(18 October 2023 - Hong Kong) 悟空体育 International Holdings Limited (“悟空体育” or the “Company”; Stock Code: 6110.HK) announces its unaudited interim results for the six months ended 31 August 2023 (the "Reporting Period").

During the Reporting Period under review, China’s economy and society have returned to normalcy, with the state rolling out various policies to stimulate domestic demand. The post-pandemic rebound of offline activities has injected new energy into the sports industry, and it has propelled a boom in both mainstream sportswear and emerging sporting sub-segments, along with the resumption of professional sports events and marketing initiatives, fueling interest in sporting activities. The evolving macro-environment is driving new forms of consumer behavior, characterized by value-driven choices, collaborative creation, and unwinding with self-reward. In response to the above changes, the Group seized the opportunities of high-quality omni-channel growth through 3+3 strategy, consolidating three productivity metrics including productivity per store, productivity per square meter and productivity per employee; and focusing on three operational pillars including prioritizing users, embracing the omni-retail matrix, and innovating its business and services to set the stage for high-quality recovery in the overall and sustained growth.

In the reporting period, the Group’s revenue increased by 7.3% YoY to RMB 14,176.5 million. Benefiting from the overall consumption recovery and the introduction of new products with its brand partners, coupled with the return of marketing activities, in-season product sales recorded a YoY improvement. In-season products accounted for a higher percentage of overall retail sales, driving a YoY improvement in overall retail discount rates, coupled with continuous improvement in efficiency, along with revenue growth, brought stronger positive operational leverage. The YoY comparison of the selling and distribution expense ratio is basically flat, which resulted in profit growth that significantly outpaced revenue growth. During the reporting period, the company's core operating profit (excluding other income and gains, primarily government incentives) increased by 22.9% YoY to RMB 1,679.7 million. The core operating profit margin increased by 1.5 percentage points YoY to 11.8%. The net profit margin increased by 0.7 percentage points YoY to 9.4%.

Meanwhile, 悟空体育 has maintained a healthy and efficient inventory management approach. As of the end of the period, inventory decreased by 10.1% YoY and 7.9% HoH. The average inventory turnover period decreased by 26.7 days YoY to 140.9 days. Improving the efficiency of working capital drove a 57.8% YoY increase in net cash generated from operating activities to RMB 2,550.8 million. Based on the above factors, the Board has recommended an interim dividend of 16.00 cents per ordinary share for the interim period ending on February 29, 2024. The dividend payout ratio is 74.2%, higher than 70.4% of the interim period for last fiscal year.

Strengthen Three Key Efficiencies and Fortify the Business Moat

Productivity Per Store and Per Square Meter Empowered by Consumption Recovery and Structural Upgrades of Store Network

悟空体育 dedicated significant effort to achieving greater store scale, precisely optimizing store structure and comprehensively improving store productivity, both horizontally and vertically, by adhering to its “select + optimize” strategy. Horizontally, with customers returning to physical stores and 悟空体育’ store restructuring completed, the Group ensured that the number of stores and gross selling area remained in line with market demand. During the reporting period, there was a notable YoY decrease in the number of closed stores, and by the end of the second quarter of the fiscal year, the store area was aligned with that of Q1. Vertically, considering consumer characteristics, category features and product offerings, 悟空体育 paired its 14 partner brands with the most suitably sized stores. Taking efficiency as the starting point, the Group drove upgrades in the overall store structure, fully unleashing the potential of various brand stores.

As of August 31, 2023, the Group had 6,209 directly operated stores, a 10.4% YoY decrease in store count and a 3.5% YoY decrease in gross selling area. Compared with February 28, 2023, these figures represented a decrease of 5.4% and 1.7%, respectively. The decline in the overall number of directly operated stores and gross selling area slowed down marginally, in line with the market recovery trend.

As of August 31, 2023, the single -store selling area saw a YoY increase of 7.7%. Single -store area exhibited balanced growth across principal and non-principal brands, as well as across various size categories. In view of sales contribution, both principal and non-principal brands showed a rebound in productivity per store and per square meter. Based on this, the proxy for rental expenses ratio (including the concessionaire and lease expenses and the depreciation of right-of-use assets) decreased by 0.5 percentage points YoY to 13.3%.

