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Friday, 17 March 2017, 16:44 HKT/SGT
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Source: Xtep International Holdings Limited
Xtep Reports 2016 Financial Results, Gross Profit Margin Expands to 43.2%, 4 years in a Row and Dividend Payout Ratio Maintains at 60%

HONG KONG, Mar 17, 2017 - (ACN Newswire) - Xtep International Holdings Limited (Stock code: 1368), a leading PRC-based professional sportswear enterprise achieved revenue growth of 1.9% to RMB 5,396.6 million in 2016, where the increase in footwear and e-commerce business revenue was somewhat offset by intentional reduction of sports lifestyle apparel.

Overall gross profit margin rose 4 years in a row. The positive result of product mix shift toward higher margin professional sportswear products have become clearly evident, gross profit margin for all product segments increased. Apparel gross profit margin increased significantly by 2.0 percentage points to 41.7%, while footwear gross profit margin went up to 44.0%, and accessories gross profit margin expanded to 41.0% as well, thus making the Group's overall gross profit margin expanded by 1.0 percentage point to 43.2% in 2016.

With the addition of the company's interim dividend of HK 10.5 cents, together with the proposed final dividend of HK 3.25 cents and a special dividend of HK 2.75 cents, the annual payout ratio maintained at 60%.

"2016 was a year of restructuring and realignment of internal resources for the Group with the goal of making long-term gains. The operations of the Group are now synchronized to achieve optimal efficiency. Through innovation in functional sports products, effective retail channel management, e-commerce, increased sports marketing, as well as forging ahead with the "3+" strategies, the Group looks forward to long-term sustainable growth." Ding Shui Po, XTEP Chairman and CEO said.

Operating profit before provisions of trade receivables rose by 19.6% to RMB 1,139.2 million, showing the overall healthy state of business operations and the result of restructuring towards professional sports. However, due to the provision for long outstanding trade receivables amounted to RMB 222.2 million mainly related to the restructuring of the XTEP Kids business, the net profit for the year declined by 15.2% to RMB 527.9 million. As at 31 December 2016, the Group's total net assets amounted to RMB 5,022.8 million, total bank deposits and bank balance was RMB 4,245.3 million, and operating cash inflow was healthy at RMB 345.8 million.

In 2016, the Group has re-oriented its branding resources to devote more focus to sports marketing and reduced some of the less effective general marketing programs. This helped to normalize the advertising and promotion cost to 11.8% of overall revenue, similar to historical levels before 2014. In 2016, XTEP carried position of the sportswear brand that sponsored the most number of marathons in China, and sponsored a total of 44 major running events.

The Group increased the total R&D costs by 13.9% to RMB 138.2 million to show commitment to improve the performance and quality of functional sportswear products. The Group has built a team of designers led by international design talent and cooperated with leading international fiber material developers, such as the Dow Chemical Company, 3M and INVISTA in the United States, and Toray in Japan, to co-develop fiber technology for XTEP?s exclusive use. The Group has built China's first dedicated running research laboratory to develop the best running shoes for Chinese runners.

Echoing the strong push for football development by the Chinese government, the Group announced its comprehensive football strategy "Blade Project" in April 2016. The project targets to serve over 5 million Chinese football youths in 5 years. The first XTEP professional football series "Blade I" was launched in stores in June 2016. Further technical modification to the football products will be unveiled in new product generations in 2017. Launching the new football product line marked the beginning of organic growth for the Group with multiple sports product categories under the XTEP brand umbrella.

The Group refined and flattened the distribution channel and resulted in increased operational efficiency with more unified brand image and lower inventory. As at 31 December 2016, the inventory turnover days continued to decrease 4 years in a row to 51 days (2015: 58 days; 2014: 71 days; 2013: 79 days) and the total number of XTEP retail stores was approximately 6,800 (2015: 7,000). Same store sales growth maintained mid-single digit during the fourth quarter of 2016, while retail inventory also maintained at healthy 4-5 months level.

E-commerce revenue continued to grow quickly and accounted for approximately high-teens percentage of overall revenue. Revenue derived from the Group's e-commerce platform has increased significantly, with XTEP maintaining its position in 2016 as the top sports footwear seller on Tmall.com and JD.com by volume, over all other domestic and international brands. XTEP was the first sportswear company to start using an O2O model with distributors in China; by end of 2016, around half of the products on the e-commerce platform were part of the O2O system. The model was rolled out to around 1,200 stores as at 31 December 2016, the Group plans to expand it to cover 2,000-3,000 stores by the end of 2017.

The Group will continue to undergo its restructuring process in 2017, repositioning XTEP as a professional sports brand with stylish and functional products. The restructuring has already led to higher sales efficiency per store and stronger inventory control throughout the entire retail network. The Group will continue to implement the "3+" business strategy of "Products+", "Sports+" and "Internet+" for sustainable growth.



Mar 17, 2017 16:44 HKT/SGT
Topic: Press release summary
Sectors: Daily Finance, Daily News
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