Xtep core brand sales declined in 2Q26; Nomura downgraded to Neutral

Overview

This report is Nomura's company research update on Xtep International Xtep (1368.HK). The core conclusion is that sales momentum weakened significantly in 2Q26, with Xtep's core brand sales falling by mid-single digits YoY and Saucony's growth also slowing markedly. Based on weak demand, weaker channel traffic, intensifying competition in the mass market, and unfavorable weather, Nomura lowered its FY26F revenue and earnings forecasts and downgraded the rating from Buy to Neutral.

Core views

Nomura believes the main issue facing Xtep is rising uncertainty over defending market share due to weak sales of the core brand. Inventory for the Xtep core brand increased from 4.5 months in 1Q26 to 4.5-5.0 months in 2Q26, reflecting sluggish sales growth and inventory stocking pressure for 2H26. In contrast, Saucony has maintained relatively strong premium brand recognition and may still become an important growth driver for Xtep in the coming years through strict discount control, upgrading quality offline mall locations, and reaching premium consumers via community activities.

Analysis framework

The report takes 2Q26 operating data as the trigger point and reassesses the company's stock price performance over the next 12 months by combining sales performance by brand, inventory levels, channel strategy, competitive environment, and earnings forecast revisions. The valuation uses the P/E multiple method, applying 8.5x FY26F P/E to the lowered FY26F earnings forecast to derive a target price of HKD4.20.

Methodology notes

• Valuation methodsP/E multiple method

  8.5x FY26F P/E

  The target price of HKD4.20 is based on 8.5x FY26F P/E, a multiple close to the stock's 5-year average F12M P/E, applied to the lowered FY26F earnings.

• Rating systemNomura equity rating system

  Neutral

  Neutral indicates that the analyst expects the stock to perform broadly in line with the benchmark index over the next 12 months; the benchmark for this stock is the HSI.

Asset mapping & comparison

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

• Xtep (1368.HK)

  Primary covered name

  Strengths

  A multi-brand sportswear platform; Saucony still maintains recognition among premium consumers; the core brand still has growth areas in e-commerce, Xtep Young, and the running category.

  Weaknesses

  Core brand sales declined YoY in 2Q26 and inventory levels increased; competition in the mass market intensified; insufficient exposure in high-traffic shopping mall channels.

  Comparison

  Nomura prefers ANTA (2020.HK, Buy) within China's sportswear sector.

  Risks

  Weak demand, operational improvements falling short of expectations, insufficient supply chain management efficiency, and a slower-than-expected recovery of the core brand.

• ANTA Sports Products (2020.HK)

  Preferred peer name

  Strengths

  Nomura assigns a Buy rating and states in the report that it prefers ANTA over Xtep.

  Weaknesses

  The report notes risks for ANTA including intensified domestic and international competition, slower-than-expected sales growth, and a weaker-than-expected macro environment.

  Comparison

  Relative to Xtep, ANTA is identified by Nomura as the higher-priority preferred sportswear name.

  Risks

  Intensifying competition, slower-than-expected sales growth, and weaker-than-expected macroeconomic momentum.

Key data

• RatingNeutralDowngraded from Buy to Neutral.
• Target priceHKD4.20The previous target price was HKD6.90.
• Closing priceHKD3.69As of July 17, 2026.
• Implied upside+13.8%Calculated based on the target price and current price.
• Xtep core brand 2Q26 salesmid-single-digit YoY declineLeading to a low-single-digit YoY decline in 1H26 sales.
• Saucony 2Q26 saleslow-single-digit YoY growthSlower than the more than 20% YoY growth in 1Q26; offline sales still grew by more than 20% YoY.
• Core brand inventory4.5-5.0 monthsHigher than 4.5 months in 1Q26, affected by weak sales and stocking for 2H26.
• FY26F revenue forecast revisiondown 2-3%Reflecting weakening sales momentum.
• FY26F earnings forecast revisiondown 4-5%The cut is larger than that for the revenue forecast.
• FY26F revenueCNY14,300mnNew forecast in the table.
• FY26F reported net profitCNY1,237mnNew forecast in the table.
• FY26F FD normalised EPS42.02cNew forecast in the table.

Impact & implications

The rating and target price cut indicate that Nomura has become more cautious on Xtep's short-term operating resilience and valuation re-rating potential. The decline in core brand sales makes defending market share more difficult, while Saucony still has brand premium and offline growth, but its conservative online promotion strategy is dragging on overall growth, making it difficult to fully offset pressure on the core brand in the short term. The report also explicitly states a preference for ANTA (2020.HK, Buy).

Risks

• A stronger-than-expected recovery in the core brand could create upside risk to the target price and rating.
• Stronger-than-expected performance from Saucony could create upside risk to the target price and rating.
• Weak demand amid macro uncertainty could weigh on sales.
• Weaker-than-expected operational improvement could constrain earnings recovery.
• Insufficient supply chain management efficiency could affect margins and inventory turnover.
• Intensifying competition in the mass market could erode the core brand's market share.

What to watch

• Whether Xtep core brand retail sales return to positive growth in subsequent quarters.
• Whether core brand inventory months can decline from 4.5-5.0 months.
• The recovery of Saucony's online channel sales under strict discount control.
• Whether Saucony's offline store upgrades and premium community operations can continue to support offline growth of more than 20%.
• Whether there is still downside risk to FY26F revenue and earnings forecasts.
• Differences in share price performance relative to the HSI and peer ANTA.