Urban Beauty In The First Half Net Profit Decreased By More Than 80%, Share Price Plummeted 40.34%

Following the fall of the star brand in the underwear world, the 02298.HK, who wants to create "China Version", has also suffered from transformation pains, and its performance has been declining.

Recently, urban beauty released a profit warning. It is expected that net profit will decline more than 80% in the first half of the year, and gross profit margin will also decline due to the rising cost of raw materials. At the same time, the Yangtze daily news reporter noted that as of July 26th, the urban beauty came to HK $1.51, the market value was HK $3 billion 397 million, and the share price has dropped 40.34% this year.

Faced with declining performance, urban beauty hired a new chief executive, opening up a new brand spokesperson Guan Xiaotong, replacing Lin Chiling, a long-term partner. The readjustment of the outside world as a spokesman is a sign of the age of the consumer.

Jiayin international research report points out that urban beauty still has structural problems to solve, including rapid changes in consumer preferences, weakening brand competitiveness, and new retail channels such as shopping centres, e-commerce and regional participants.

For the company's management and performance, and other related issues, the Yangtze daily news reporter sent a letter to the city beauty, the relevant responsible person replied: "as the new CEO is about to join the company, we will have more detailed ideas and strategies to improve the company's operation. Therefore, we propose to formally respond to the question of your newspaper in late August or early September. " No positive response was made to specific issues.

Net profit in the first half decreased by more than 80%

Recently, urban beauty issued a profit warning that the total profit attributable to the owners of the company for the six months ended June 30, 2019 will be no less than 80% year-on-year. Urban beauty explained that the retail industry was mainly affected by the economic weakness. At the same time, the company's raw materials prices rise, and provide a higher discount to clean up the old inventory of the group, and to provide customers with a higher discount compared with competitors.

Subsequently, Jiayin international published research report, because the company issued a profit police, thus sharpening its profit forecasts for 2019 and 2020, based on its 2020 earnings forecast ratio of 12 times and profit forecast, the target price dropped 58.62%, from HK $2.9 to HK $1.2, the rating from "big win" to "big market".

In order to improve the operation result, the city beauty announced in the Ying police announcement that it will hire new chief executive officers, launch new brand spokesmen, increase product research and development, develop exhibition portfolios in new retail mode and potential mergers and acquisitions.

It is worth mentioning that the "618" electricity supplier in the middle of the end of the war, city beauty announced that Guan Xiaotong was appointed in June 1, 2019 as "city beauty" brand underwear and home furnishing clothes in China's spokesperson, the service period is 2 years. Before that, urban beauty has long worked with Lin Chiling, the goddess of the whole nation.

In this regard, the interpretation of the outside world as the spokesman's adjustment is a sign of the age of the consumer group. "In fact, how to deal with brand aging and get young consumer groups has always been a topic of old enterprises." Market watchers told reporters.

So, what are the main reasons for the appointment of Guan Xiaotong as spokesperson? How can we win the young people from the marketing, brand and other directions? In response to the above problems, the Yangtze daily news reporter sent a letter to the city beauty, as of press time, did not receive a reply. In the announcement, urban beauty only mentioned that this is part of the overall marketing and promotion plan.

In order to improve product design and quality, urban beauty hired digital technology officers and designers to participate in product development in 2018. In July of that year, city beauty hired Sharen Jester Turney, President and chief executive officer of Wei Wei as chief strategy officer. Then, in August, Tang Qianteng, the former Minister of research and development of Wacoal, the largest clothing retailer in Japan, was appointed chief technology officer.

However, the Yangtze River Commercial Daily reporter learned from the visit that the pricing of urban beauty products is still low. In July 23rd, in the city beauty shop of Xiong Feng mall, located in Panyu District, Guangzhou, the reporters saw small shops including underwear, pajamas, underwear and other products. Among them, the price of underwear products ranged from several hundred yuan to tens of dollars, but most of the underwear was sold at hundreds of dollars. At the same time, stores have posted "two pieces of 15% off, three pieces and 25% off" discount information. Market watchers believe that, in the long run, low prices will put enormous pressure on the supply chain and upstream procurement costs.

At the same time, in the view of Jiayin international, it is still too early to tell whether urban beauty has improved its operational efficiency recently. The bank pointed out that some structural problems need to be addressed, including rapid changes in consumer preferences, weakening brand competitiveness, and increased competition in new retail channels such as shopping centres, e-commerce providers and regional participants.

Radical expansion sequela

Announcement information shows that the city beauty was founded in 1998, and was listed on the main board of Hongkong in June 2014. It is known as "the first underwear in the mainland". After the listing, the urban beauty expansion was radical. In 2015, the "Wan Dian plan" was implemented. The total number of stores reached 8058, including 6937 franchisees and 1121 self operated stores.

However, radical expansion strategy and nearly 10000 stores not only provide assistance for the development of urban beauty, but become a "stumbling block" on the path of enterprise growth. In 2016, the revenue of urban beauty dropped by 8.9% to 4 billion 512 million yuan, and net profit fell by 55.19% to 242 million yuan. The net cash earned from operation was converted into 6 million 930 thousand yuan from the net flow of 403 million yuan in 2015. It is understood that this is the first time since 2011 urban beauty net profit decline.

According to a research report of Everbright Securities, the main reasons for its early business predicament are: the initial store expansion strategy is too radical, the weaker dealer portfolio and the lack of scientific management strategy make the quality of the channel deteriorate; the internal retailer is not able to respond in time, and the internal lack of information sharing mechanism.

In order to restore the decline of performance, in May 2017, the city beauty offered shares to Fosun international. The latter subscribed 240 million shares to HK $2.5 and became the second largest shareholder of urban beauty, accounting for 11.18% of the shares. After gaining the help of Fosun, in 2017 -2018, the company achieved revenues of 4 billion 542 million yuan and 5 billion 96 million yuan respectively, up 0.67% and 12.2% respectively, and realized net profit of 317 million yuan and 380 million yuan, respectively, by 31.01% and 19.75% respectively.

However, the Yangtze River Commercial Daily reporter noted that in the past two years, although the net profit of urban beauty increased by two times, the reality of low profit can not be ignored. Gross profit margin dropped from 44.37% in 2016 to 41.67% in 2018. At the same time, the higher the accounts receivable and the fluctuating financial situation of cash flow from operating activities gradually appear. Accounts receivable increased from 451 million yuan in 2016 to 826 million yuan in 2018. Net cash income from operating activities rose sharply to 347 million yuan in 2017, and then dropped rapidly to 51 million yuan in 2018.