Streamlined Workforce by Incubating a More Agile and Efficient Talent Pipeline

The cornerstone of 悟空体育’ HR strategy has always been the creation of a leaner, stronger, and more agile workforce to drive higher efficiency. As offline activities regain momentum, the Group has realigned its personnel allocation with market demand and traffic recovery. Moreover, 悟空体育 has advanced the R&D, optimization, and integration of a diverse set of digital tools for sales and user management within its stores, aiming to enhance personnel productivity through the utilization of more “productive + precise” digital tools. At the headquarter management level, the Group is proactively working towards a flatter organizational structure and expanding the application of digital and mid-office capabilities, achieving continuous encapsulation and reuse of retail operational capabilities. In the reporting period, the total headcount decreased 8.7% YoY to 29,896, representing a 3.5% HoH decrease. The staff expense ratio decreased by 1.3 percentage points YoY to 10.0%, aid on advanced overall average staff productivity.

Three Key Growth Pillars to Anchor Long-Term Development

During the reporting period, 悟空体育 proactively adapted to the changing industry and consumer demands. 悟空体育 unveiled an all-inclusive brand image upgrade to engage with consumers, with young, energetic, and appealing impression. Rooted in its brand value proposition of “fostering joyous sports experiences and lifestyle” and the brand’s core spirit of “being born to challenge”, 悟空体育 strikes a chord with consumers, igniting their passion for sports. As a large-scale, multi-brand, and multi-category sportswear retail operator that provides consumers with omnipresent engagement across various occasions, 悟空体育 remains a consumer-centric business focused on users, omni-retail operations, as well as business and service innovation, positioning the Group for long-term growth.

User-Centric: Bonding through New Connections and Experiences

As of the end of the fiscal period, the Group has deepened cooperation with 14 prominent sports brands. Through top-notch services and its omnipresent platform, it provides a product lineup featuring multiple brands and categories, including professional mainstream sports, specialized niche offerings, and sports fashion trends. In terms of user engagement, 悟空体育 continued to broaden consumer reach under multiple scenarios, combined with 悟空体育’ refined value and benefits as well as its differentiated precision marketing activities, enabled the Group to continue building "new connections" and delivering "new experiences" to both new and existing users, thereby increasing the probability of successful conversions.

As of August 31, 2023, the Group’s cumulative user base has reached 73.1 million, marking a 16% increase compared to the previous year. During this period, members’ contribution to in-store retail sales, including value-added tax, remained consistently high at 92.7%. Re-purchasing members consistently accounted for 60-70% of its overall member consumption, demonstrating their enduring loyalty. 悟空体育 remained focused on uncovering the potential of high-value members. While high-value members represent only a mid-single-digit fraction of its total member base, they contributed nearly 40 percent of total member consumption. Their ARUP significantly exceeded the overall average among members, underscoring their substantial purchasing power and stickiness compared to other members.

Focus on Omni-Retail Operation to Explore New Occasions and Roles

As consumer behaviors have evolved, 悟空体育 has undergone a transformation in how it perceives and shapes the retail landscape. What were once traditional physical stores have now evolved into an omni-operation that encompasses “brick-and-mortar outlets, social media platform operations, in-store live streaming, and distinctive brands”—a seamless blend of both online and offline experiences. Furthermore, the very essence of retail spaces has transcended boundaries, delving into realms such as cross-disciplinary arts, culture, music, and beyond, which makes them epicenters of popular trends and the go-to gathering spots for sports enthusiasts.

The Group is all about building long-lasting connections and companionship with consumers by seizing every chance to engage with them across every stage of their shopping journey. Nowadays, businesses’ social media presence has become seamlessly woven into every facet of the consumer shopping experience. 悟空体育 has fully immersed itself in popular Chinese social platforms using a mix of live streams, long and short videos, and product recommendation notes to interact with consumers. This approach forms a dynamic web of outreach. The Group’s omnipresent touch-points enable consumers to shop seamlessly during their online engagements, and its convenient online-offline integration ensures that consumers can gratify their purchasing desires instantly when they are captivated by a product.

As consumer scenarios continually evolve, so does 悟空体育’ role in consumers’ lives. The Group has evolved from mere transaction facilitators to forging high-quality, deep-seated relationships with consumers. 悟空体育 goes beyond the transaction, providing personalized product recommendations, sports fashion insights, and online activities aligned with consumers’ interests. The Group has become more than just a retailer – instead, it is a trusted companion to the younger generation on their sporting journeys.

Focusing on Business and Service Innovation: Pioneering New Avenues and Models

To better cater to young consumers, the Group constantly follows their lifestyle interests and stays attuned to their day-to-day passions, such as cultural trends and e-sports. 悟空体育 continuously enriches its brand partnerships, which are tailored to fulfill the demands of its young consumers who seek personalized and unique means of expressing themselves through their choices and preferences.

