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Source | Bohu Finance (bohuFN)

Author | An Xiao

Not long ago, Bosideng released a brilliant financial report, with revenue exceeding 20 billion and net profit also reaching a new high. Its stock price has been rising all the way. After the release of the financial report, the stock price rose for two consecutive days to HK$4.87, with a year-to-date increase of 38.75%. But within a week, the boss Gao Dekang did something that was beyond everyone's expectations.

On July 3, Bosideng announced that Gao Dekang would place 400 million shares of the company at a price of HK$4.31 per share. In this way, Gao Dekang would cash out more than HK$1.7 billion. Bosideng's stock price then fell for four consecutive days, with a cumulative decline of 19.81%.

(Screenshot from: Snowball)

Bosideng said, "This move is conducive to optimizing the company's shareholder structure and enhancing liquidity." However, the secondary market's response was clearly not favorable, with some even speculating that "Gao Dekang wanted to cash out after the performance exceeded expectations. At the same time, they were concerned about Bosideng's future development."

Over the years, Bosideng has been questioned for its "failure in diversification" and "difficulty in moving towards high-end". Now its performance has exceeded expectations and has been favored by many institutions, proving its strength. However, its stock price has plummeted due to "counter-operation". What is Bosideng planning?

01 The down jacket leader’s “sorrow”

Undoubtedly, Bosideng’s performance this time is “worth looking at”.

The financial report shows that in the 23/24 fiscal year, Bosideng's revenue reached 23.214 billion yuan, a year-on-year increase of 38.4%; net profit attributable to shareholders reached 3.074 billion yuan, a year-on-year increase of 43.7%, both setting new historical highs.

Looking at the split business, Bosideng's four main business revenues also recorded growth.

The main business of branded down jackets achieved revenue of 19.52 billion yuan, a year-on-year increase of 43.8%; the revenue of OEM processing management business was 2.67 billion yuan, a year-on-year increase of 16.4%, both of which set historical records; at the same time, the women's clothing business also achieved double-digit year-on-year growth.

With favorable performance, Bosideng has been favored by many institutions.

Recently, Morgan Stanley Capital International, Kaiyuan Securities, Goldman Sachs, Bank of China and others have maintained Bosideng's buy rating, and some even gave it an industry-leading "A" rating.

However, upon closer inspection, Bosideng's shortcomings become increasingly apparent.

Since it was listed on the Hong Kong Stock Exchange in 2007 as the "first down jacket stock", Bosideng has been questioned for being too dependent on its main business of down jackets. At that time, Bosideng began to try to diversify, launched a four-season strategy to enter the men's clothing field and expand the women's clothing business, but the results were not satisfactory.

In 2017, Bosideng cut off non-down apparel businesses, refocused on its core business, and launched a strategy to build a mid-to-high-end down apparel brand. Until now, down apparel still accounts for 80% of Bosideng's total revenue, and over-reliance on a single category can easily limit gross profit.

In the 23/24 fiscal year, Bosideng's overall gross profit margin increased slightly by 0.1 percentage points year-on-year to 59.6%, among which the gross profit margin of the brand down jacket business decreased by 1.2 percentage points year-on-year to 65%.

The company said, "Due to the increase in the proportion of Bosideng brand wholesale business during the reporting period, as well as the impact of the launch of new categories such as sun protection clothing, the gross profit margin of sun protection clothing products is lower than that of down jacket products because the gross profit margin of wholesale business is lower than that of direct sales."

However, over the years, Bosideng's gross profit margin has increased slowly. From 2020 to 2023, the gross profit margin increased by 1.5%, -0.6% and 0.1% respectively.

The down apparel industry itself is limited by the influence of seasonal cycles and its development is limited. In recent years, Gao Dekang has led Bosideng to try diversification and four-seasons, all for new growth space. However, whether it is the failure of diversification or the doubts about the high-end transformation, Bosideng is obviously at the forefront of the storm, so why can it still achieve record high performance?

02 Maintaining “best-selling” performance through marketing

Over the years, Bosideng has not only been carrying out strategic reforms, but also optimizing its channels: cutting some inefficient stores and increasing the proportion of online stores to improve performance.

In the 23/24 fiscal year, the total number of Bosideng's regular retail outlets (excluding peak season stores) decreased by 206 compared with the same period of the previous fiscal year, but the revenue contribution was at a high level. Among them, the number of Bosideng brand stores decreased by 186 year-on-year, and the revenue increased significantly by 42.7% year-on-year.

Specifically, the offline revenue of the brand's down jacket main business was 12.685 billion yuan, a year-on-year increase of 45.2%. It can be seen that Bosideng's offline channel adjustments have played a role.

In the online channels, Bosideng's position has also been continuously consolidated.

During the same period, online revenue from the brand's down jacket business grew 41.3% year-on-year, accounting for 35.0% of the total revenue from the brand's down jacket business. In the past two years, during the Double 11 and Double 12 shopping festivals, Bosideng has been ranked first among Chinese apparel brands on multiple e-commerce platforms.

In addition, marketing is used to boost sales.

Ten out of ten clothing companies need to conduct promotions and put out advertisements, and Bosideng is the one that spends the most money on marketing.

In the 23/24 fiscal year, Bosideng's sales and distribution expenses reached 6.13 billion yuan, accounting for nearly 40% of total revenue; looking at the longer timeline, from 2019 to 2023, Bosideng's total marketing expenses will be as high as 24.8 billion yuan.

