Xtep's 2Q26 sell-through came under pressure but discount discipline remained intact; Goldman Sachs maintains Buy and slightly lowers target price to HK$5.60

Overview

This report is Goldman Sachs' company update on Xtep International Holdings 1368.HK. The report focuses on 2Q26 operating trends, discounts and inventory, brand transformation progress, the quality of Saucony's growth, and earnings forecast revisions. Goldman Sachs notes that Xtep's 2Q26 retail sell-through slowed amid a weak macro environment and pressure on offline channels, while Saucony's growth also decelerated due to a proactive tightening of online discounts; nevertheless, the company maintained disciplined discounting, and brand upgrading and DTC transformation are still progressing.

Core views

Goldman Sachs' core view is that short-term operating volatility and guidance risk have increased, but the long-term Buy thesis remains unchanged. Xtep core brand's offline business is under pressure, while e-commerce and kidswear are relatively resilient; Saucony's offline business still maintained more than 20% growth, but overall growth was affected by tighter online discounts. Inventory rose to about 4.5-5.0 months, and if brand upgrading progresses more slowly than expected, future discount pressure may increase. Even so, Goldman Sachs believes the company's investments in discount control, DTC transformation, curated outlet stores, Saucony's premium positioning, and overseas expansion will help build a more sustainable business foundation.

Analysis framework

The report uses a combination of top-down industry demand observations and bottom-up analysis of brands, channels, inventory, and valuation. Goldman Sachs compares Xtep's 2Q26 performance with sportswear and retail peers such as Anta, Li Ning, Pou Sheng, and Topsports, and evaluates risk-reward through sales growth, discounts, inventory months, store conversions, product line performance, earnings forecast revisions, and P/E valuation.

Methodology notes

• Valuation methods12-month target price and P/E valuation

  Target price based on 2026E P/E

  Goldman Sachs assigns Xtep a 12-month target price of HK$5.60, based on 11x 2026E P/E; the report also notes that the current valuation is about 8x 2026E P/E, or about 3x 2026E ex-cash P/E.

• Factor analysisGS Factor Profile

  Growth, financial returns, valuation multiples, and composite percentile

  Goldman Sachs' factor framework compares individual stocks on a percentile basis against the covered market and industry peers across growth, financial returns, valuation multiples, and composite indicators, providing investment context.

• M&A frameworkM&A Rank

  Potential M&A probability score

  Goldman Sachs classifies a company's M&A potential on a scale of 1 to 3, where 3 represents a low probability of about 0-15%; this report discloses Xtep's M&A Rank as 3, which is typically not included in the target price.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Xtep International Holdings (1368.HK)

  Covered company in the report, a Hong Kong-listed sportswear company

  Strengths

  Valuation is not demanding, at about 7.6x 2026E P/E; good discount discipline; e-commerce, kidswear, running products, and DTC transformation continue to show positive progress; Saucony's premium positioning and improving offline store quality provide long-term growth drivers.

  Weaknesses

  2Q26 retail sell-through slowed, offline channels are under pressure, inventory rose to 4.5-5.0 months, and no clear improvement has been seen in trends since July.

  Comparison

  The report mentions the 2Q26 performance of peers such as Anta, Li Ning, Pou Sheng, and Topsports to illustrate broad-based weak industry demand; pressure on Xtep's core brand is consistent with industry trends, but its discount control remains relatively disciplined.

  Risks

  Further weakening in consumption, slower industry growth, discount control or inventory management falling short of expectations, intensifying competition, and brand upgrading progressing more slowly than expected.

• Saucony

  A key growth brand under Xtep

  Strengths

  Offline 2Q26 still achieved more than 20% year-over-year growth; management continues to strengthen the brand's premium positioning and enhance brand equity through running events, race sponsorships, and high-quality stores in top-tier cities.

  Weaknesses

  Overall 2Q26 retail sales slowed to low-single digit growth, mainly due to the proactive tightening of online discounts.

  Comparison

  Compared with Xtep's core brand, Saucony's offline momentum is stronger, but its growth rate also retreated from more than 20% in 1Q.

  Risks

  The pace of advancing premium positioning, the balance between online price control and sales growth, and execution risks related to new store quality and store upgrades.

Key data

• RatingBuyGoldman Sachs maintains a Buy rating.
• 12-month target priceHK$5.60Lowered from the previous HK$5.70.
• Current share priceHK$3.69Price as of the close on July 17, 2026.
• Implied upside51.8%Based on the target price of HK$5.60 and current price of HK$3.69.
• Market capitalizationHK$10.4bn / $1.3bnDisclosed in the report's Key Data.
• Enterprise valueHK$8.7bn / $1.1bnDisclosed in the report's Key Data.
• 3-month average daily turnoverHK$60.0mn / $7.7mnDisclosed in the report's Key Data.
• Xtep core 2Q26 retail salesmid-single digit decline year over yearA clear weakening from low-single digit year-over-year growth in 1Q.
• Saucony 2Q26 retail saleslow-single digit growth year over yearSlowed from more than 20% year-over-year growth in 1Q; offline still recorded more than 20% year-over-year growth.
• Discount25-30%2Q retail discounts were broadly stable year over year, while online discounts improved year over year.
• Channel inventory4.5-5.0 monthsAbove the 4.0-4.5 month range in 2Q25, creating potential discount pressure.
• 2026E revenue forecastRmb 14,434.2mnGoldman Sachs' new forecast; the previous forecast was Rmb 14,799.4mn.
• 2026E EPSRmb 0.42Goldman Sachs forecast; 2027E EPS was cut from Rmb 0.50 to Rmb 0.48, and 2028E from Rmb 0.53 to Rmb 0.51.
• 2026E P/E7.6xDisclosed in the report's forecast valuation table.
• 2026E dividend yield7.2%Disclosed in the report's forecast table.

Impact & implications

The report's investment implication is positive overall but emphasizes volatility. In the short term, weak consumer demand, pressure on offline channels, and rising inventory may put revenue delivery and discount control at risk. Although management maintained full-year guidance, the lack of improvement in trends since July has increased guidance risk. Over the medium to long term, if DTC transformation, curated outlet stores, the running product matrix, Saucony premiumization, and ASEAN expansion continue to advance, Xtep may be able to support earnings recovery with healthier channel quality and stronger brand equity; against the backdrop of a relatively low valuation and high dividend yield, Goldman Sachs believes the risk-reward still supports a Buy rating.

Risks

• Weak consumer demand causing industry growth to come in below expectations.
• Xtep core offline channels remain under pressure, with no clear improvement in 3QTD trends.
• Inventory levels have risen to 4.5-5.0 months; if brand upgrading progresses more slowly than expected, future discount pressure may increase.
• Execution on discount control and inventory management may be weaker than expected.
• Competition in the sportswear industry may intensify.
• Tighter Saucony online discounts may continue to suppress short-term sales growth.

What to watch

• Whether retail sell-through improves from 2Q26 into 3Q26 and the second half.
• Whether the company can deliver its 2026 guidance of mid-single digit group revenue growth and high-single digit net margin.
• Changes in offline traffic, same-store performance, and inventory months for Xtep's core brand.
• Progress of DTC store conversions, especially execution of the 100 stores converted in 1H26 and the planned additional 400 conversions in 2H26.
• Whether curated outlet store expansion and discount discipline can be maintained at the same time.
• Saucony's premium positioning, the plan for 20-30 new offline stores, and the effectiveness of online price control.
• Whether 2026E-2028E revenue, gross margin, and net profit forecasts are revised down further.