FILA Holdings
The author is an analyst for NH Investment & Securities. She can be reached at jiyoony@nhqv.com -- Ed.
We expect FILA Holdings to report consensus-missing 2Q23 results, affected by widening losses at the US business. Although design commissions and royalties should remain stable, we trim our earnings estimates to reflect domestic channel adjustments and large-scale discounts in the US. More time is needed for improvement at the main business.
Improvement still uncertain at main business
Adhering to a Hold rating, we raise our TP on FILA Holdings to W40,000 on a switch to 12-month forward forecasts in TP calculation. Management’s solid commitment to shareholder return (DY of 4% if last year’s DPS of W1,580 is maintained) is helping to limit downside share-price risk. However, FILA’s earnings visibility is still cloudy, as annual losses at the US business are unlikely to narrow easily and adjustments continue at domestic low-end channels and sluggish stores. In line, we trim 2023E OP for the main business by W28.4bn.
2Q23 preview: Losses expanding at FILA US
FILA Holdings is forecast to post consolidated 2Q23 sales of W1,141.4bn (-3% y-y) and OP of W115.1bn (-24% y-y), with profitability at the main business to miss our previous estimate.
FILA should log 2Q23 sales of W257bn (-25% y-y) and operating loss of W6.1bn (TTL y-y). By channel, won-based sales growth (y-y) should divide as Korea (excluding DSF) -22%, US -31%, royalties +5%, and China (DSF) +20%. Design commissions and royalties look to remain stable, but slight losses are expected at the domestic business due to a continued reduction in the sales portion of low-end channels (Coupang and home shopping). In the US, operating loss is estimated at W50.4bn due to a drop in GPM (-18%p y-y, -3%p q-q) amid large-scale discount efforts. As the goal is to cut inventory by 50% from the 2022 level by end-2023, annual operating loss is projected to reach W121.6bn this year. Moving ahead, loss reduction is to be a key factor in the firm’s earnings performance.
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