Where did third-quarter retail sales improve?

  • According to the company, Li Ning brand retail sales were roughly flat overall in the third quarter of 2026 when Li Ning Kids, which grew by double digits year on year, is included. Citi says that over the same period, Anta Sports’ Anta brand declined by mid-single digits year on year, while its Fila brand declined by low single digits.
  • Excluding Li Ning Kids, retail sales of the core Li Ning brand fell by low single digits year on year in the third quarter, similar to the decline in the second quarter and in line with Citi’s expectations. Channel performance diverged: online sales grew by high single digits year on year, while offline sales fell by mid-single digits. Within offline sales, directly operated stores were flat and franchise stores declined by mid-single digits.
  • The trend improved month by month during the quarter: retail sales fell year on year in July, then returned to growth in August on the back of livestream e-commerce promotions. In September, offline sales were boosted by an additional Mid-Autumn Festival holiday, while online sales growth slowed year on year because of a high base in the same period last year.

How did discount and inventory pressures change?

  • Offline retail discounts deepened by low single digits year on year in the third quarter, while online discounts deepened only slightly. However, the year-on-year increase in discounting narrowed each month during the quarter, and discounts in September alone were lower year on year. Management expects the year-on-year increase in discounting to narrow further in the fourth quarter compared with the third.
  • At the end of the third quarter, the channel inventory-to-retail-sales ratio was 5–6 times, unchanged year on year. The company plans to reduce the ratio to 4–4.5 times by the end of 2026 by reducing shipments to franchisees and transferring their slow-moving goods to directly operated stores for sale. These measures have been incorporated into full-year guidance.
  • There were also differences within offline directly operated stores: outlet retail sales grew faster than those at full-price offline directly operated stores in the third quarter, and outlets accounted for about half of offline directly operated retail sales.

Why was full-year guidance unchanged?

  • Management maintained its guidance for low-single-digit year-on-year revenue growth and a mid- to high-single-digit net profit margin for the full year 2026. The company believes the weak macroeconomic environment and intense industry competition were fully considered in the guidance prudently revised at the end of August.
  • The fourth quarter began under pressure: management said retail performance during the National Day holiday from 1 October to the 7th was subdued. When the report was published, the Singles’ Day event was still in its presale phase, and the company had yet to observe a clear trend.
  • Citi believes Li Ning appears to face less pressure than Anta to meet its full-year guidance in the fourth quarter. It also notes, however, that the company’s cost structure has high operating leverage, so profits could fall below market expectations if revenue growth is weaker than expected.

What is the assessment of the special dividend and valuation?

  • The board will discuss the proposed special dividend on 5 November; the amount has not yet been disclosed. The company had net cash of 19.4 billion yuan at the end of the first half of 2026, and its major advertising and promotional investments for the next two years, including the Curry partnership, have largely been determined. Management said the special dividend will not affect the regular dividend payout ratio of 50% going forward.
  • Citi reiterated its Buy rating with a target price of HK$18.10, based on a 2026 forecast price-to-earnings ratio of 19 times. This multiple is a 35% discount to Nike’s historical trading price-to-earnings ratio, reflecting Li Ning’s lower earnings visibility.