Topsports International Holdings Limited (6110) Earnings Call Transcript & Summary

[Audio Gap] Executive Director, Mr. [indiscernible], Senior Vice President; Vice President, Mr. [indiscernible]; Vice President, Mr. [indiscernible]; Ms. Rebecca Zhang, Head of Capital Markets. In today's presentation, Mr. Yu will begin with a brief review of the interim results from the past fiscal year. Following that, the management will present an update on the mid-term financial performance and business progress, okay? Please join me to welcome Mr. Yu to provide the opening.

Good morning, dear investors, analysts and friends. Welcome to Topsports [ mid-year ] performance conference. During the first half of the fiscal year, amid a sluggish macroeconomic consumption climate and diminished foot traffic, the company's overall operational performance aligned closely with the projections we shared with you in September. Despite numerous challenges, we have never wavered and have consistently pursued a proactive, forward-looking strategic approach. By implementing a flexible and targeted omnichannel business strategy, we continued to enhance our integrated retail framework that merges online and off-line channels. We conduct a thorough analysis of flow characteristics and consumer preferences across various scenarios, implementing targeted optimizations and enhancements. This approach enables us to achieve more precise customer acquisition and improve the user experience. We are proactively broadening our category layout with the forward-looking vision, forging connections with new friends and further solidifying and enhancing our market advantages across various sports subsectors. Despite a persistently challenging operating environment, we consistently adhere to our long-term strategy, grounded in robust and efficient retail operational fundamentals while maintaining prudent cash flow management in the face of adversity. And building on this foundation, we remain dedicated to delivering shareholder value, achieving a dividend payout ratio of [ 99.9% ] in the first half, close to 100%, thereby maintaining a leading position in the industry. Looking ahead to the latter half of the year, based on current market observation, the overall consumer market remains somewhat unclear. On the macroeconomic policy front, a suite of measures designed to stimulate consumption is poised for implementation. We anticipate beneficial shifts across the entire customer market, sports consumption included, as these policies take effect and the market self-corrects. At Topsports, no matter how the external environment shifts, we consistently maintain clear judgment and adapt our response strategies accordingly. My management team and I are committed to steering the company ahead, constantly strengthening our business core, seeking out new avenues for growth and expanding our trajectory towards future development. Next, I will pass the floor to Rebecca, who will review our [ mid-year ] financial performance. Thank you.

