1 Billion 700 Million Acquisition Attachment, XTEP Is Following Lining'S Footsteps?

The art of war of Sun Tzu has a cloud of "knowing one's own enemy and knowing one's own enemy", which means that in military disputes, we can understand both the enemy and ourselves, so that we can remain invincible.

The same is true in modern business. If we formulate a development strategy that is not suitable for ourselves, we will be able to use our assets to "pull the chill out of the fire".

For example, Lining, eight years ago, was once the first brand of China's sporting goods industry. He lost the Mai Cheng because of the strategic positioning error. Until 2018, Lining's revenue exceeded 10 billion yuan to restore the past.

When Lining was "defeated", the former "second in command" Anta relied on the strategy of "single focus, multi brand and all channels".

On the new track in the future, Anta will continue to seek breakthroughs in its development strategy, while Lining has come up with the strategy of "single brand, multi category and multi-channel".

In any case, the strategic choice of both makes their business develop rapidly, and provides a classic case that can be used for reference by the latecomers.

At present, this "latecomer" is XTEP.

Three years of reform, opening up the "multi brand" strategy

After opening the "3+" reform in 2015, XTEP made a comprehensive pformation from four aspects: brand positioning, product, channel and operation. The company pformed from a product company to a Brand Company.

At the end of 2017, the company used 120 million yuan to repurchase the products made before 2015 to eliminate the historical burden and lay the foundation for the reversal of performance.

In 2018, XTEP achieved a revenue of 6 billion 383 million yuan (the same below), an increase of 25% over the same period last year, and a profit of 657 million yuan for equity holders, an increase of 61% over the same period last year. At the same time, when the performance was completed, the cash and cash equivalents of nearly 3 billion 200 million yuan were still on the table. If we add the HK $1 billion 355 million fund raised through the rights issue in March this year, we will roughly estimate the cash in the XTEP account more than 4 billion.

The main business is back on track, with enough food and grass to support XTEP in doing some more challenging things on the basis of existing ones.

In March 4, 2019, XTEP announced that the company entered into a joint venture agreement with Wolverine Group, and the joint venture company will launch Saucony (St. John's) and Merrell (brand) business in mainland China, Hong Kong and Macau.

The two parties respectively inject 155 million yuan into the joint venture company.

The event opened XTEP's new era of diversification.

In May 2, 2019, XTEP announced that the company's wholly-owned subsidiary Xtep Global Limited intends to receive E-land Footwear USA from the E-land group of Korea for 260 million US dollars (about 1 billion 750 million yuan).

The target group has three main brands: "K-Swiss", "Palladium" and "Supra", and two sub brands, "PLDM" and "KR3W".

The paction is paid in cash and is expected to be completed in July 2019.

XTEP's multi brand strategy is "double-edged sword".

Playing chess is a step towards ten steps. XTEP has completed the big hand financing and big hand acquisitions in the short run. Obviously, it has already had a strategic plan. In the short term, it has also won the recognition of "chess players".

Admittedly, from the competitive situation of the domestic sporting goods industry, XTEP has temporarily secured the industry's top third position after a 360 degree 2018 earnings report.

Although the gap between the top two of the industry is still very large, fortunately, Lining has voluntarily abandoned this strategy after repeated brand strategy attempts, which gave XTEP the opportunity to overtake by using multi brand strategy.

According to the guidance of XTEP management, the K-Swissp brand of the purchase is marked by Anta's FILA and American sports brand Champion, and Palladium's Converse is NIKE's.

In view of this, XTEP's acquisition of nearly 2 billion yuan is expected to bring greater imagination to the company's business development.

But in my view, XTEP's multi brand strategy is also a sharp double-edged sword.

Public information shows that in 2012, the annual income of K-Swiss brand was 223 million US dollars, and its income in 2018 dropped to US $109 million, which was less than half of E-land's income when it acquired the brand.

In the 2017 and 2018 fiscal year, sales of E-land were about $206 million and $210 million, net losses of about 33 million US dollars and 15 million US dollars respectively. E-land is not a very good target in terms of profitability.

In addition, as of December 2018, the net asset value was about $78 million, equivalent to XTEP's acquisition of Target Corp at a market rate of 3.3 times, while the net market rate of XTEP was only 2.11 times that of XTEP's latest closing price.

According to Ding Shuibo's 2019 annual general meeting in XTEP, E-land's profitability was poor because of its lack of R & D, pipeline upgrading and marketing investment after its $360 million acquisition.

It can be imagined that after purchasing these brands, XTEP will not only have to bear the loss of the target in the short term, but also bear the expenses of opening stores, advertising and research and development.

Ding Shuibo said that the acquisition of the underlying clothing and footwear business development requires the company to first do research and development products well before making promotion so as to invest in the market.

XTEP's 2018 annual report shows that R & D expenses increased by 16.1% to 166 million yuan compared with 2017, and advertising and distribution expenses increased by 48.92% to 1 billion 357 million yuan.

If the cost increases further due to acquisitions, it may drag XTEP's short-term profitability.

In the long run, XTEP CFO Yang Lubin said that after three years of rectification, the company's internal growth rate has been improved, but with the expansion of the base, the growth rate will slow down. XTEP's current job is to lay the layout for the next three to five years: three years later, Saucony and Merrell will start offering some tribute; after five years, K-Swiss has made contributions, and Palladium is now a relatively mature brand, and now it has made contributions.

In my view, no matter how many times Lining tried to defeat the multi brand strategy, even though Anta acquired FILA in 2009, it has been operating for nearly 10 years before it succeeds.

It remains to be seen whether the acquisition of XTEP will delay the performance of the company in the near future.

In the medium term, because XTEP's positioning is "fashion sports" brand, and consumers' preferences for fashion related goods are changing rapidly, who can say one hundred percent more clearly after 35 years?