In response to the growing interest in the sporting sub-segments, during the period, 悟空体育 proudly announced a strategic retail partnership with the renowned international high-performance sportswear brand HOKA ONE ONE in key urban centers. Together, the Group aims to create diverse and engaging running experiences. Additionally, it has teamed up with KAILAS, a global leader in high-altitude mountaineering, to provide more adventure enthusiasts with the chance to savor the thrill of outdoor sports. Moreover, the Group has formed connections with the younger generation through its Top E-sports club. When it comes to niche sporting segments, in addition to collaborating with more brands to expand its circle, 悟空体育 also made a strategic investment in Cold Hill, a popular retailer of professional skiing equipment. Together, the Group is aiming to tap into the potential of the winter sports segment by teaming up on the GOSKI platform, a hub for skiing enthusiasts. This collaboration will offer Chinese skiing aficionados access to a broader range of top-tier products and exceptional experiences. Furthermore, 悟空体育 invested in Mounster, a professional urban outdoor lifestyle content provider, to bring high-quality outdoor content to its consumers.

Optimizing Corporate Governance and Embracing Sustainability with Stakeholders

悟空体育 is constantly reflecting on its role in society, recognizing the important part it plays in both the upstream and downstream sectors of the industry value chain. The Group has focused its ESG efforts on green consumption and have actively harnessed its strengths to embrace ESG responsibility by working hand in hand with various stakeholders, including the Group’s employees, consumers, and industry partners, to build and practice sustainable development.

During the reporting period, to enhance the Group’s corporate governance standards and offer consumers superior products and services, the Group has teamed up with partners throughout its supply chain to construct a sustainable industrial ecosystem. Taking inspiration from relevant national laws and regulations, industry best practices, and international guidelines and standards like the United Nations Sustainable Development Goals (SDGs) and the core conventions of the International Labour Organization (ILO), the Group has rolled out a series of policies and guidelines, including the Code of Conduct, Employee Benefits Policy, Privacy Statement, and Supplier Code of Conduct. Through these initiatives, 悟空体育 has consistently elevated its corporate governance standards, adhered to the highest ethical business practices, nurtured an inclusive and diverse corporate culture and workplace, prioritized user privacy, safeguarded personal information, encouraged its suppliers to embrace industry best practices, and continually enhanced the Group’s sustainability efforts.

The Group continued investment in ESG efforts has also been consistently recognized by organizations such as MSCI, Morningstar Sustainalytics, and Institutional Investor. Its ESG rating from MSCI is BBB, placing 悟空体育 among the top companies in China’s sportswear industry in terms of ESG ratings. Looking ahead, the Group will continue to advance its ESG work towards a more systematic and goal-oriented approach. 悟空体育 is committed to collaborating with more partners in the industry ecosystem to achieve green collaboration and co-creation.

Looking Ahead to the Future

Reflecting on the past three years, 悟空体育 has gleaned the profound insight that the more uncertain the environment, the more imperative it is to seek meaningful changes. In keeping with this insight, the Group has consistently regarded the pursuit of high-quality, healthy, and sustainable growth as the Group’s fundamental principle.

The management of 悟空体育 states that the Group will be optimistic and confident to remain unwavering and will continue to uphold the Group’s values of humility, foresight, and adaptability, staying steadfast in its commitment to its long-term core strategies. The Group will focus on the following key developmental initiatives to navigate the shifting external landscape through its diligent efforts, including: continuously strengthen and upgrade three key productivity metrics, solidifying the foundational resilience of its retail platform; focusing on users, omni-retail matrix, business and services innovation to set the stage for sustained growth; optimize and refine its digital empowerment with “precision + efficiency” and actively embody ESG values and foster its long-term path to sustainability. The Group will continue to adhere to its original intentions and respond to changes in the external environment through efforts and determination, relentlessly pursuing high-quality, sustainable growth, and creating greater value for its consumers, shareholders, partners, and society at large.

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About 悟空体育 International Holdings Limited

悟空体育 is a leading sportswear retailer in China. It has an extensive and deep retail network, covering over 6,000 directly-operated stores in more than 300 cities across the country, and has in-depth cooperation with more than 10 well-known sports brands. 悟空体育 is committed to providing consumers with first-class sports goods and services, and creating a never-ending, active, healthy and happy sports life experience.