(24 October 2024 - Hong Kong) Topsports International Holdings Limited (“Topsports”, “We” or the “Company”; Stock Code: 6110) today announced the unaudited interim results of the Company and its subsidiaries (together, the “Group”) for the six months ended 31 August 2024 (the “Reporting Period”).

During the period, China's economy remained generally stable and continued to gain positive momentum despite a complex and challenging global landscape. However, consumer spending remained partially constrained due to increasing pressure on household incomes and a continued decline in real estate values. Alongside this overall softness in consumer demand, significant shifts in consumption patterns are emerging. Offline stores are struggling with reduced foot traffic, and digital consumption methods such as live streaming has become more popular while consumer behaviour is becoming more rationally selective. In this subdued consumer environment, the consumer sportswear market is facing a paradigm shift from pursuing incremental growth to competing in a sluggish market, which presents new challenges.

During the Reporting Period, the Group's revenue decreased by 7.9% year-on-year to RMB13,054,7 million, due primarily to the impact of soft consumer retail spending, offline stores continue to grapple with diminishing foot traffic. The decrease in revenue let to a temporary increase in inventory, prompting the Group to enhance its promotional efforts. At the same time, online sales featured steeper discounts compared to offline sales during the Reporting Period. Despite this, the proportion of online sales increased year-on-year, contributing towards a broader discount retail landscape. As a result, the Group’s gross profit margin decreased by 3.6 percentage points year-on-year to 41.1%.

During the period, the Group's overall selling and distribution expenses and general and administrative expenses decreased by 7.4% year-on-year, with the expense ratio slightly increasing by 0.2 percentage points year-on-year to 33.1%. The main reasons include: the decline in offline traffic negatively impacted the offline stores' operating leverage, while we continuously adjusted the combination of online and offline layouts, flexibly utilizing online scenarios with better expense ratios for sales conversion. The increase in the proportion of online retail sales has helped to partially offset the offline pressure. During the period, the Group's profit attributable to equity holders decreased by 34.7% year-on- year to RMB 873.8 million, with the profit margin attributable to equity holders decreasing by 2.7 percentage points year-on-year to 6.7%.

Despite the challenging operating environment and market uncertainties, the Group maintained healthy cash generation capabilities. As of 31 August 2024, cash and cash equivalents were RM2,839.6 million. During the period, net cash generated from operating activities was RMB2,613.5 million, which recorded a 2.5% year-on-year increase despite the profit before income tax decreased by 35.1% year-on-year and is three times the profit attributable to equity holders for the same period. In light of this performance, the Board has resolved to declaim an interim dividend of RMB14.0 cents per ordinary share for the year ending 28 February 2025, representing a payout ratio of 99.4%. Maintaining a dividend payout level significantly higher than the industry fully underscores the Group’s firm and proactive commitment to rewarding shareholders through robust cash generations, even in a volatile market environment.

Omni-Channel Retail: Diversifying the Layout

In response to evolving consumer behaviour and changing consumption scenarios, Topsports further enhanced its omni-channel layout. During the Reporting Period, the Group prioritized efficiency as its core focus, implementing a series of measures to realign its offline store network with brand attributes. As online platforms have become vital touchpoints for daily consumption, establishing comprehensive omni-channel coverage throughout the entire consumer journey has become essential for businesses. The Group continues to strengthen its omni-channel retail framework by employing an integrated approach that combines “platform- centric e-commerce + content driven e-commerce + private domain operations.” This integrated strategy enables Topsports to tap into a wider range of online consumption scenarios, positioning the Group to capitalize on more business opportunities.

In terms of the store layout, the Group adheres to the principle of “select + optimize,” focusing on efficiency and quality while tailoring strategies for over 10 brand partners based on their unique attributes. Topsports has implemented a strategy of “Each Brand with Unique Approach” to adjust its offline store structure, addressing the challenges posed by decreased foot traffic. For new store openings and renovations, Topsports has established stricter selection criteria, carefully controlling the size with an emphasis on floor area efficiency. The Group’s expansion efforts mainly focus on establishing anchor stores for major brands and enhancing the new presence of niche performance brands. In renovating existing stores, the Group prioritizes improvements in space of efficiency. Topsports has accelerated its store closure strategy to eliminate underperforming locations, aligning with market conditions and brand strategies to mitigate the impact of reduced consumer traffic on the operational efficiency of offline stores. As of 31 August 2024, the Group had 5,813 directly operated stores, a decrease of 6.4% year-on-year. The gross selling area also decreased by 1.9% during the same period. Compared to 29 February 2024, the number of directly operated stores decreased by 5.4%, while gross selling area decreased by 2.7%.

