[Click e-Stock] "F&F Sees Recovery in China Sales Despite Domestic Slump"

On April 30, SK Securities maintained its "Buy" investment rating and target price of 84,000 won for F&F. On this day, Hyung Kwonhun, an analyst at SK Securities, stated, "The company's first-quarter results were in line with the market consensus. While the domestic market was sluggish, sales in China showed signs of recovery."

F&F's first-quarter results showed sales of 505.6 billion won, a decrease of 0.3% compared to the same period last year, and operating profit of 123.6 billion won, a decrease of 5.1%. The operating margin was 24.4%. Both sales and operating profit were in line with market expectations.

By region, domestic sales declined by 12.2%, while sales in China grew by 8.2%. Analyst Hyung explained, "The domestic market continued to face pressure from weak consumer sentiment and sluggish duty-free channels, resulting in weak sales. Discovery's market share within the outdoor industry also declined." Regarding China, he said, "The effects of consumption stimulus measures and the efficiency improvement of existing stores led to growth in wholesale sales per MLB store in yuan terms. There was also a positive impact from the strengthening of the yuan against the won."

For the second quarter, he forecast sales of 376.3 billion won and operating profit of 85.2 billion won, representing decreases of 3.9% and 7.2%, respectively, compared to the same period last year. Hyung said, "In the domestic market, sales are expected to decline by 14.9% due to weak consumer sentiment, sluggish duty-free channels, and declining brand market share. In China, the trend of a 5.8% sales recovery is expected to continue, driven by domestic consumption stimulus measures and the efficiency improvement of MLB stores."

Hyung added, "As expectations for a recovery in domestic consumption in China become more concrete, investor sentiment toward F&F, which has a high proportion of sales in China, is improving." However, he also explained, "Although wholesale sales per MLB store in China in yuan terms turned to growth this quarter, they still lag behind the growth rate of the Chinese apparel consumption market. There are also concerns about the declining market share of domestic brands, especially Discovery, in the domestic market."

He continued, "A decisive breakthrough is needed to reverse this situation. It is worth paying attention to the potential for a visible increase in wholesale sales per store at or above the market growth rate through the efficiency improvement of MLB stores, as well as the performance of Discovery's business in China."