Thank you, Mr. Yu. Now for the update on our financial performance in the first half. From a broad viewpoint, there are essentially 3 key points. The first one, for income statement, it largely aligns with what we disclosed at the end of September. The drop in revenue stemmed primarily from subdued macroeconomic demand and diminished foot traffic from offline customers. Analyzing various scenarios, it's clear that in terms of revenue and the profit, some of these off-line channels are facing significant pressure. Conversely, viewed from an online standpoint, there has been an enhancement in both revenue and profit, yielding a positive impact. The primary reason for the overall drop in profits remains a significant negative impact of the leverage effect from brick-and-mortar stores. We underscore the necessity for omnipresent operations grounded in the transformation of the digital and physical realms within the sports industry post-pandemic. Now moving forward, we anticipate that online platforms will dominate, yet we must avoid excessive pessimism regarding the brick-and-mortar stores. So a flexible off-line framework will remain key to engaging consumers over time. Secondly, just like what Mr. Yu has mentioned earlier, despite the impact on the income statement, Topsports has consistently maintained a strong edge in its core competitiveness, which lies in our robust cash generation capability. As the first half of the fiscal year came to a close, cash and cash equivalents stood at RMB 400 million. And we have also registered 35% of decline in our pretax profit. However, the breakdown of cash flow reveals that operating cash flow rose by 2.5%, while the [indiscernible] cash flow is RMB 2.84 billion. And last year -- compared with last year, it's a 2.8-fold increase in net profit from the same period. So this number is turning for the better. Consequently, the Board of Directors has declared a dividend of 99% of payout ratio, about RMB 0.14 per share. So just like we said earlier, without any major project investment, our -- the targeted EBITDA payout ratio is 100%, which is above industry scale. Now I will briefly discuss the various components of our financial performance. The overall revenue fell by 7.9% to CNY 13.05 billion. Regarding different channels, retail business revenue fell by 8.9% to CNY 10.92 billion. Wholesale business revenue fell by 2.2% to CNY 2.4 billion. Regarding different brands, the main brand sales revenue fell by 8.1% to CNY 11.35 billion. The wholesale revenue from other brands dropped by 6.5% to CNY 1.61 billion. Consequently, the main brand contributed 87.6% to the total goods sales revenue, a marginal dip of 0.2% from the previous period, whereas the other brands made up 12.4% of the revenue, marking a slight rise of 0.2% from the same period. Regarding GP margin, we have experienced a year-on-year decline of 3.6%. There are several primary reasons contributing to this. So I'd like to share with them. The first one is the discount rate, it has [ steepened ] on a year-on-year basis attributable to 2 factors previously outlined in our September announcement. The first factor is the decline in sales coupled with a rise in inventory, leading to heightened discount intensity. The second factor is the inherently lower absolute value of online discount rates compared to offline ones. This is a consistent industry phenomenon. There are more discounts for online. So consequently, an increase in the share of online revenue results in a year-on-year reduction in the overall discount rate? And secondly, concerning our adverse effects stemming from the shift in sales distribution between direct sales and wholesale channels. Particularly, the [indiscernible] margin for wholesale channels is lower compared to direct return channels. So during the first half, the share of revenue from wholesale channels rose by nearly 1%. And this shifted actively influenced the GP margin, yet it had a positive impact on the profit. Thirdly, in the first half, an increase in inventory necessitated adjustments of roughly CNY 90 million for inventory provisions. Additionally, other project factors also contributed to a negative impact on the GP margin. So if you look at this chart, you can see in the first half, the GP margin -- the core reason for the GP margin decline is the changes in the discount rate. Now in this slide, let us examine the overall expense ratio over the period, some of the -- one of the key components for the expenses. Like I said earlier, the revenue fell by 7.9%, while the total expenses also saw a reduction of 7.4%. So consequently, the expense ratio experienced a slight uptick of 0.2%, reaching 33.1%. Against a challenging environment, we continue to hold our advantage in a high efficiency, proactively adapt, and manage the overall input/output efficiency effectively. Now the primary components of expenses remain these 2 core parts, rent and labor costs. Now examining individually, the overall estimated rental cost, including rent and also some other overheads, saw a year-on-year decrease of 17.2%. The rental cost ratio dropped by 1.3%, significantly aiding in overall cost control is the largest contributor to cost control. And there are several factors. As you can tell, in the first half, we've been streamlining our brick-and-mortar stores. So the number of physical stores have dropped by 6.4%. Secondly, like you know, we have a very flexible rental structure. If you look at the financial statement, we maintain a [ rather ] flexible rental structure. So the rent accounts for 70% among the estimated cost -- rental costs. So it can be understood as about 70% of the rent, they are flexible and connected to the sales. In the first half, we have a double-digit decrease in foot traffic. So this flexible rental structure also played a role in [ turning down ] the total rental cost. In addition, in the first half, we would strive to obtain better property conditions. We'll be proactively communicating with the property service. And that will be able to offset some of these additional expenses. And also there's a change in the different channel mix. Like I said earlier, the proportion of retail revenue from online business has grown in the first half. And the change in the proportion of online retail, it would also help with the rental cost issue. Now at the employee level, we ensure personnel allocation aligns with the overarching requirements, resulting in a year-on-year decrease in overall employee costs by 3.7%, accompanied by a cost ratio uptick of 0.4% to 10.4%. The revenue decline in the first half of the year maintained a degree of operating leverage effect on the total employee cost. However, unlike channel rental costs, we believe that our employees are the cornerstone of the company's long-term growth, so it is essential to maintain an appropriate balance at this level to ensure sustained competitiveness in the future. As to the other expenses, they primarily consists of the depreciation of equipment and also the plants, the equipment along with various online platform-related costs, such as operating expenses and logistics and the [ courier ] fees. In the first half, we saw a year-on-year rise in the other expense ratio of 1.1%, primarily attributed to the swift expansion of online platform sales, which encompass private domain, live streaming and also the associated costs that have escalated. So from the standpoint of the overall cost ratio, the results about represent the breakdown of each major expense category according to the nature of expenses, yet when examining the business performance throughout the first half of the year, the primary downside has been the impact of off-line operation deleveraging, and this has been counterbalanced by a pair of positive influences. So regarding the expense contribution, the first one is the shift in sales distribution, notably the rise in the share of online retail and also wholesale operations. This is the primary contributor. And the other point is the enhancement of the year-over-year expense ratio for online retail, so serving as a secondary influencer. Now let's turn to Slide #8 and proceed with the analysis of the year-over-year variations in net profit. As you can tell from the chart, the primary factor impacting net profit is the decrease in GP margin during the first half. For the remaining items, including the total expense, the government subsidies and also the net financing costs and also the tax expenses, they all contribute positively. Now if you look at the chart on the right-hand side, examining the year-over-year shifts impacting net profit margin, the decrease in GP margin and the modest uptick in expense ratio stand out as adverse influence. Conversely, the persisting government subsidies, net financing costs and tax expenses contribute positively. If we look at the positive contributions, government subsidies saw a year-on-year surge of 101% bolstered by the carryover of subsidies resulting from elevated tax payments in the previous year. So the ratio of government subsidy expenses contributed positively to net profit by 0.3%. Income tax fell by 37% year-on-year, mirroring the scale of the shift in pretax profit and income tax also contributed positively by 0.8% to the net profit. Now let's switch gear to discuss our operational capital efficiency. First of all, due to a downturn in sales, inventory levels rose by 6.4%, while inventory turnover days extended by 7.4 days, reaching 148.3 days. Comparing sales and inventory levels, the inventory-to-sales ratio -- this has been referenced industry-wide -- the inventory-to-sales ratio consistently falls within the 4- to 5-month range. When examining the inventory structure, namely the ratio of new to old products, the overall share of new product has remained stable. Simultaneously, we have collaborated with brands to device response strategies, coupled with the ongoing implementation and execution of the long-term omnipresent measures, we are confident that the overall inventory would be manageable. The trade receivables fell by 22.5% year-on-year, but the turnover days rose by 1.3 days to 16.1 days. Trade payables surged by 82.5% year-over-year, while the turnover days shortened by 2.3 days down to 14.8 days. The fluctuation in the turnover days for these 2 items is primarily attributed to the drop in revenue and the varying values of the comparative base across the 2 periods. Due to the above factors, the cash cycle days have lengthened by 11.1 days to 149.7 days. In the first half, the operating cash has dropped by CNY $290 million, so dropped by 45%, which is consistent with the trend of the revenue decline. And also in the first half, we have registered like 26 percentage points, which has improved year-on-year. But basically, it's also quite flat and quite stable. So we've been maintaining a high level operating cash flow management. Now let's turn to Page 11. This slide has presented the capabilities of our cash generation. We have also used the 2 colors to highlight. The gray color stands for a negative influence, while the blue color stands for a positive contribution. The most significant positive contribution is the cash flow statement. Although declining profits have made an impact, but the net cash flow from operating activities reached CNY 2.61 billion, marking a 2.5% rise from the same period last year. Now if you look at the right side, another significant negative factor, located on the far right, is seen from our dividend payout. We have consistently delivered high and stable dividends to our shareholders. As you can see, the total dividend payout representing 63% of the initial cash. The closing cash balance stood at CNY 2.84 billion, marking a 45% rise from a month-on-month perspective, consistently maintaining a strong cash generation capabilities, even though we are facing a challenging environment and also the foot traffic is also diminishing, and that would also have some impact on our profit. But if you look at this chart, you can see clearly that this showcases the trend of our cash flow. We've been maintaining a very stable cash generation, and also marking a 25% rise. Now let's discuss the last part of the financial performance -- and also, I believe this is also interested by investors. This is the dividend payout strategy. Now first of all, if you look at the right-hand side, regarding the capital allocation strategy, there are 3 ones. In terms of cash generation, it will be used for three areas. The first one will be to support the organic business growth. And secondly, the cash will be used to invest in opportunities for scale expansion. And thirdly, we use to deliver outstanding cash returns to shareholders. We have consistently adhered to this philosophy, judging by our actions and also the results we've been implementing this strategy. Now reviewing the fiscal year's actual cash position, as you can tell from the chart at the left-hand side, our free cash flow, like I said earlier, we aim to support organic business growth and invest in opportunities for scale expansion. In addition to all that, we have reserved adequate cash flow reserve. So the free cash flow reached RMB 2.4 billion, and the free cash flow per share stood at RMB 0.39, marking a 1.8% year-on-year increase. Additionally, the free cash flow was 2.8x the net profit for the corresponding period. This has made a major improvement compared with the same period last year, establishing a robust foundation for our dividend payout. Consequently, -- we -- like I said earlier, we proposed the declaration of an interim dividend of RMB 0.14 per share for the current fiscal year, representing a dividend payout ratio of 99.4%, which is consistent with our previous commitment. This has also outperformed the Hong Kong listed sporting goods companies. So from a fiscal year 2019-'20 to fiscal year '24 and '25, we delivered an estimated altogether about RMB 13 billion in consistent high dividend returns to shareholders. The total dividend amount equals the total net profit, about 1.03x. We share a mutual understanding and also act in unison to continue to provide high dividends to guarantee the returns for the shareholders. So that's all for the financial review. Now I'll hand over the floor to Mr. [indiscernible].