Topsports is exploring new growth opportunities across a broader range of scenarios, with a continued focus on the in-store live-streaming business. By the end of the Reporting Period, the number of mini-program stores exceeded 2,500, representing a significant year- on-year increase, while live-streaming accounts surpassed 300, nearly doubling when compared to the same period last year. Leveraging a comprehensive omni-channel strategy, the Group continues to enhance user engagement through online communities, creating an interconnected and closed-loop user ecosystem. During the Reporting Period, the Group engaged users through over 90,000 WeCom groups, with its private domain mini-program maintaining the #1 position in Tencent’s WeChat mini-program’s rankings for the sports-and-outdoor category. Notably, Douyin live-streaming sales surged by approximately 200% year-on-year during the Reporting Period, ranking first in the sports and outdoor category on the platform. Additionally, online retail sales accounted for about 30% of total retail sales during the period.

Omni-Channel Retail: Optimising Inventory Management

The Group’s approach to inventory management prioritizes maximizing efficiency through broadened inventory flow and omni-channel price management. Topsports refined its business logic and organizational structure to support its “omni-channel inventory sharing” policy, enabling unified management and flexible allocation of inventory across channels. To control prices, the Group aligns prices and products with the unique characteristics of different sales channels to enhance product conversion efficiency. Topsports is committed to building a comprehensive and multi-role collaborative operational system, supported by advanced digital intelligence tools, the Group has improved both inventory management accuracy. During the period, the Group continued to iteratively upgrade its inventory management system, boosting supply chain operational efficiency and achieving year-on-year improvements in both stock transfer accuracy and order dispatching efficiency.

As of 31 August 2024, the Group’s inventory increased by 6.4% year-on-year to RMB6,119.9 million due to a decline in sales, whereas it decreased by 2.6% compared to that as of 29 February 2024. However, the Group perceives the inventory status as controllable in general looking forward, given the persistent execution of measures as above, in conjunction with the collaborative efforts to react jointly with our brand partners.

Omni-Channel Retail: Streamlined and Efficient Talent Pipeline

Talent is the cornerstone of the long-term development of a company. Topsports prioritizes talent acquisition and cultivation on a strategic level, and by enhancing employee job satisfaction and professional capabilities, it nurtures an efficient and adaptable team, strengthening its organizational foundation for long-term healthy growth. During the period, Topsports continuously optimized its organizational structure to build a more agile and efficient talent pipeline to adapt to changing market trends and consumer behaviour. In response to declining offline traffic and corresponding adjustments in store network, we strategically realigned store staffing, continuously streamlined the overall organization structure. Meanwhile, we increased the number of professionals specialized in live-streaming and private domain operations within the organization so as to support the needs of new business development in the context of Omni-channel retail layout, leading to a more diversified team skill set.

As of 31 August 2024 , the total number of employees was 28,941, a decrease of 3.2% year- on-year and 1.8% when compared to the 29 February 2024. The year-on-year and sequential decline in the total number of employees are less than the decline in the total number of stores during the same period, which is in line with the company's overall staffing strategy under Omni-channel retail layout.

Users: More Precise and Targeted Operations

The volatility in demand and the evolving role of channels within an omni-channel consumption landscape have intensified the challenge of accurately capturing user mindshare and fostering loyalty. Adopting a consumer-centric approach, Topsports has focused on delivering a diverse value proposition while maximizing the potential value of each user. As part of this process, the Group is enhancing operational processes through the deployment of digital tools. This dual approach has created a healthy ecosystem that provides increased value to users, strengthening relationships and fostering deeper connections with them.

During the period, Topsports’ user base continued to expand, reaching 81 million. Topsports consistently attracted new user segments through scenario-based, engaging omni-channel marketing and cross-industry collaborations. In response to dampened offline traffic, the Group has been expanding the online platform presence itself and exploring innovative ways to direct online traffic to its offline stores. Simultaneously, Topsports has integrated and connected user data across multiple platforms, allowing users to enjoy a more consistent experience in terms of benefits and value across all of its omni-channel network.

