According to the Zhitong Finance APP, China Galaxy Securities released a research report stating that the clothing retail sector had a strong start in January-February 2025, with the effects of policy support on domestic demand already evident. The firm believes that clothing domestic consumption will show a quarter-on-quarter improvement trend throughout 2025. On one hand, consumption policies continue to exert force, and on the other hand, the low consumption base in 2024 and the impact of a warm winter will be compensated in 2025. The report is optimistic about three core directions for consumption quality improvement and upgrading after the government implements special actions to boost consumption in 2025: reform of the consumption supply side, long-term improvement of income, and expansion of new consumption scenarios.

Recommendations:

1. Companies likely to benefit from the government's vigorous implementation of special actions to boost consumption in 2025: SEMIR (002563.SZ), HLA GROUP (600398.SH), Baoxini (002154.SZ), Biyinlefen (002832.SZ), Bosideng (03998).

2. Outdoor scene penetration, with domestic sports leaders having competitive advantages in enriching categories and refined management: Anta Sports (02020), Xtep International (01368), Li Ning (02331), 361 Degrees (01361).

3. Recovery of home textile consumption scenarios, with consumption subsidies boosting demand: Luolai Life (002293.SZ), Mercury Home Textiles (603365.SH), Fuanna (002327.SZ).

4. Focus on quality textile leading enterprises with high-quality customers and international production capacity layout: Huali Group (300979.SZ), Weixing Co., Ltd. (002003.SZ), Kairun Co., Ltd. (300577.SZ), Shenzhou International (02313), Jian Sheng Group (603558.SH), Xin'ao Co., Ltd. (603889.SH).

The main viewpoints of China Galaxy Securities are as follows:

Anta Sports, Xtep International, and 361 Degrees disclosed their full-year performance for 2024, with domestic sports brands growing against the trend. Anta Sports/Xtep International/361 Degrees recorded operating revenues of 70.826 billion/13.577 billion/10.074 billion yuan in 2024, with year-on-year growth of 13.6%/6.5%/19.6%, and net profits attributable to the parent company of 15.596 billion/1.238 billion/1.149 billion yuan, with year-on-year growth of 52.4%/20.2%/19.5%. Excluding non-operating impacts, the net profit growth rates for the three companies were +2%/+4.1%/19.5%, respectively. Xtep International's e-commerce channel revenue grew rapidly, and the acquisition of all equity in the joint venture with Saucony drove an overall gross profit margin increase of 1.4 percentage points year-on-year. The growth of 361 Degrees mainly relied on the improvement of single-store efficiency, expansion of children's business, and continuous penetration of e-commerce, with net profit margin remaining flat year-on-year.

A strong start for clothing retail in January-February 2025, optimistic about steady recovery in consumption supported by policies. In January-February 2025, the national total retail sales reached 83,731 billion yuan, a year-on-year increase of 4.0%. Among them, the total retail sales of clothing reached 262.4 billion yuan, a year-on-year increase of 3.3%. Against the backdrop of warmer weather since the beginning of the year and the earlier timing of the Spring Festival, along with a high base for clothing consumption, steady growth was achieved. Compared to Q4 2024, clothing retail growth rates in November and December 2024 were -4.5%/-0.3% year-on-year, indicating weak sales during the winter peak season. However, with policy support, the effects of boosting domestic demand were already evident in January-February 2025 The bank believes that the domestic demand for clothing in 2025 will show a quarter-on-quarter improvement trend throughout the year. On one hand, consumer policies continue to exert force, and on the other hand, the low base of consumption in 2024 and the impact of a warm winter will be compensated in 2025.

Market Review for This Week: In the week from March 17 to March 21, the Shanghai Composite Index fell by 1.6%, the Shenzhen Component Index fell by 2.65%, the CSI 300 fell by 2.29%, and the ChiNext Index fell by 3.34%. The textile and apparel industry fell by 1.29%, with the textile manufacturing sub-industry rising by 0.52%, the apparel and home textile sub-industry falling by 1.74%, and the accessories sub-industry falling by 2.78%.

Raw Material Price Changes: This week, domestic cotton prices slightly increased, while global cotton prices continued to decline. As of March 21, 2025, the China Cotton Price Index: CCIndex:3128B was 14,905 yuan/ton, an increase of 1 yuan/ton from last week, down 70 yuan/ton in the past month, and up 230 yuan/ton from the beginning of the year; the Cotlook A Index for cotton was 78.5 cents/pound, down 0.35 cents/pound from last week, down 0.30 cents/pound in the past month, and down 0.40 cents/pound from the beginning of the year.

Risk Warning: 1. The risk of offline consumption recovery being less than expected; 2. The risk of intensified market competition; 3. The risk of fluctuations in raw material prices