Men's wear leader's performance stagnates, HLA GROUP seeks breakthroughs overseas

China's "King of Men's Wear" HLA Group has seen a slowdown in performance in recent years, and the company plans to raise funds to aggressively target overseas markets, having submitted a listing application to the Hong Kong Stock Exchange. Key Points: Last year's profit fell by 25% year-on-year Revenue slightly increased in the first half of this year, but profit continued to decline Liu Zhiheng In an era dominated by television advertising in clothing sales, with strong celebrity endorsements and the slogan "The Wardrobe for Men," the mainland men's wear brand HLA Group Co., Ltd. (600398.HK) once dominated clothing sales, becoming a leader in men's apparel. According to data from Frost & Sullivan, HLA was the second-largest men's wear brand in the world by revenue last year, with a market share of 5.6% in China's men's wear market, surpassing the total of the next four competitors and being the only men's wear brand with annual revenue exceeding 10 billion RMB. Having been listed on the mainland A-share market, HLA recently submitted a listing application to the Hong Kong Stock Exchange. The company reported revenue exceeding 20.1 billion RMB last year, with a profit of nearly 2.2 billion RMB, and a profit of approximately 1.59 billion RMB in the first half of this year. The company's business is divided into four categories: self-owned brand operations, international brand licensing and agency, group purchasing customization, and JD.com outlet. Its own brands include the main men's wear brand "HLA," the women's wear brand "OVV," the trendy brand "Black Whale," and the infant brand "English." Peak Market Value Exceeds 100 Billion HLA was founded by Zhou Jianping in 1988. That year, he started with 300,000 RMB, contracting the Xinqiao Third Wool Spinning Factory in Jiangyin, Jiangsu, to embark on his clothing journey. The company's turning point came in 2002 when Zhou Jianping visited Japan and was deeply impressed by the variety of local clothing brands, low prices, and the self-service shopping model. Upon returning, he opened the first HLA store on Zhongshan North Road in Nanjing. With Zhou Jianping's strong market intuition and marketing ability, combined with celebrity endorsements and precise positioning, the company gradually rose to the top of the domestic men's wear market. HLA was listed on the Shanghai Stock Exchange in December 2000, and with the growth of its business, the company's market value once exceeded 100 billion RMB in 2015. However, as online shopping became increasingly popular, the mass-market clothing route inevitably faced challenges, and the company's stock price struggled to regain its former glory. Moreover, even though the company maintained its position as the leader in men's wear last year, the market perceives that HLA's men's wear styles are somewhat outdated under the influence of Generation Z, leading to a gradual decline in its market dominance. Consequently, the company began to expand into women's and infant clothing several years ago. Declining Profit and Revenue In fact, HLA's performance in recent years has clearly shown stagnation, even signs of fatigue. Last year's revenue was 20.16 billion RMB, a nearly 3% year-on-year decline, while profit plummeted nearly 25% to 2.19 billion RMB. In the first half of this year, revenue increased by 3% year-on-year to 11.24 billion RMB, but profit fell by 3% to 1.59 billion RMB. While performance has declined, the company's inventory levels remain high, with inventory nearing 12 billion RMB last year, a year-on-year increase of 28%; by the end of September this year, it reached 11.52 billion RMB, up 12% from the end of June During the period, the company's accounts receivable and notes also increased, rising 20% year-on-year to CNY 1.25 billion last year, and up 20% to CNY 1.562 billion by the end of September this year compared to the end of June. With no success in increasing revenue, cost-cutting seems impossible. The company has long relied on promotion, with distribution and sales expenses over the past three years being CNY 3.4 billion, CNY 4.35 billion, and CNY 4.8 billion, with nearly CNY 2.5 billion already spent in the first half of this year. This means that while the company's revenue has slowed in recent years, inventory levels have significantly increased, and accounts receivable have also risen simultaneously. Conversely, distribution and sales expenses have continued to rise, and costs have not been reduced, reflecting issues in the business. At the same time, the growth of the Chinese apparel market is also weak, with a compound annual growth rate of 3.9% from 2020 to 2024, and it is expected to only be 4.7% from 2025 to 2029, indicating that apparel is no longer a rapidly growing market. International Business Has Not Grown Significantly As growth in the mainland begins to slow, HLA GROUP has not been idle. A few years ago, it began implementing an overseas strategy, actively expanding its international footprint, currently having over 100 stores in Southeast Asian countries such as Malaysia, the Philippines, and Vietnam. In September of this year, it even entered Sydney, Australia, opening its first store there. If the company successfully goes public this time, part of the funds raised will be used to enhance the group's international brand image and competitiveness, while some will be used for investment and acquisitions, mainly to acquire international brands to expand its international sports brand portfolio. However, overseas revenue remains negligible compared to the group's overall revenue, projected to be CNY 355 million in 2024, a year-on-year increase of 30.8%. Revenue for the first half of this year was CNY 206 million, a year-on-year growth of 27.4%. Based on the company's turnover, this accounts for less than 3%