On Saturday, This Year, We Expanded Our Stores And Strengthened Our Marketing Efforts,

The net profit in the first half of Saturday was 5.7 billion yuan, up 6.6% year on year, slightly 2% higher than our estimate. The main business income increased by 24.4% and the profit before tax increased by 18.8%, but the profit after tax grew slowly due to the cancellation of preferential tax rates.

Front:

Fast store opening drives sales growth. In the first half of the year, 179 self operated stores were opened, with the number of stores increasing by 19%. The revenue of main brands Saturday and Sophia increased by 38.7% and 53.9%, significantly increasing the brand market share.

Gross profit margin of main products increased by 2%. The average unit price of domestic leather shoes increased by 1.77% and the unit cost decreased by 0.68%.

The clearance of used goods was effective. The inventory over two years was reduced by 35%, and the inventory from one year to two years was basically stable. The increased inventory was mainly new goods within one year (up 36.4%), which was in line with the company's strategy of quickly opening stores and abundant stock to promote sales. The significant decline in used goods helped to dispel some investors' concerns about the company's inability to clean up used goods.

Negative:

The rapid opening of stores led to a significant increase in the rate of operating and management expenses, because of the large investment in new stores and the low efficiency in the first few months of new stores. The company has increased advertising efforts since the second quarter, and the expense rate has risen significantly.

Development trend:

Net profit in the third quarter may decline year-on-year. The third quarter is the off-season for shoe business, and it is difficult to significantly improve the benefits of new stores. The advertising expenses will continue to rise, so the net profit in the third quarter may decline. When the peak season of the fourth quarter comes, the company is expected to return to the track, and the increase of market share and the gradual maturity of new stores can bring long-term benefits.

Profit forecast adjustment:

The company's annual marketing expenses may exceed 30 million yuan, higher than expected. We lowered our 2010 earnings forecast by 9 million yuan, and adjusted earnings per share was 0.47 yuan.

Valuation and suggestions:

Maintain recommendation rating. Saturday brand keeps leading in the industry, with broad growth space and long-term investment value. This year, the company focused on store expansion and enhanced marketing. In the first half of the year, the company grew rapidly with the pace of Belle, and successfully seized the market share of other small brands. The store opening speed and marketing strength exceeded expectations, which helped consolidate the market position and establish a good image, laying the foundation for long-term growth.

However, it is necessary to be alert that the stock price is not sufficiently motivated to rise due to the high valuation (35.5 times dynamic P/E ratio) and performance pressure in the short term.