Profit in the first half of the year may fall by more than 9percent. Semma apparel intends to divest overseas childrens clothing business

category:Finance
 Profit in the first half of the year may fall by more than 9percent. Semma apparel intends to divest overseas childrens clothing business


On July 21, Zhejiang Senma Clothing Co., Ltd. (hereinafter referred to as SEMAR apparel, 002563. SZ) was concerned by the Shenzhen stock exchange due to its plan to sell its wholly-owned subsidiary to shareholders of the company in order to divest the loss making business.

According to the concern letter of Shenzhen Stock Exchange, SEMAR intends to sell 100% of the assets and business of Frances sofiza SAS (hereinafter referred to as sofiza) to the acting party of the controlling shareholder, and this transaction will lead to potential horizontal competition.

According to the data, sofiza is a wholly-owned subsidiary acquired by SEMAR in October 2018. It has a number of European middle and high-end childrens wear brands.

The proportion of childrens clothing revenue behind the divestiture business is over 60%

It took less than two years from the wholly-owned acquisition of overseas subsidiaries to the divestiture of its business, including the investment in childrens clothing business and the goal of building an international brand.

In October 2018, SEMAR clothing acquired sofiza with 110 million euro (about 844 million yuan), and several European middle and high-end childrens wear brands were also included. According to the data, sofiza holds 100% equity of the kidiliz group, owns 10 own childrens wear brands and 5 authorized business brands, covering 11000 sales outlets and 829 stores.

Semir said in its novel coronavirus pneumonia, because of the continuing recession in European economy, the main brand business of Kidiliz Group continued to decline in revenue, and the number of stores decreased year by year. The main business losses were serious and the losses were magnified. Especially after the outbreak of the new crown pneumonia outbreak in the global community, the main business areas of Kidiliz group, France and Italy, and the whole European market economy suffered heavy losses and far-reaching effects. The operation risk will be further enlarged, which will adversely affect the companys performance and bring significant uncertainty to the companys future business performance.

For many years, SEMAR has been focusing on casual wear and childrens wear. Compared with casual clothing, childrens wear business performance is better. In 2019, SEMARs revenue in childrens wear business was 12.663 billion yuan, accounting for 65.49%; while that of leisure clothing was 6.544 billion yuan, accounting for only 33.84%.

Ma Gang, an expert in the clothing industry, said: the level of gross profit depends on the competitiveness of the brand in the market, which does not completely mean that the gross profit of childrens clothing is higher than that of adult clothing. For SEMA, the whole business competition of casual clothing is more fierce, and childrens wear has higher growth and greater potential, which is the strategic choice of the company.

According to Huatai Securities Research Report, childrens wear industry has a high degree of prosperity, adversity accelerates the survival of the fittest, leading Matthew effect is prominent. In the clothing sub industry, the prosperity of childrens clothing is second only to sports clothing, and the growth rate of market scale is relatively high. According to Euromonitor data, Chinas childrens wear market will reach 239.15 billion yuan in 2019, which is expected to increase to 423.5 billion yuan in 2024 at a compound annual growth rate of 12.1%.

The companys shares rose sharply after the company announced it would spin off its loss making business. On July 24, SEMAR announced the abnormal fluctuation of stock trading, saying that the deviation value of closing price increase of the companys shares exceeded 20% in three consecutive trading days from July 21 to 23. According to the provisions of the Listing Rules of Shenzhen Stock Exchange, the stock trading of the company belongs to abnormal fluctuation.

Starting from Zhejiang, a major clothing Province, the performance of SEMA clothing has been advancing rapidly and expanding overseas. Two years ago, SEMAR announced that this merger is in line with the companys long-term strategy and is of great significance. If the deal is completed successfully, the company will become an important player in the global childrens wear industry.

Looking at other domestic clothing brands, there are also many cases of buy buy buy to include more overseas fashion brands. For example, Anta purchased FILA with a price of 332 million yuan in 2009, and then continued to acquire several brands such as spandi; seven wolves acquired the same name brand of chanel designer Karl Lagerfeld with 320 million yuan in 2017.

The strategy of actively arranging overseas markets has helped SEMAR improve its performance. In 2019, the companys domestic business revenue increased from 14.921 billion yuan in 2018 to 16.307 billion yuan, accounting for 84.33%, with a growth rate of 9.29%; the revenue of overseas business increased from 798 million yuan to 3.029 billion yuan, accounting for 15.67%, with a growth rate of 279.53%.

The overseas subsidiaries to be sold this time did not perform as expected. According to the data provided by SEMAR, from January to March 2020, the revenue of sofiza will be 560 million yuan, and the total profit will be - 121 million yuan. Combined with the performance of the past two years, sofiza is in a state of continuous loss. In the fourth quarter of 2018 and the whole year of 2019, the total profit of sofiza is RMB - 49 million and RMB - 307 million respectively.

In addition, the subsidiary also appeared a wave of store closing tide. At the end of 2019, SEMAR had 10257 offline stores, 2076 more than the previous year, and 1724 were closed; among them, 35 stores of kidiliz group were added and 116 were closed.

While the scale is becoming larger and larger, SEMAR will not increase profits in 2019. In 2019, the company realized a total operating revenue of 19.337 billion yuan, an increase of 23.01% over the same period; the net profit attributable to the parent company was 1.549 billion yuan, a year-on-year decrease of 8.52%.

Cheng Xiongwei told investor.com: it is difficult for the garment industry to get out of the development dilemma in the short term, and the industry adjustment will last at least two or three years. During this period, the backward production capacity was eliminated, and the strong were always strong, and the domestic clothing industry gradually began to move from extensive type to fine type. In the current plight of the clothing industry, the top priority for enterprises is to do a good job in internal control, ensure cash flow, and strive to survive.

At the same time, the decline faced by SEMA continues. The first quarter report of 2020 shows that the companys revenue is 2.738 billion yuan, a year-on-year decrease of 33.51%; the net profit attributable to the parent company is 17 million yuan, a year-on-year decrease of 94.96%. In addition, the companys net cash flow from operating activities was -242 million yuan, and the basic earnings per share fell to 0.01 yuan.

On July 15, SEMA announced that its performance expectations for the first half of the year were significantly lowered. According to the revised announcement of semiannual performance forecast of SEMAR in 2020, the companys predicted profit is between 0 and 72.2106 million yuan, with a year-on-year decrease of 90% - 100%, exceeding the original forecast of 70% - 90%. SEMA said the reason for the correction was that the companys overseas business losses increased due to the impact of the new crown epidemic.

Ma Gang analysis said, the expansion of business overseas is also a test of water. If the water test fails, it will shrink, which is a normal strategic measure. For enterprises like SEMAR, the domestic market share is already large enough, and looking for new growth points is the original intention of overseas business layout. Whether the domestic competition is fierce or not, going overseas is a measure worth trying.

Source: investor.com editor in charge: Yang Qian_ NF4425