While pursuing incremental user growth, Topsports recognizes the significant value its existing users may offer. To capitalize on this, the Group has combined refined customer profiling and behavioral analysis to deliver customized product recommendations and targeted marketing, markedly improving the accuracy and efficiency of its marketing and promotional efforts. Diverse marketing activities and cohesive interactive scenarios have optimized the customer experiences and strengthened their sense of belonging and therefore increased customer stickiness and improved conversion rates.

Moreover, Topsports created engagement opportunities by hosting various member activities and upgrading the content and formats of these events. By enhancing member benefits and refining overall value, the Group has improved user activity and conversion rates. In addition to regular membership activities such as the May Day card collection, 99 Member Month, Chinese New Year Shopping Festival, and themed events in popular tourist destinations, during the period, the Group launched a special Olympic Gold Medal-themed marketing campaign for this summer’s Paris Olympics, igniting consumer passion for sports. For high- value users, we offered exclusive offline activities, cross-industry partnerships, and activities in private domain communities to reward their persistent support. Additionally, the Group introduced new community IP initiatives, including “Ignite Your Sports Life” and “TOP Run Free”, incubating more than 100 sports interest communities and further enhancing Topsports’ brand influence among niche sports enthusiasts. As a result of these efforts, re-purchasing members accounted for approximately 60-70% of overall member consumption, remaining largely stable year-on-year. The Group’s initiatives to strengthen loyalty among high-value members yielded positive outcomes. While these high-value members represented only a mid- single-digit percentage of total purchasing members, they contributed nearly 40% of total sales. Their average order value significantly exceeded that of the overall member base, demonstrating their strong consumption potential and loyalty.

Driving Future Growth through Category Expansion with Innovative Efforts

Gen-Z and the emerging middle class remain the primary drivers of growth in the sports consumption market. Topsports has been expanding its presence in potential niche sports and lifestyle segments, catering to the personalized needs of young consumers seeking “spiritual self-fulfilment,” “value reconstruction,” and “exploration of the outside world.” By continuously diversifying and enhancing its product and service offerings, the Group aims to co-create experiences that resonate with consumers on a deeper, more emotional level in new consumption scenarios.

During the Reporting Period, Topsports further expanded its brand collaboration matrix by adopting diverse models to explore emerging trendy sports categories and more professional niche sports segments. Following the partnerships with “HOKA ONE ONE” and “KAILAS,” the Group became the exclusive operating partner in the Chinese market for norda, a high-end Canadian trail running shoe brand. Additionally, building on its partnership with Fanatics - a leading global digital sports platform for licensed sports merchandise - the Group has continued to expand the commercialization of Fanatics’ licensed sports IP in the Greater China region. Topsports established both online and offline stores for Mitchell & Ness, a vintage- inspired sportswear brand embodying the spirit of “1904, ‘till infinity,” while implementing cross-platform operations for its social media presence. The Group believes that these strategic initiatives in niche categories will sow new seeds for its future development.

Future Outlook

Despite the current uncertainty of the sports consumption market, in the face of emerging categories, brands, coupled with rapid iteration of consumption occasions, Topsports chooses to actively adapt to change while staying true to its core value and responding with courage. With forward-looking and agile strategic execution, Topsports is dedicated to creating enduring value for consumers, shareholders, partners and society.

The management of Topsports emphasizes that under the volatile market environment, consistently doing the right thing will provide solid support for its long-term sustainable development. Looking ahead to the second half of the year, the Group will focus on the deepening of omni-channel retail and the user value creation and lay out long-term growth through continuous business and service innovation. The Group will consolidate and enhance operational efficiency and forge operational resilience with digital empowerment. Meanwhile, the Group will actively practice ESG concepts to build a sustainable path encompassing collaboration and shared value. ”

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About Topsports International Holdings Limited

Topsports is a leading sportswear retail operator in China. It has an extensive and deep retail network across the country and an Omni-channel interconnected layout of online and offline touchpoints, with in-depth cooperation with more than 10 well-known sports brands. Topsports is committed to providing consumers with first-class sports goods and services, and creating a never-ending, active, healthy and happy sports and life experiences.

This press release is issued by CHRISTENSEN CHINA LIMITED on behalf of Topsports International Holdings Limited

For more information:

CHRISTENSEN CHINA LIMITED

Vivian Wang
TEL: + 852-2232 3978
Email: vivian.wang@christensencomms.com

Suri Cheng
TEL: +86 185 0060 8364
Email: suri.cheng@christensencomms.com