F&F and Fila Holdings Expected to Deliver Earnings Surprise in Q2

[Asia Economy Reporter Park Jihwan] DB Financial Investment evaluated on the 18th that F&F and Fila Holdings are generating renewed expectations for earnings following the first quarter, driven by strong performance growth from China and earnings surprises from subsidiaries.

Although the entire apparel industry is passing through a seasonal off-season, pent-up consumer demand appears to somewhat slow down from May to June compared to February to April, leading to a trend where domestic fashion companies’ second-quarter sales forecasts are lower than those of the first quarter. Despite the low base effect from the same period last year resulting in higher sales growth rates than in the first quarter, the absolute sales volume mostly declines compared to the previous quarter.

While difficulties are expected across the apparel industry as a whole, F&F and Fila Holdings are projected to maintain a positive investment outlook due to overseas market growth and the strong earnings momentum of their subsidiaries.

In the case of F&F, second-quarter consolidated sales are expected to reach 283 billion KRW, up 69.7% year-on-year, and operating profit to increase by 214.8% to 64.5 billion KRW. The main driver of this strong performance is high sales growth originating from China. MLB brand sales within China’s online and offline channels have entered a full-fledged growth phase, with second-quarter sales estimated at 86.7 billion KRW following 59.7 billion KRW in the first quarter. Park Hyunjin, a researcher at DB Financial Investment, stated, “Sales growth rates in China are expected to remain high,” adding, “Growth is mainly driven by online channels, and the structure of selling through intermediate importers means there is no inventory risk related to returns, which is an attractive point contrasting with other consumer goods companies operating in China.”

Fila Holdings is forecasted to post second-quarter consolidated sales of 928.7 billion KRW, up 48.6% year-on-year, and operating profit of 162.3 billion KRW, a 222.8% increase. The growth in golf-related sports goods and fashion companies is strong due to increased golf demand in North America and Asia. Researcher Park Hyunjin emphasized, “Especially in the second quarter, the base burden from the previous year is lower than in the previous quarter, and the sales growth of multiple brands operated by Accusynet Holdings is generally steady, with increased sales contributions from new products also being positive.”

Researcher Park Hyunjin stated, “In the apparel industry, it is necessary to focus on companies with growth momentum beyond the domestic market,” adding, “Unfortunately, with the domestic COVID-19 situation worsening again in July, traffic in domestic distribution channels is bound to sharply decline.” He forecasted, “Ultimately, in the third quarter, companies with higher dependence on overseas earnings rather than domestic sales are expected to become more attractive.”