Xtep International's 3Q26 Chinese mainland operation update: The core Xtep brand's retail sell-through declined by a mid-single-digit percentage YoY, with e-commerce and X Young maintaining growth while footfall at offline street stores remained under pressure; Saucony's sell-through grew by a mid-single-digit percentage YoY, improving from 2Q26, with offline sell-through sustaining double-digit growth. The core Xtep brand's retail discounts held steady at 25-30% off, and inventory turnover was about 4.5-5 months, indicating healthy operating quality. Sales over the Mid-Autumn Festival and National Day holidays were in line with the company's expectations, and the core Xtep brand's trend in October was similar to that in 3Q26. The company maintains a full-year dividend payout ratio of no less than 50%, underscoring its high-dividend profile. In our view, the near-term consumption environment still weighs on the core Xtep brand, but its professional running brand equity is strengthening, and channel transformation and Saucony's premiumization could improve operating quality. Maintain BUY.
Core Xtep brand: retail sell-through dropped
1) The core Xtep brand's 3Q26 retail sell-through declined by a mid-single-digit percentage YoY, with August-September improving from July, mainly due to weak consumption and footfall fluctuations at street stores; shopping centers and outlets were relatively stable. Retail discounts held at 25-30% off, and inventory turnover was about 4.5-5 months. 2) Professional running brand equity is strengthening: at the 2026 Beijing Marathon, Xtep running shoes recorded an overall wear rate of 35.4%, ranking first among all brands for the third consecutive year. The 160X 8.0 and Lingyun series round out the "top-tier carbon plate + top-tier cushioning" matrix, and year-to-date sales volume of the "2,000 KM" running shoes rose by about 60% YoY. 3) On channels, there were over 80 large stores in prefecture- and county-level cities as of end-3Q26, and we expect about 70 select outlet stores for the full year. The company has reclaimed about 200 DTC stores and plans to reclaim around 400 more in 4Q26. E-commerce sustained growth, and we expect Douyin to deliver relatively fast double-digit growth. Sales volume of X Young's A+ growth shoes doubled YoY in 1H26, with over 500 growth-concept stores whose per-store sales outperformed regular kids' stores.
Earnings forecasts and valuation
We maintain our 2026/2027/2028 attributable NP forecasts of RMB1,130/1,290/1,424mn, implying EPS of RMB0.40/0.46/0.51. Considering that the company still lags Li Ning and ANTA in scale, we maintain a valuation discount and value the stock at 8.1x 2027E PE, below its peers' average of 9.2x. Based on an HKD/RMB exchange rate of 0.86 (previous: 0.87), we lower our target price to HKD4.33 (previous: HKD4.50, based on 9.7x 2026E PE).
Risks: intensifying competition expanding inventory pressure, slower-than-expected consumption recovery.