Thank you, Rebecca. During the first half of the fiscal year, amidst a complex and challenging global environment, the overall Chinese economy maintained stability and exhibited signs of progress. Nonetheless, rising pressure on household incomes and also a persistent decrease in housing prices have somewhat dampened consumer enthusiasm. Amidst the overall decline in consumer demand, we were facing continuous pressures of dwindling foot traffic, further compounded by a broad shift in consumer behavior from in-person to online shopping. So this transition makes it increasingly challenging for physical retailers to [ draw in ] customers. So against this backdrop, we proactively adapted by refining our omnichannel retail strategy, and this begins with reconfiguring our brick-and-mortar locations, broadening our online footprint and improving omnichannel product management. In the first half, even though the consumption market is sluggish, but we've been uncovering the potential opportunities. With ongoing supportive policies and also the momentum generated by various sporting events, fueling national enthusiasm for sports, the growth prospects for the sports market currently outpace those of general consumption. At the same time, we've observed that amidst the trend of diversification in sports categories and consumer segmentation, emerging areas like professional and niche sports are experiencing rapid growth. The emphasis on personal experience and satisfaction also becomes a very important trend. So in response to these market shifts, we proactively adapt to consumer habits and preferences, nurture and uncover user value, both in a variety of categories and persistently seek out innovative business models to fuel future growth. Regarding the omnichannel, our omnipresent strategy, we are simultaneously tweaking our brick-and-mortar locations while broadening our digital footprint, executing a one-two punch strategy. Simultaneously serving as the pivotal backbone of retail, we consistently refined our comprehensive product management strategies. This includes a broadening inventory turnover and implementing precise pricing tactics tailored to various contexts, thereby bolstering the efficiency of our entire retail lineup. At the operational level, we maintain 3 types of connections, membership, content and product, which together provide robust support for the seamless conversion process. For our brick-and-mortar stores, we optimize the layout, placing the focus on efficiency. Confronted with a double-digit decrease in the same-store customer traffic, we've implemented targeted adjustments using a one-product, one-strategy approach, tailored to the distinct attributes of each brand. Regarding the opening and renovation of stores, we adhere to more stringent screening criteria and meticulously regulate the size of both new and refurbished stores. We have also been accelerating the process to shut down the underperforming stores in line with market dynamics. As a result, by August 31, 2024, the number of our directly operated stores stood at 5,813, marking a net decrease of 396; the total sales area experiencing a year-on-year reduction of 1.9%. Despite a reduction in total number of stores, the sales per store continues to expand. However, the overall growth rate is tapering off consistently -- consistent with our strategy for a balanced regional distribution and tailored approach for each product in our physical stores. Regarding online presence, we continue to transcend the barriers of different sectors, focusing on user preferences and harmonize the distribution of traffic across all platforms. In digital realm, we focus on our embracing and expanding scenarios, forging direct connections and interactions with consumers by a variety of emerging channels and simultaneously seeking out new avenues for growth. We continue to broaden our e-commerce presence on platforms including [indiscernible], Pinduoduo and Vipshop. By constructing a live streaming matrix and incorporating content specialization, with advancing -- we are advancing content-based e-commerce on platforms like Douyin, the Chinese Tiktok, and also Xiaohongshu, the Little Red Book. During the first half of the year, we maintained over 300 store accounts in Douyin and WeChat video accounts. Our lifestyle surged by roughly 20%, and securing us the top spot in Douyin's sports and outdoor category. In the realm of private domain operations, we consistently enhanced user engagement by online communities, offer user services through one-on-one interactions on the WeChat for enterprise system, and finalize transactions using mini-programs, thereby creating an interconnected user system. Currently, our mini-program stores have surpassed 2,500, demonstrating significant year-on-year growth. The number of enterprise WeChat groups has exceeded 90,000. Our private domain mini-program has secured a top spot in the [indiscernible] ranking of popular WeChat mini programs in the sports and outdoor category. In the first half, our direct online sales sustained robust growth, which in turn increased the segment's contribution to over 30% of the total direct sales. As we broaden our online presence, we are also consistently catalyzing the traffic benefits of these online environments to bolster our brick-and-mortar stores. By drawing customers into our stores, we capture the demand of highly interested customers in localized urban commercial districts. These approaches primarily encompass the local living sections of major online platforms and also collaborations with various business districts, with the CBD areas, and also localize the online community management centered around the physical stores. The successful implementation of these measures has partially mitigated the decline in foot traffic. That's all for me. Now I will hand over the floor to Ms. [indiscernible] to talk about the operations and achievement.

