies and strong reputation among Chinese consumers. By scaling up operations through resources sharing with the core Xtep brand and accelerating store openings to expand its retail network, Saucony is expected to capitalize on the growing demand for professional sportswear and make outstanding gains alongside the anticipated economic recovery.”
Xtep said the Chinese government’s shift “from academia to a new focus on fitness” has prompted a renewed interest in the potential of the childrenswear market.
“We expect to maintain a high-growth trajectory in the next few years, supported by a successful restructuring with brand upgrades and product enhancements in the children’s business,” the company shared. “The core Xtep brand and Xtep Kids will simultaneously open more next-generation stores with impeccable customer experiences to boost store productivity and increase market share.”
The company said inflation and geopolitical tensions, particularly in the U.S. and Europe, have put consumer spending and the overall economy on a weaker growth path heading into 2023 and they remain cautious on the short-term outlook for the overseas business in the Athleisure segment. At the same time, K-Swiss has reportedly made remarkable progress in its pilot stores in Mainland China since 2022, paving the way for steady growth. It is expected that accelerated store openings in higher-tier cities, along with a modified product mix, will unlock the brand’s full potential. As for Palladium, retail network optimization in the form of new store layouts will continue to be implemented to enhance the in-store experience and enable the brand to build a stronger connection with the younger generation.
The gradual recovery of consumer confidence in Mainland China will guide the Group through the short-term economic uncertainty triggered by COVID-19, allowing for a positive long-term outlook for China’s sportswear industry. The Group is confident in pursuing sustainable growth, increasing market share through its robust “Fifth Five-Year Plan”, and solidifying its position as one of the leading sportswear companies in Mainland China.
