Cost and efficiency are in a tug-of-war, yet Xtep continues to advance its DTC transformation.

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During a period of weak consumption and core brand sales under pressure, Xtep is focusing on advancing its DTC transformation.

On August 25, Xtep International disclosed its 2026 interim results. In the first half of the year, the group’s revenue was 6.795 billion yuan, a year-on-year decrease of 0.6%; net profit attributable to shareholders was 818 million yuan, a year-on-year decrease of 10.5%.

Among them, revenue from the Xtep core brand fell 2.2% to 5.92 billion yuan; revenue from the professional sports division including Saucony and Merrell increased by 11.4% to 875 million yuan.

In the second quarter, terminal sales further weakened. The core brand’s retail sales shifted from low single-digit growth in Q1 to mid-single-digit decline in Q2; Saucony’s growth slowed from over 20% in Q1 to low single-digit growth in Q2.

Meanwhile, driven by improved product mix and discounts, the group’s gross margin rose from 45% to 46.4%, but that was not enough to cover the additional costs from online business and the DTC transformation.

In the first half of the year, selling and distribution expenses increased 13% year-on-year to 1.676 billion yuan, with the expense ratio rising from 21.7% to 24.7%, mainly due to increased e-commerce platform and logistics costs, DTC-related depreciation, and employee expenses.

Coupled with the increase in share-based payment expenses, the group's operating profit declined 11% year-on-year to 1.161 billion yuan, with the operating margin dropping from 19.1% to 17.1%.

The DTC plan has been a key business strategy continuously promoted by Xtep in recent years.

Xtep previously stated that it plans to take back the distribution rights of about 400 to 500 core brand stores from distributors between the second half of 2025 and 2026, and arrange about 500 million yuan in capital expenditure for DTC transformation in 2025–2026.

The company previously said that directly operating flagship stores helps obtain consumer feedback faster, promptly adjust product strategy and inventory management, and improve store efficiency.

Entering the second quarter of 2026, core brand sales have already turned to decline, but there has been no significant contraction in the DTC direction. The interim report still proposes to “fully promote” the DTC transformation and to accelerate the layout of shopping malls and outlet channels.

According to management remarks cited in a CICC Securities research report in July, the company reclaimed about 100 stores in the first half of the year, totaling over 200 stores; about 400 more are expected to be reclaimed in the second half, with the annual total possibly reaching 500 to 600 stores.

The report also claimed that stores that were switched to DTC in the second half of 2025 already outperformed traditional franchise stores in terms of sales in the first half of this year.

Short-term investments in DTC have already entered the income statement, and working capital indicators are also under pressure.

As of the end of June, the group's inventory increased by 26.1% year-on-year to 2.307 billion yuan, inventory turnover days rose from 91 days to 105 days, and overall working capital turnover days rose from 90 days to 112 days.

The key for Xtep in the second half of the year is not just whether sales can recover, but also whether DTC stores can improve store efficiency within an acceptable payback period, and whether the company will dynamically adjust the pace of channel reform based on single-store returns in a weak consumption environment.

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