After years of consistent growth, Topsports users base has reached a milestone of 81,000,000. In the current market landscape, how to overcome the traffic bottlenecks and escalating customer acquisition costs, forcing deeper consumer connections and executing more targeted communication strategies have emerged as a critical challenge in user operations. The fluctuating demand and the changing roles of channels and the global consumption landscape have made it more challenging for businesses to grasp consumer mindsets and boost loyalty. Thus, in our present user operations, our aim extends beyond mainly boosting the count of research users. It is crucial to focus on the entire consumer life cycle value, offering a broader range of benefits, unlocking a lengthened potential of each user, leveraging digital tools to enhance and streamline the entire operational workflow. This approach fosters a progressively enriching and beneficial ecological connection with our users. Regarding customer acquisition, the pressures of the retail landscape and the challenge of diminishing foot traffic have prompted us to broaden our avenues for comprehensive customer acquisition. Content-driven e-commerce and private domains have emerged as a new powerhouse in attracting users. At the same time, we boost [ test ] efficiency and amplify user value by executing personalized marketing strategies, and this is achieved through precise user segmentation and behavior analysis paired with highly engaging interactive scenarios. We've also synchronized user information integration across multiple platforms, ensuring that users experience consistent rights and value on Topsports' comprehensive platform. Through the exclusive group for high-value users and also by offering exclusive upgrade gifts for members and providing beneficial sports scenarios, we enhance the user experience on all fronts, bolster a sense of community, and in doing so, strengthen user loyalty and boost conversion rates, ultimately unlocking deeper value. We have constructed a comprehensive closed-loop use operation system that encompasses products, content and coupons. Integrating all facets seamlessly, our approach consistently enhances and sharpens user value both in-store and beyond. Guided by a global perspective, we strategically target and convert users by tailoring our methods to the various phases of the user life cycle. Given the decline in off-line traffic, we have promptly expanded our online platform to attract the new customers from online channels -- from off-line channels. We've also incorporated customer acquisition tools like a mini-program page and also group buying, and partnered with a third-party platforms, including Douyin, [indiscernible] to draw customers into the store. These strategies offer fresh avenues for acquiring customers. Additionally, we foster interactive opportunities through the organization of diverse member activities, enhancing user engagement and conversion rates by enriching the content and dynamic of these activities, as well as amplifying member rewards in addition to the annual regular member activities. And also through next summer's Olympic season in Paris, we've rolled out an array of gold-themed marketing initiatives, including the gold equipment ranking, gold training camp and collection of promotional cards. Additionally, we are also offering 99 membership months and at the year-end shopping festival and also events in our sought-after tourist cities. We offer high-value users exclusive off-line events, cross-industry collaborations and private community activities as a token of appreciation for their ongoing support. Throughout this period, we've developed an innovative sports community IP named [ Ignite Sports Life ], encompassing over 10 different sports, such as running basketball, yoga, street dance, football and more, successfully fostering in excess of 100 sports interest communities. The popular IP [indiscernible], also initiated by Topsports, has hosted close to 50 professionals running competitions and themed marathons across the country. In addition, we are also partnering with the brands to host sports [ convos ] and in-store events during the [indiscernible] Stars tour in China, offering a richer emotional connection with the communities. From the results, we have achieved a stable performance in user repurchase rate and effectively maintain high-value users. Members contribute 93.7% of retail sales, maintaining a high and stable level of sales contribution. Members who make repeat purchases account for approximately 60% to 70% of total member spending, a figure that has remained essentially stable from the previous year. We've also garnered positive feedback for fostering loyalty among our high-value members. Although these numbers represent just a single-digit percent of our total consumer base, they contributed to nearly 40% of the total sales from customer members. Their average transaction value consistently exceeds that of the broader membership. Okay. Now I will hand over the floor back to Mr. [indiscernible] to share the insights and future strategies regarding our long-term planning.

