Topsports International has reported FY26/1HFY27 results: revenue came in at RMB10.91bn (-11.3% YoY), the attributable net profit was RMB660mn (-16.0% YoY), and the attributable net margin was 6.1% (-0.3pp YoY). The company proposed an interim dividend of RMB0.11/share, implying a payout ratio of 102.9%. Revenue was under pressure from volatile consumer demand and offline traffic, compounded by wholesale business contraction. However, the company maintained a stable expense ratio through leaner store network management, improved omni-channel retail efficiency and prudent cost control, while operating cash flow improved YoY and inventory continued to destock. Nike’s reclaiming of online distribution rights is to affect the FY27/28 results, although Topsports’ offline partnership with Nike remains deep. The company is also stepping up its presence in running and outdoor categories, further strengthening its positioning as a one-stop omni-channel operating partner. Maintain BUY.

Continuing to optimize store mix and strengthen operation

By brand, revenue from key accounts (Nike + Adidas) and other brands fell by 11.6/8.5% YoY to RMB9.55/1.29bn. By channel, retail/wholesale revenue declined by 8.8/27.5% YoY to RMB9.67/1.18bn. The revenue decline was mainly due to offline traffic pressure amid a weak consumption environment and reduced wholesale business. The company continued to advance its ‘optimization + upgrading’ offline network adjustment. As of end-August 2026, directly-operated stores totaled 3,872, decreasing by 17.4/11.2% YoY/QoQ. The total selling area declined by 12.9% YoY and 7.9% QoQ, while the selling area per store increased by 5.5% YoY and 6.5% QoQ. The online business contributed a higher share of retail revenue, and the company continued to enhance omni-channel per-store operating efficiency through synergies across platform e-commerce, content e-commerce, private domain operations, and instant retail.

Inventory and cash flow stayed healthy

For 2026/1HFY27, the gross margin declined by 0.9pp YoY to 40.1%, owing to deeper sales discounts amid industry-wide promotions. The selling & distribution/ G&A expense ratios were 29.1/4.1%, with the total expense ratio flat YoY at 33.2%. Specifically, leaner store network management and channel mix iteration drove an estimated 0.9pp YoY decline in the rental expense ratio to 10.3%, while the staff expense ratio was stable YoY. Other expense ratio rose by 0.9pp YoY, because revenue declined faster than other expenses. Inventory at period-end fell by 15.7% YoY and 10.4% from the beginning of the year to RMB4.92bn, with inventory turnover days shortening by 3.6 days YoY to 146.4 days. The operating cash flow rose by 36.1% YoY to RMB1.84bn, equivalent to 2.8x net profit for the period. Net cash at period-end was RMB1.49bn, reflecting a solid capital base.

Earnings forecasts and valuation

Considering that discounts have also deepened, we lower our FY27/28/29 revenue forecasts to RMB21.67/18.89/19.83bn (-5.6%/-5.6%/-5.6% vs prior) and trim our gross margin assumptions. We cut our FY27/28/29 attributable net profit forecasts to RMB907/811/947mn (-16.8%/-11.6%/-10.2% vs our previous forecasts). Referencing its peers’ average 2027E PE of 8.4x on iFinD consensus, we assign an FY28 PE of 10x, reflecting Topsports’ scarcity value as a one-stop omni-channel operating partner and its high-dividend attributes. Based on an HKD/RMB exchange rate of 0.86, we lower our target price to HKD1.53 (previous: HKD1.69, based on 10x FY28 PE and HKD/RMB of 0.87). Maintain BUY.

Risks: Intensifying competition and inventory pressure, weaker consumption recovery than we expect, overseas policy uncertainty.