XTEP Group Chairman and CEO Mr. Ding Shuibo (middle), Chief Financial Officer Mr. Yang Lubin (right) and Director of Investor Relations and Corporate Communications Ms. Huang Wanyu (left) At the meeting, Chairman and Chief Executive Officer Mr. Ding Shuibo and Chief Financial.
Officer Mr. Yang Lubin gave everyone a review of the 2018 annual performance and gave detailed answers to questions from the financial and media circles. The following is a summary of the main issues that everyone is more concerned about.
Channel development investment:
A new item added to sales and distribution, general and administrative expenses in 2018 is channel development investment. This is a subsidy to general agents, mainly to encourage them to open stores in shopping malls. XTEP's general agent used to be a wholesaler, but now it has transformed into a retailer, so we have a subsidy for it, which accounts for about 2% of the revenue. Because they need to meet certain performance requirements to receive this subsidy, and new stores will also bring more sales, so this item is not an expense, but actually an investment.
Regarding channel inventory levels,
we can see that the sell-out rate of terminals is very high and the discount rate remains at a good level. The way we order and ship goods now is different from before. The inventory delivered to the general agent every quarter is divided into 3 batches. The third batch will be produced based on the sales of the first batch 2-3 weeks later. The remaining raw materials can be used for the production of other products.
Outlook for store openings in 2019
Net store opening data in 2019 will be similar to that in 2018, and new stores will be mainly concentrated in pedestrian streets, shopping malls and residential communities in second- and third-tier cities. When opening a store, quality is more important than quantity. After the rectification, the store efficiency has been significantly improved, with an increase of 50%-60% compared with before the rectification.
Growth target for 2019
We are very optimistic about the prospects for 2019 because the order fairs for the first three quarters have been completed and the response has been very good. We have also seen some additional replenishment orders from customers. Same-store sales from January to February this year still maintained good growth.
Joint venture/acquisition plan
XTEP announced on March 4 the establishment of a joint venture with Wolverine, which will exclusively operate products in mainland China, Hong Kong and Macao, and focus on brand promotion, product design and development, and supply chain cooperation. This collaboration is the result of careful consideration. First of all, the initial financing amount paid by both parties to the joint venture is 155 million yuan, which is not high. Secondly, operating Saucony and Merrell in China can effectively complement the mass market targeted by XTEP and help develop the emerging market for outdoor sporting goods in China. While we are interested in Wolverine's product research and development capabilities, we can rely on our understanding of Chinese consumers and take advantage of XTEP's strong retail network and promotional resources to help the two brands develop the Chinese market. At the same time, we take advantage of our supply chain to create products that are suitable for Chinese people's body shape and taste, giving our products more price advantages. The joint venture aims to open 400-500 Saucony and Merrell stores in mainland China, Hong Kong and Macao in the next five years. In the future, we will continue to carefully select cooperation targets, hoping to complement the XTEPbrand product matrix.