We've consistently employed a proactive approach to adapt to changes in external environment, while reinforcing our core retail competencies. We continue to pursue innovation, enhancing growth. Topsports has established a comprehensive sports retail ecosystem. Our business has grown beyond its original. And also, we've been enriching the brand matrix, including over 10 premier domestic and international brands, it encompasses a wide array of categories and formats, such as general sports, specialized sports and recreational sports, and as a culture, we remain deeply committed to collaborating with our partners, expanding the limits of our expertise and dedicating ourselves to delivering consumers top-notch products, expert services and a consistently delightful experience across all touchpoints throughout the entire life cycle and journey. Various metrics of brands, formats and models undoubtedly necessitates more intricate and accurate retail operations capable of adapting to the distinct features of different brands. While for the retail we've also accomplished precise alignment and backing in the 4 key areas: [indiscernible], product oversight, target demographics and promotional strategies, emphasizing our distinctiveness, so, we have also exhibited profound and centralized cooperation in 3 domains: worldwide operation, digital enablement and organizational administration. This matrix balances relatively independent and highly collaborative skills is as crucial as our brand metrics and established us as the go-to operational partner for a multitude of collaborators in a varied Chinese market landscape. On new pathways, we're relentlessly pursuing a wider market scope, more varied partnership frameworks and a greater array of business avenues. Following the partnership with Fanatics -- at Premier, our authorized sports merchandise digital platform. And also in Greater China region, we've also launched the Mitchell & Ness online operation, an iconic American sports brand, across both online and off-line channels in Greater China, along with the management of matrix-style social media presence. And in the future, we're going to continue consolidating the cooperation and delivering to consumers the pinnacle of sports culture and also premium quality products. In May, we entered into a strategic partnership with Norda, the premium Canadian off-road running gear brand, becoming their exclusive operating partner in China. Norda's Tmall flagship store, along with social media accounts on platforms like Xiaohongshu, have officially launched. Offline products are already available at outdoor collection retailers, and Norda's off-line pop-up stores and stand-alone stores, and they are currently in the planning phase. We believe that this would further unlock new development potential for Topsports. So moving forward, we will persist in our sharp market surveillance, expand our outlook, deepen our thinking and also concentrate on our central strategy, leveraging our foundational strength in retail operations, giving full play to our flexibility and also the distinct value of our platform. At present, the state of the sports consumption market remains ambiguous. Confronted with the swift evolution of new product categories, brands and consumer landscape. We opted to proactively adjust to these shifts. We remain steadfast to our core mission amidst market fluctuations and courageously engaging and generating enduring value for customers, shareholders and partners. In the second half, we are going to focus on the following areas: concentrate on the broader retail landscape, pioneering formats and services while strategizing for sustained expansion, and persistently concentrate on enhancing efficiency and also strengthening the resilience of the retail platform's foundation. Okay. So that's all for my presentation. Now we will start the Q&A session.

[Operator Instructions] The first question is from Xiaopo from Citi.

I am from Citi, analyst Xiaopo. The company is a leading retailer in China. So against the fluctuations, company has been maintaining a very transparent attitude. So I think that's really good. I have several questions regarding the consumer market. Firstly, it's about the U.S. brands, the mainstream brands, some of them they have changed the CEO, the leadership. And also, they talk about something about the -- about the inventory. As the Chinese partner to this brand, what is the Topsports plan to better manage the inventory? And also, there has been a change in CEO position of this sport brand. With the new CEO, the Chinese CEO has been promoted to the person in charge for the global outdoor products. It seems that the outdoor products category will be promoted. So in the past 10 days, I believe that you have reached out to this new CEO. So what's your opinion regarding the prospect for restoration for this brand? Or what kind of improvement would you expect them to make in order to work well with the company? That's my first question. And the second question about the industry inventory. So I want to thank the company. In September, for many companies, they've been trapped in a blind optimism. But in September, the company has informed us about the dire situation facing the industry. So we are very grateful to that. And also, we really appreciate this opportunity. So these statements made by the company in September, these are very transparent and very true. So with this opportunity, we've -- the November 11, the shopping festivity is about to begin. So what will be the tactics and the discount rates during this shopping festivity? And the third question, just like what Mr. Yu said, in September the company has made some measures. So it's been a month. What would be the response from the market? I mean, are the sentiments of the consumers changing for the good. Okay, that's all for my 3 questions.

Okay. Thank you, Xiaopo, for the question. Let me respond to your questions. So answering your first question regarding the inventory. For us, if brands have inventory issues, then we would work together with the brands for strategies to jointly face and address these issues. And the same could be also said with the mainstream brand in the U.S. Now regarding the channel planning and also the channel development, we've been under planning. And our measure can also -- as to the specific time lines, they are in the development process, and these strategies will be devised very soon, and they will be executed by both sides. That's my first answer. Now secondly, you mentioned the change in leadership in Greater China. So I will talk about that. Firstly, worldwide, there is a new CEO. And this new CEO is actually a senior member working in the company for 32 years, and he used to be in charge of global sales as a vice president and also used to be the person in charge for the sales and marketing department. And that means, as a senior member of the company in terms of product innovations, he is highly aware of the product innovation and he might have a different perception of innovation compared with maybe the previous leadership. So that's point number one. And secondly, he used to be in charge of the global wholesale business. So we tend to think that he has a unique perspective in customer relations, but also the balance and the coordination between wholesale and retail. I believe he is more experienced in this regard. And I think these are conducive. These are positive things for the global business. Now back to China. The former General Manager has been promoted to the CEO and also as the Chairman for the Board of Directors in the Greater China region. And also, he also became the Global CEO for ACG, the outdoor brand. And this has illustrated 2 points. Firstly, the kind of importance of the Chinese market has been illustrated. And this has further empowered the person in charge in Greater China to deal with the Chinese market situation. And second point, I believe and also I understand the current trends of outdoor sports in the Chinese market. So the Chinese -- the Greater China CEO would also serve as the CEO for the outdoor brand, and this showcase that the company has become aware of this potential -- the great potential of the Chinese market. So the company is sparing no efforts to gain more share in the Chinese market. So I think that's also a positive signal. As to the time line and how long will it take, I think they need to respond to 2 questions or 2 issues. Firstly, some of the global issues like product innovation, and for example, the overall balance, the channel development. So I think this is the global issue. And secondly, there should be a specific measure targeting at the Chinese market. And all of them need time. Nike, as the -- one of the global leaders of sports, it will come up with a pace that are aligned with its market position, okay? So that's my response to your first question. And secondly, talking about the November 11, the shopping festivity, this year, the Double 11 has been made in advance, like -- for some, it's 10 days and for some, it's like 1 week. And people are facing some common challenges offline and attach great importance to the Double 11 this year and also different market players, they have some inventory pressures, some have disclosed this information and some have withheld this information. But overall, the industry inventory is quite high. So that's why the Double 11 has begun earlier than as usual. And we also attach great importance to Double 11. Now the company is mobilizing our online and offline resources for Double 11. So that's our opinion regarding Double 11. Now thirdly, regarding the government's policies. Indeed, in some of the major cities, the government has been distributing consumption coupons. And we're also very glad to see that the government has done something to revitalize the stock market. So we believe that there is some positive impact on consumer sentiment. The distribution of the consumption coupons also provided substantial benefits to the consumers. So all of them are positive, but they are not quantifiable, but in terms of consumer sentiment and also from these substantial value, I think all of these measures are positive.