According to QuestMobile's report "Insights into the Sunscreen Market in the 2023 Summer Economy", in April last year, among the brands participating in the marketing of sunscreen products on Xiaohongshu and Douyin, Bosideng ranked first in the amount of marketing investment by sunscreen product influencers, with a marketing investment amount of 1.71 million yuan, surpassing brands such as Lancome and Jiaoxia.

Bosideng can also create hot spots.

For example, in the hot summer now, Bosideng has played a good counter-season marketing game.

On Tmall, Bosideng is live streaming around the clock, offering the slogan "off-season price" to attract consumers to browse and place orders. It also sells goods in the live streaming rooms of well-known anchors such as Li Jiaqi. For this reason, Bosideng has repeatedly ranked first among Chinese apparel brands on major e-commerce platforms.

As for this operation of "Gao Dekang cashing out 1.7 billion Hong Kong dollars", the intention is not very obvious.

Affected by this, Bosideng's stock price plummeted, but its popularity is still not small. The clothing brand itself needs popularity and traffic to achieve greater sales.

Moreover, it is speculated that Bosideng will use the funds obtained from these share reductions to "repay loans."

Bosideng itself faces considerable cost pressure due to its high marketing expenses.

In the 23/24 fiscal year, Bosideng's cash and cash equivalents reached 3.71 billion yuan; but the total current liabilities reached 6.05 billion yuan, of which interest-bearing loans were 770 million yuan.

Bosideng said, "The proceeds from the placement will be mainly used for the seller's funding needs and charitable causes."

However, TradeWind learned from people at Bosideng that "the funds will be used to repay bank loans of non-listed companies it actually controls, covering more than 60% of interest-bearing loans. Another part of the funds will be used for charity through the Bosideng Charity Foundation."

It can be seen that, because the ceiling of down jackets is low and Bosideng's development is limited, the company has to seek other ways, such as high-end or marketing to increase sales. But behind this, there is also the pressure of high marketing costs and high debt scale. The boss Gao Dekang can fill some of the loan gaps by reducing holdings and "cashing out", but what will happen next?

03 Where is the way out?

Ultimately, Bosideng needs to break the ceiling of down jackets in order to find more room for growth to fill the company's gaps.

At present, sun protection clothing may become its second growth space.

In the 23/24 fiscal year, the sales of this category reached 500 million yuan, while the data for the previous fiscal year was only 100 million yuan. However, compared with the 17.1 billion yuan marketing investment in sun protection clothing on Xiaohongshu mentioned above, it is almost in a deficit situation, and the proportion of sun protection clothing revenue in total revenue is not high.

It is worth noting that sun protection clothing and down jackets are off-season clothing products, and seasonal "complementarity" can make up for the gap in Bosideng's summer clothing.

According to iResearch's "White Paper on China's Sun Protection Clothing Industry Standards", it is estimated that the market size of China's sun protection clothing will reach 95.8 billion yuan in 2026. Among them, sun protection clothing has become an important part of the sun protection clothing market with a market share of over 50%.

The sun protection clothing market has huge development potential and increasingly fierce competition. Including Jiaoxia, which ranks first in the industry with a market share of 26.5%, and professional outdoor sports brands or high-end fashion brands such as Ono Kazuko, Camel, Miju, and Uniqlo are joining this market, making it difficult for Bosideng to gain market share.

Perhaps considering this, Bosideng has not completely abandoned its diversification strategy.

Currently, Bosideng's diversified apparel business is managed by Gao Dekang's son Gao Xiaodong. Although this business accounted for less than 1% of total revenue this quarter, the company is still looking for a "complementary" diversification path.

Gao Dekang's wife Mei Dong once said at the exchange meeting, "In addition to sun protection clothing, Bosideng will also increase its investment in innovative categories such as jackets. In March, it launched a single-shell outdoor jacket, and in July, it will further increase its investment in this category." She also predicted that "in the next three years, Bosideng's new product category revenue will account for 10%-20% of its revenue."

What is known is that with the richness of its apparel categories, Bosideng will be able to tap into more cross-seasonal performance growth, which is also a way to diversify its revenue.

Back to this share reduction operation, the company said, "It is to optimize the company's shareholder structure, release the market liquidity of the company's shares and introduce more high-quality overseas investors."

An obvious move towards decentralization.

Like other family-owned enterprises such as Xtep and Metersbonwe, Gao Dekang intended to hand over the helm to his successor in the early days. In 2012, Gao Xiaodong was appointed as the group's executive director and was seen as Bosideng's successor. However, with the failure of diversification, Gao Dekang regained control of the company and Gao Xiaodong has not made any significant moves.

Whether it is his wife or son, or Rui Jinsong who joined later but became the top executive of the company, these people may become the second most important person in Bosideng's development. Just as Bosideng does not give up "diversification", Gao Dekang's cultivation of multiple successors may find a new way out for the company.

However, focusing on the main business of down jackets will be Bosideng's mid- to long-term goal. After all, only down jackets can support the 20 billion yuan revenue mark.

Bosideng is still trapped in down jackets.

Perhaps this is why Gao Dekang sold off a huge amount of his company shares, and the market believed that he was trying to cash out and run away. But what will be the final outcome? We have to wait and see the development of Bosideng's new business.

References:

1. Brand data: Behind the annual revenue exceeding 20 billion for the first time, Bosideng stepped up efforts to adjust its offline layout

2. Huaxiangming All Media: Huge share reduction caused stock price to crash: Is Bosideng Gaodekang in a dilemma?

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