It Is A Bit Of A Drop In The Market Share Of The Negative Rating Market.

The brand name of the famous sportswear brand, which has been downgraded by two international rating agencies for a long time, is obviously 01361.HK.

The slowdown in revenue growth, limited profitability, uncertainty in cash flow and the ability to control fake brushes, which had been questioned by consumers, have led to the development of the 31st level.

How can we solve the dilemma?

Can market confidence be reversed in 2019?

At least for now, the difficulty is not small.

A profit warning issued by the company said that the company's expected net profit after tax will fall sharply compared with 2017 as of the end of 2018.

Even if the company did not give a specific decline in net profit, the market had already confirmed it.

0-4%% growth

Market share dropped sharply in January 31st. In January 31st, the international rating agency's S & P report pointed out that the sales growth of 31st degree would slow down, coupled with the fierce competition with global brands and the rise of local brands of Chinese sportswear, it is expected that market share will be lost in the next 12 months, confirming its "BB" long-term issuer credit rating, but the rating outlook will be changed from "stable" to "negative".

S & P explained that lowering the outlook of the 360 degree rating reflects the weakening of the growth prospects of the company and the decline in its market share.

As China's market competition intensifies, the growth prospects of 361 will continue to be damaged. It is predicted that the ratio of debt to EBITDAE (pre tax profit and depreciation and amortization) will rise from 2.9 times in 2017 to 3 times in 2018-2019 years.

"Revenue growth in the next 12 months will slow down to 0-4%, weaker than the 7-9% growth rate in the market, but it is estimated that there will be a moderate recovery in 2020."

S & P is expected.

Explanation: 1. the consumption desire of the Chinese people for non essential items (such as group products) is relatively conservative, so that the replenishment orders are reduced. The group implements logistics management optimization plan and rearranges the delivery schedule during the year. In order to develop the group in the second half of 2018, the brand redevelopment plan is pushed to better meet the changing needs of the target consumers, so that the group's orders in 2018 are reduced as a whole.

In the 2.2018 year, the RMB continued to depreciate against the US dollar, resulting in a loss of exchange.

3. as a result of increased advertising and publicity expenses, the group's e-commerce business recorded a substantial loss in 2018.

In response to the specific decline in net profit of 331 degrees and various business losses, the investor net verified the company's chief financial officer and company secretary Cai Minduan by mail, and contacted the company investor relations department.

However, as of March 7th, no response was received.

Only a representative of public relations told the investor net that it is not convenient to respond because of the silent period before the annual report.

Negative watch list or continue to downgrade

Bad news followed.

Another international rating agency, Fitch, announced in February 27th that it has included the 31st degree "BB" long term foreign currency issuer default rating and the senior unsecured rating on the negative rating list.

Fitch also included the company's issued coupon rate of 7.25% and the 400 million dollar advanced note "BB" which expired in 2021 to the negative rating watch list.

Fitch said that in 2018, the 31st mark disclosed a reduction in orders in earnings warning, much lower than previously expected.

Fitch had predicted that growth would slow from a higher base to a single digit interval in the next few years.

In the second half of 2018, China's overall retail sales environment slowed down, but Fitch needs to determine whether this trend is a common phenomenon in other industries of the industry, or the growth of 360 degrees is a sign of shrinking market share.

Fitch said it was necessary to assess whether the brand redevelopment plan launched by the company in the second half of 2018 could effectively support revenue growth in 2019 and in the future.

In addition, the extent of earnings decline or the impact on cash flow can not be determined according to the financial and operational details of earnings warnings.

After the announcement of its performance in March 2019, Fitch will review its rating.

"Due to the limited profitability of the 31st degree, there will be a possibility of triggering a downgrade.

The company's EBITDA profit margin declined in 2017, and the increase in advertising and publicity (A&P) costs in 2018 may exceed the expectations of Fitch.

The profit warning referred to the brand redevelopment plan launched in the second half of 2018 and the impact of the increase in the cost of advertising and publicity.

In the first half of 2018, the ratio of advertising and publicity expenses to sales was only 9%, compared to 10%-13% from 2015 to 2017.

Although Fitch expects the company to have some flexibility in such investments, it still needs to determine the balance between growth and investment to predict future earnings trends.

Fitch points out.

Fitch also gave a sensitivity rating of 331 degrees: the 1.EBITDA profit margin continued to be below 15% (17% in 2017) and 2. free cash flow continued to be negative.

3. failed to maintain net cash position.

4. the deterioration of operating capital, such as the deterioration of the number of trade receivables (including bills receivable), or the significant increase in channel inventory.

5. the rating is in a negative state of observation, and the possibility of positive rating action is unlikely.

By the end of 6 in 2018, the total amount of outstanding debt was 2 billion 700 million yuan, of which 112 million yuan was the current loan.

What is the reshaping brand plan?

False brushes and fake goods are serious.

In fact, poor financial performance is only one of the results of the 31st degree.

For the whole 360 degree, the biggest difficulties are the difficulties in brand pformation and the management loopholes in counterfeit goods.

Since the second half of 2018, the brand remodeling plan has been launched.

The company's argument is to better meet the changing needs of target consumers.

An analyst at the clothing industry told the investor network that the main reason for brand reshaping was to change the low price and low end impression and move closer to the middle and the top.

But from the layout of the 31st degree storefront, most of them are located in cities with three or four lines or below. It is very difficult to change in the short term in one or two years. It is very difficult to change the brand positioning.

It is reported that the layout of the 31st degree is mainly in the three or four line cities, with more than 65% of the stores located in three or less cities, and only 8.9% of them are located in the first tier cities.

Brand adjustment takes time, but the reputation of the 361 brand has begun to be ignored by the market, especially the problem of fake brushes and fake products on the Internet.

In 2018, double eleven hours, many consumers who purchased 360 products said they were told that they were out of stock after ordering the order, and they were deceived and sold.

According to the 31st degree announced, Tmall flagship store's single store sales exceeded 100 million yuan, but no matter sports outdoor TOP10 brand ranking or shoes brand TOP10 ranking, there was no 360 degree figure.

It is worth noting that the market share is declining, profitability is declining and brand influence is going wrong.

(think finance)