[Operator Instructions] Next, from Morgan Stanley, Dustin.

Among the major brand that we are working with in the first half, have you registered any differences in trends in terms of operating quality, and also in terms of inventory, discount rates, our product categories, and also in terms of the foot traffic, physical stores and the different ASPs? For some brands during the pandemic, maybe they have a low base number. But for some sport brands, you have seen a restoration of the foot traffic. So that's my first question. Well, [ sales ] not that positive on the sales for H2 base year. But compared from National Holiday to November for the management team, do you believe you are going to be more optimistic about results in September and making sure there will be no further decline on that? I have another question for the online channel. So you can say that now if your online sales be around 30%, so your owner sales growth would be around 10%. I think it's still better than what we expected from the offline channel. And we were also talk about the communication with the brand partners. We're using equity-based sales to digest the inventory. Would you might be more elaborative on that? What would be the specific strategies you're going to have and how you're going to lead the team to continue to grow? And what about the profitability for your online business? It seems that if you do the benchmarking by yourself and it was growing, so looking about the cost, how likely it's going to grow in the near future. That's all for me.

Hello, Dustin. I'm Rebecca. Let me just walk you through the observations for the full year and the full year guidelines. In the third question, we have already mentioned whether there's any market sentiment recovery and that can help to drive the sales recently. So actually, we will be more elaborative on the questions you may have. From the trend perspective in September and October, from the channel perspective, you see there are some challenges, [indiscernible] of the needs and the pressures. And I clearly noted that there might be some when we end into the September and October. But I know there are some listed companies who already issued their quarterly performance reports and shared their observations with all of you. We share the similar feelings. So starting from October, sales continue to be improved compared with November, but there might be some [ helper ]. You know that national and the mid-autumn festival in 2024 are separated with a time interval. So as far as I see that in October the sales is better than what we have in September, first of all, is because national holiday and mid-autumn festival has an interval. While at the same time, we can also clearly see for all the major e-commerce platforms Double 11 sales being advanced, at least for 1 week or 10 days. That indeed also can help to boost the sales in October. But even if in that way in November, and if we look deep, we can still say, from the financial losses perspective, in H1 of this year we still see some abnormalities we identified. For example, the discount rates continue to going up, that's going to negatively impact the returns in H1 of this year. In September and October, discount rate is more severe than what we used to face. I think the key reason is because there are some factors in H1 of this year with more sales coming from the online channel, the discount rate would be [indiscernible]. That's also going to impact the GP margin negatively. That was what we observed recently. So based upon the judgment we have for H2 of this year or even for the full year, what our observation or forecast might be, I think it is still in line with what we communicated with you in September. We have clearly stated we needed to have a very cautious plan for the future, especially from the profit perspective, we never excluded the possibility the profit decline by even higher than that of H1 of this year. We didn't give you the quantified number yet then. So from the trend perspective, the trend actually echoes with what we stated in H1 of this year. While for the company, we seldom provide quantified guidelines to the market, while at the same time, we also clearly noted there's some external factors, so other factors that really makes our investors hard to analyze the returns and the financial losses. For that reason, we will try our best to provide you some quantified data that can actually help you to better understand what the market may look like for this year. We foresee the revenue for the full year would then decrease by a high single-digit number. Net profit [ were ] down by 35% to 45% for the full year. That is the [indiscernible] here today. We made a very cautious outlook for the future. We can also say that according to the analytics for the profit and the revenue, actually the trend is still in line with what we saw in H1. You see in the market, the inventory is not looking right. There might be some sales events there, and we are also working very hard and making sure we'll be able to work for those [indiscernible] more business coming from the online channel that will also surely put some pressures on the GP margin. That is our outlook for the full year. So next, I may ask Mr. [indiscernible] to respond to your question -- the first question that is regarding the observations of the brand.

