Goldman Slashes Xtep's Profit Forecasts by Up to 18%
Goldman Sachs adjusted its financial outlook for Xtep International (01368.HK), cutting its target price to HKD5.7 from HKD6.6. The revision comes after the sportswear company’s net profit for the second half of last year fell 3% short of the bank's estimates. Citing weaker core brand sales and increased operating expenses, Goldman lowered its net profit forecasts for Xtep for 2026 and 2027 by a range of 14% to 18%. The new target price is based on a forecast price-to-earnings (P/E) ratio of 11 times for 2026.
Retail Overhaul of 500 Stores Creates Sales Headwinds
The company's short-term performance is expected to be impacted by its aggressive retail strategy. Xtep plans to transform approximately 500 stores to a direct retail model this year, a substantial acceleration from the 100 stores converted in the latter half of last year. While intended for long-term efficiency, this transition is projected to pressure sales and profit margins. Additional headwinds identified by analysts include increased investment in the Xtep brand, higher expenses from an employee stock ownership plan confirmed for this year, and rising tax rates.
Saucony Brand Growth of 20-30% Underpins 'Buy' Rating
Despite the downward revisions, Goldman Sachs maintained its 'Buy' rating on Xtep, signaling confidence in the company's long-term prospects. This optimism is largely supported by the strong outlook for its Saucony brand, which is projected to achieve revenue growth of 20% to 30% this year. The growth is attributed to strategic upgrades in its product line, sales channels, and brand marketing. Management also anticipates positive year-on-year revenue growth for the main Xtep brand, fueled by strong performance in the running category.
