How Much Time Did The Former King Kappa Have?

Italy clothing brand Kappa, which has over 100 years of history, can be seen around the whole country in 2010. At that time, the top brands of NIKE, Adidas and other high-end brands had been overshadowed. Its "back to back" trademark image has been an important part of a generation's youth memory.

The introduction of the brand to China and its exclusive operation in China (03818), after the landing of the Hong Kong stock market at the end of 2007, the share price went down all the way, which was once close to 70%. After the popularity of Kappa, it was in a year or so that the company's share price was pulled back from the bottom to a high level when it first launched, and the biggest increase was over 2 times.

However, since 2011, there has been no good innovation and neglect of Kappa in sports marketing, such as the trend of the brand, sales began to fall off cliff, and China's trend share price has never been up like a deflated ball.

No, recently, the company changed its deadline from the end of the fiscal year to the end of March, and released 15 months' earnings data at once. Let's take a look at the former king.

Kappa business rebound, supporting revenue growth

The upward trend of profit and the downward trend of profits are very obvious. Zhitong finance and economics APP learned that in the 15 months ending March 31, 2019, the company recorded a revenue of 2 billion 144 million yuan (the same below), an increase of 15.39% over the same period last year, but the operating profit of 1 billion 40 million yuan fell by 28.42% compared with the same period last year, and the net profit of shareholders fell 27.17% to 866 million yuan over the same period. Gross profit margin declined from 60.1% in the same period last year to 58.9%, and net profit margin dropped sharply from 64% to 40.4%.

Among them, the main contribution of revenue growth is still the traditional brand Kappa. Zhitong finance and economics APP understands that China's trend has introduced Kappa brand and localized operation since 2002. In 2008, it acquired the international ski brand Phenix, which was mainly operated in Japan. After that, it founded Kappa's brand name Kappakids for children's sports life.

In the latest 15 months' reporting period, sales of Kappa clothing business of the company's China branch increased by 22.7% to 1 billion 194 million yuan compared with the same period last year, and its revenue share increased from 52.4% to 55.7%, the biggest force in revenue growth. The Kappa footwear and accessories revenue of China's sub area increased by 0.3% and 3.8% respectively, and the Kappa brand of the entire Chinese division grew by 17.1% last year.

In terms of children's clothing business, the sales volume of 151 million yuan is basically the same as that of the same period last year. The sales of Phenix brands in Japanese branches increased by only 2% to 253 million yuan, while Kappa brand sales increased by 11.1% to 140 million yuan. The sales of Japanese branches increased by 5.1%.

Kappa, a traditional brand, shoulders the heavy responsibility. The main driving force for growth is self promotion. Zhitong finance and economics APP understands that the total number of Kappa brand shops is 1502, of which 295 children's shops are 295. Compared to 2017, the Kappa brand store has increased by 70, but the Kappa children's shop has been reduced by 55, which corresponds to the trend of revenue growth.

Since 2019, the customer adjustment has been completed in the first step of the company relationship channel reform. The self management system and the direct business customers account for more than 90% of the company's overall business. In the latest data disclosure, Kappa self sales growth has reached 21.2%, which is much higher than the 11.2% part of the non self operated part, and the sales share has increased from 59.3% to 61.4%.

Thus, it seems that the Kappa brand is regenerating. Is there any hope of driving the Chinese trend to the second spring? The answer is quite difficult, because the main trend of China is to invest in brand clothing.

Investment business alone carries heavy profits

Excluding other gains in China, business is losing money. Zhitong finance and economics APP understands that although China's gross margin is nearly 60%, the gross profit of 1 billion 270 million yuan in the 15 months ended March is not enough to cover 1 billion 113 million yuan of distribution expenses and 225 million yuan administrative expenses. The company's operating profit of nearly 1 billion 40 million yuan is all supported by other income of 1 billion 109 million yuan.

Apart from business, clothing business is actually dragging its profits. Zhitong finance and economics APP learned that up to 1 billion 102 million yuan gross profit of the Chinese branch clothing business, after deducting all expenses, only 42 million 840 thousand yuan net profit, compared to nearly 859 million yuan net profit, it is a drop in the bucket. If coupled with Japan's clothing business deficit of 51 million 120 thousand yuan, known as the main business of the entire clothing business has also dragged the profit hind legs.

In the whole year of 2017, China's branch clothing business was still losing 18 million 40 thousand yuan, while Japanese branch clothing business was still losing 57 million 320 thousand yuan, so the Kappa brand business, known as the "business rebound", was a small loss to profit and contributed to more than 800 million of the net profit growth of the company. The company's real main business of making money is actually investment business.

The real drag on profit performance is a sharp reduction in investment returns. Zhitong finance and economics APP learned that in early years, Kappa had accumulated a large amount of cash and started investment business.

During the latest reporting period, the company's investment income reached 1 billion 54 million yuan, a decrease of 241 million yuan over the period of 1 billion 295 million yuan over the same period, and the profit attributable to shareholders of the company decreased from 1 billion 189 million yuan to 866 million yuan, and the net interest rate dropped by nearly 24 percentage points to 40.4%.

By the end of March 2019, China had Alibaba with a value of 1 billion 721 million yuan, and 920 million shares of other listed companies, plus 4 billion 474 million yuan of unlisted funds and 337 million yuan of commercial bank investment products. The company held assets with a fair value of up to 7 billion 452 million yuan, which is much higher than that of the company's closing market value of HK $5 billion 768 million in June 20th.

To sum up, investors who want to get involved in China's trend should pay more attention to the stock price trend of Alibaba and the whole capital market environment instead of focusing on whether the company's clothing business is better.