And let me just walk you through some of my observations regarding the sales in October. I was responding to Mr. [indiscernible] question. Besides the 2 external factors I mentioned that led to the positive sales results, I still believe market sentiment be the key. First quarter, the government issued the consumption coupon. And now the stock market also be more active. To a great extent, it can also help to further recover the consumption passion or sentiment. So those are the 2 factors I assume. Just now, Rebecca already provided you our H2 guidelines. This might be a very conservative number we have. That's why I believe in the market there are still going to be more other factors. Those factors not only going to impact what is going to happen in October, but also going to have some positive impact in H2 of this year. This is also something I'd like to remind all the investors to be aware of. In the market, there are some positive signals that started to show up. So let me just go back to the first question proposed by Dustin. You see that for H1, the discount rate consumption trend -- some observation Rebecca has already shared with you, but generally speaking, I think consumption sentiment is going down and consumption trends continue to trending [ down ]. You know that our stores indeed encounter many challenges due to the ever-decreasing foot traffic. This is the first issue we are facing now. Where the second issue that I have already shared with many of you in September, many of our key brands product. And they're also related to some inventory issues. So that's the reason in H1 of this year, the sales is not as good as what we thought. Inventory indeed is also higher than what we expected due to the ever-sluggish sales. So that's the reason we have to speed up on the discount side. This is one of our major brand's working ways, where for another major brand, after the adjustment for the past few years, its market inventory issue has already been resolved. Its product power continue to be restored. So we can see that the indicators and the operationals continue to be recovered and restored. This is indeed what we saw in H1 of this year, where for H2, let me also give you some other support and discussion. Let's talk about the e-commerce platforn. On one side, we continue to expand the channel, where on the other side, we continue to connect the online and off-line inventories. What we're trying to do is to have the omnichannel inventory connection. So in other words, on the public traffic platform, the inventory supplies, they increased. That would help to boost the online sales. Another point is regarding the content, e-commerce. For example, live streaming [indiscernible]. In this perspective, we are indeed leveraging our great expertise in live streaming. We do have the live streaming matrix. At TikTok, we are already the #1 market share leader in the sports live streaming. The reason is because we're leveraging a live streaming matrix to do so. We have a [indiscernible], a live streaming account, and also the regional live streaming account and headquarter live streaming account to cover the market in a very comprehensive way to harvest more sales opportunities. Regarding the content e-commerce platform, our market share could continue to be improved. On the other side, there is the mini-program, that is what we call the private traffic. We have the membership continue to grow, and the ever-expanded WeChat groups and more people to get into the WeChat groups. Along with the content, we tailor make and produce, as well as the ever-increasing mini-program store number, we will be able to continue to boost the returns. So these are the 3 online strategies and help us to continue to expand our market share and the sales.

Thank you very much. Regarding the online business profitability, would you mind to elaborate on that [indiscernible], please?

You know that, Dustin, in my financial presentation, I have already mentioned, in H1 of [indiscernible] online performance continued to contribute for revenue and profit. But at the same time, we see that for the online channel, the operating profit rate continue to be improved, where you see that operating profit has been improving dramatically. But I think generally speaking, depreciations in the GP margin continue to prominent. What we saw is the sales for the online business, but we keep an eye on the global sales [indiscernible] starting to go back to the fundamentals, including online and offline. Once we get into September and October, we've really noted the outside business is still going to be stressed. So for our full year outlook, we still consider multiple factors and we believe that the offline operating leverage is going to impact the full year performance. So all those variables demonstrating that the full year performance must be aligned with what was happening in H1 of this year.

Ladies and gentlemen, coming next, let's welcome [indiscernible] from Haitong Securities, please.

I have a question to all of you. You have already mentioned that you have the new members for management team and continue to support the operation with the distributors. And for this year, you are also continue. There is a few brands who are digesting their classic product line. So for the pressure, is it coming from the [ consumption ] environment? Is it because from a brand that continues to adjust the brand mix, how you're going to do it according to the brand operations force?

[indiscernible] would you like to repeat the question?

Sorry, I don't have a very good signal. From the inventories perspective, would you mind to be more elaborative, what are those one-time inventory digestions? And how much are coming from the [indiscernible] consumption environment?

You make the point very specific. So let me just be more elaborative on that. We do believe for the key brands, for the major brands, their sales being continue to go down, especially the classic one. And I think a few steps being taken. First of all, we made a very good design and plan, where at the same time, according to the existing inventories, [indiscernible] potential leverage of the channel, [indiscernible] specific seasonalities and the discount, and then we make a plan to make it happen. Just like [indiscernible] has already mentioned in one of your updated financials, we are going to have some future-oriented outlook for deployment continue to have measures to foresee what is going to happen and to formulate countermeasures, where for the existing landscape, we also have the channel arrangement on discount and subsidies. They are all in the formulating stage. There's another thing, or something that all of us are facing now. That is indeed the offline channel challenge. We have ever decreased off-line foot traffic started to generate issues for all the brands. This is indeed a common issue for all the brands. So for those issues, I always believe we have the same way of resolving them.

Coming next, let's welcome Samuel from UBS to raise the question.

I have one question to the management team. I'm Samuel from UBS. It seems that consumers attach great importance to cost performance. So I would like to ask you, for the product perspective, there are any way for us to respond to the ever-changing consumption preference made by the consumers? Did you have any product, metrics, changes on that? And my second question, also a follow-up question, during COVID, there used to be some challenges for your offline foot traffic. Why then, in case you are working with brands, are the brands providing you support and help, so even during the COVID-19, the operating profit may have less challenge compared with what we see today. I'd like to hear more from you, because I see there are some key brands we are working with, they do have a very good performance. Just as I have already mentioned, inventory issues has been resolved, brand will continue to be improved. So what about the support and help from the brands? In H1 of this year, did you get any major support from the brands, so -- the GP margins not looking right, whether they are going to be more brand support, especially on the inventories and discount?

Let me respond to your first question. First of all, the matter for the cost performance, product or some consumption preference has started to show up, but actually, it was always in the market. In the sportswear industry, I believe we do have the so-called consumption stratification. There are 2 hot trends in the market. The first trend is people go for niche market for professional products. It actually be 1 trend, where on the other side, [indiscernible] consumers who is more sensitive to price or to discount. So in sportswear industry, both trends are parallel. So I always believe our product -- all the brands were operating now indeed have a very wide coverage. It can help to cover in functional products, along with some very cost-effective product that could provide a sufficient supply to the consumer. That can help us to further expand the customer coverage. We also noticed there are some brands who are famous for cost performance, but the [ deal ] consumer base has been quite constrained. In the premier CBD, or the commercial district, those brands don't have any very nice and cost performance product in those premier markets. So indeed, the market saw the stratification.

[indiscernible] I'm Rebecca. Let me just respond to your question regarding the subsidies. I do believe that brand support are there all the time. But for sure, the ways of the brands support somewhat differs. They may have different types of subsidies based upon the market landscape. It is not only talking about the overall market, but also on the operational side, there might be very differentiated subsidies. Let me give you an example. There's a major subsidy. For example, the rebates for order placement and also the subsidies for discounts. To be more specific, there are even some subsidy regarding the interior decoration. Such supportive combo would show the brand's commitment of working with us to form a synergy to support each other. So generally speaking, I think for brands indeed, they provide continuous support. But for brands, their subsidies or support are [ phased ] by different ways. Whereas the business continue, those measures are going to be done phase by phase. It's not going to be [indiscernible] released in a very limited short span of the time. Maybe those measures are going to be deployed one by another as time goes on, and manage accordingly subsidy deployment. Just now as you were asking the question, you also compared the GP margin. During COVID-19, you probably know the microenvironment is very much different from who we are here to date. During COVID-19, majority of the offline stores being forbidden from a commence the business. There were some shutdown situations. But right after the COVID-19, now what we face are some unstable foot traffic. So I think you don't leverage the GP margin of what we have today to benchmark what used to be. Besides the subsidy, there also might be the discount. As we have more sales from the online channel, there are also going to be more impacted then. So in history -- the GP margin in history cannot be well matched with the GP margin we have today. Regarding the subsidies, one thing I can say that, indeed, there are subsidies and is also going to continue to grow in the near future, along with more business being conducted. Thank you very much and I hope that I answered your question.

Ladies and gentlemen, now welcome to have the final question that will come from [indiscernible].

My name [indiscernible]. I have two questions. The first question, in H1 of this year, I say the company did a very good job for the fee control, especially for government subsidies and the tax rate, there are some nice optimizations being done. How should I look into the expenses rate in H2 of this year? Because you mentioned your full year profit decline is even going to be severe than what we saw in H1. Rebecca also mentioned a more discounted rate recently compared with H1. What about the expenses rate? Is there any elaboration you can make? And my second question, is it possible for the management team to walk us through another point, the inventory, given if it's been distressful, but in order to have a good inventory sales ratio, what is the inventory sales ratio as you are facing such huge inventory stress? Is there any new adjustment that has been made for order placement and order shipment?

Thank you. I am Rebecca, let me respond to your question. The first question that is regarding expense rate, in H1 of this year, our expense rate has been well controlled with very refined control measures in place. Starting from last [indiscernible] to now, as I was talking to many investors, I'd like to thank for your support in recognizing our hard assets in well-controlled expense rate. There might be some data you can refer to from H1 of this year. What do I mean that -- the business mix for online to off-line [ kept ] changing, that will generate impact on GP margin expense rate. So in other words, the expense rate would be [ planned ] due to the ever-changing online to offline business mix. Where for the online channel, where there's the online business [ going to ] help to further optimize the expense rate. In theory, if you have more business online, according to the existing market landscape, there will be blessing for expense rate. But for sure, is from the profit perspective -- or net profit perspective, I think expense rate would just be 1 point. You should also benchmarking and keeping an eye on the GP margin. You should also keep an eye on the cost and the major expenses trends for the full year, where for the details, we're going to roll out the details and more specifics as we continue to update the performance. At least in -- for this fiscal year, the ever-changing online to offline business mix still going to continue. But for online/offline preference, it truly depends on the customer need. We always emphasized, with the omnichannel preference, we are not going to intentionally increase the business online or offline, but just following the customer preference for online and offline business. So for H2 of this year, we're still going to follow the consumer for their preference. But overall speaking, I think what I provided to you would be a very good reference. Okay. Let me ask [indiscernible] to respond to the second question you have.

Okay. Regarding inventory pressure, I think for the market, or even brands, we are working together to continue to resolve the inventory issues in the market. Because you know that in our industry, we do have the futures model that may lead to a much advanced order placement time, because you need to have a very good assumption of the market sales. One of our major brands has already deployed, it's a flexible supply chain in the order placement process. Around 70% of the orders that are actually the future product, but 30% would be placed right before the product launch. What I'm going to inform you is that supply chains continue to be optimized and continue to reduce the risks for ever-increasing inventory, just like my colleague has already mentioned. No matter for order placement or order shipment, what we have now are more neutral discussion and the common decisions be made. In that way, we will be able to make sure we order the right product and shelf the right product. With such concerted efforts here now, our inventory's being kept at a very healthy level. And new products continue to grow, especially contribution from the new products continue to grow in the total inventory. But generally speaking, for the overall inventory level, [indiscernible] we'll still be able to trying to foresee the sales trend in the near future. We made some forward-looking inventory management and disposal based upon discount. That's all.

Ladies and gentlemen, due to time reason, we need to end up our call today. Thank you very much. Thanks for all the investors of supporting Topsports all the time. Starting from yesterday, I received many questions and also many confirmations regarding our transparent communication with capital team, our management team and the IR team going to talk to you by roadshows and one-on-one discussion. If you have any questions and inquiries, please reach our IR team. Thank you very much. Let's keep in touch. Thank you.