Isn’t the lingerie brand fragrant? Before Victoria’s Secret folding wings closed stores significantly, and then there was an urban beauty loss of nearly 1 billion, the old underwear brands seem to have come to a fork in the road.
For Aimer Co., Ltd. (hereinafter referred to as “Aimer Shares”), whose net profit has fallen for two consecutive years, the way to think of is to impact the A-share market. Recently, Aimer submitted a prospectus to the China Securities Regulatory Commission, intending to raise 761 million yuan for construction projects such as marketing networks and information systems, as well as investment in the construction of production bases in Vietnam.
If Aimer shares can successfully land on the A-share market, it will become the fourth local underwear listed company in addition to Huijie Shares, Cosmopolitan Beauty and Anlifang Holdings. However, the current underwear market is sluggish, and Aimer has been declining in net profit for two consecutive years, in this context, Aimer shares are facing unprecedented pressure.
Gross profit margin continues to decline, can it be broken by marketing?
Aimer brand was founded in 1993, the main business is the research and development, production and sales of intimate clothing and its supplies. At present, Aimer Co., Ltd. has brands such as Aimer, Mr. Aimer, Aimei, Aimer Children, Mulan, Lankawen and so on.
Since the establishment of the Aimer brand, the operating history has been nearly 30 years, and the net profit of Aimer shares has been declining in the past two years. The data shows that from 2017 to 2019, the operating income of Aimer shares was 2.947 billion yuan, 3.119 billion yuan and 3.318 billion yuan, respectively, and the non-net profit was 519 million yuan, 382 million yuan and 213 million yuan, respectively.
For the decline in net profit, Aimer said that it is mainly due to the gradual transformation and upgrading of its brands since 2018, the brand image and terminal image have been comprehensively updated, and the company has increased investment in brand promotion, channel construction, product research and development, etc., so the expense level during the reporting period showed an upward trend.
How high are the fees of Aimer shares?
From 2017 to 2019, the sales expenses of Aimer shares were 1.157 billion yuan, 1.396 billion yuan and 1.558 billion yuan, accounting for 39.28%, 44.77% and 46.95% of the revenue in the same period, of which the marketing expenses were 76.268 million yuan, 129 million yuan and 110 million yuan, accounting for 6.59%, 9.23% and 7.09% respectively.
For the surge in marketing expenses in 2018, Aimer said that it was mainly due to a series of large-scale promotion activities held by the company in 2018 for the 25th anniversary of the creation of the Aimer brand, while no large-scale celebrations or tour activities were held in 2019, and marketing expenses were reduced.
It is worth noting that the company’s decoration costs are also on the rise, from 2017 to 2019, the decoration costs are 76.6879 million yuan, 129 million yuan and 152 million yuan, the company said that the main brands in 2018 have enabled the new brand LOGO and image, terminal stores have been upgraded synchronously; in addition, the company expanded its direct retail network in 2018. In 2019, the company continued to optimize and upgrade the visual image of some stores and increase the decoration revenue, which led to an increase in the scale of store decoration expenses promoted by long-term amortization expenses in 2018 and 2019.
In 2018, the number of directly operated terminals increased by 164, but in 2019 it decreased by 45, and the company said that it closed some inefficient stores to further optimize its retail network.
Net profit declined, and the comprehensive gross profit margin of Aimer shares also declined year by year. From 2017 to 2019, the comprehensive gross profit margins of Aimer Co., Ltd. were 73.82%, 72.26% and 70.73%, and the gross profit margins of the main business were 73.74%, 72.29% and 70.73%, respectively. However, in the prospectus, Aimer listed three comparable listed companies in the same industry, namely Huijie Shares, Anlifang and Cosmopolitan Beauty, and the average gross profit margins of the above three were 63.08%, 63.11% and 55.39% respectively.
At present, the main product categories of Aimer include bras, underwear, thermal clothing, home wear, etc., of which bra categories account for a gradual decrease in the proportion of revenue from the main business, but still about 40%. Then, accounting for such a large proportion, the gross profit margin of the bra has been declining in the past three years, 75.63%, 74.94% and 73.63% respectively. In addition, gross margins in underwear, thermal clothing, loungewear and other apparel categories are declining.
The company said that the main reason for the decline in the gross profit margin of the main products in 2019 was that in order to better meet the needs of online consumers, the company increased online promotional activities and price concessions in 2019, on the other hand, the Xihu brand with low price level and gross margin level was mainly launched for online channels, and the brand increased volume in 2019. However, Aimer did not explain the reason for the decline in gross margin in 2018.
At the same time, the gross profit margin of Aimer brands such as Aimer, Mr. Aimer, Aimer Children, Aimei, and Mulan is also gradually declining. Among them, the proportion of Aimer brand in the main business in the past three years was 37.12%, 33.66% and 30.57%, while the gross profit margin was 74.24%, 73.20% and 72.37% respectively.
It can be seen that in 2018, when the overall sales of Aimer shares declined, the company implemented a price reduction strategy in 2019. In that year, the unit prices of the company’s bras, underwear, warm clothes, home wear and other clothing were 188.74 yuan / piece, 66.73 yuan / piece, 203.51 yuan / piece and 219.30 yuan / piece, respectively, down 4.90%, 2.68%, 9.68% and 7.66% from the previous year.
It is worth noting that the R&D expenses of Aimer shares account for a relatively high proportion. From 2017 to 2019, the company’s R&D expenses were 94.8856 million yuan, 103 million yuan and 106 million yuan, accounting for 3.22%, 3.31% and 3.19% of the operating income, respectively. The management expenses and R&D expense ratios were 10.90%, 10.39% and 11.22%, respectively, higher than the industry average of 9.84%, 9.83% and 9.3%. As of December 31, 2019, the Group has obtained a total of 236 patents, including 91 invention patents, which is better than domestic brands.
Inventory is high, fundraising to build a marketing network
From 2017 to 2019, the inventory scale of Aimer continued to rise.
During the reporting period, the inventory turnover rate of Aimer shares was 1.03, 1.05 and 0.95, respectively, and decreased slightly in 2019. In the same reporting period, the average values of comparable companies were 1.4, 1.5 and 1.76, respectively.
During the above reporting period, the carrying value of the company’s inventory was 746 million yuan, 905 million yuan and 1.132 billion yuan, accounting for 22.52%, 26.05% and 32.05% of the company’s total assets at the end of each period, and 36.82%, 43.68% and 55.57% of the current assets at the end of each period, respectively. Among the large inventory of Aimer shares, it is mainly the increase of inventory goods, accounting for eighty percent.
In 2018 and 2019, the balance of inventory commodities of Aimer increased by 17.71% and 25.02% year-on-year, while the revenue growth rate in the same period was 5.83 and 6.39%, respectively.
Under this circumstance, Aimer tried to hit the IPO “break”, and planned to raise 761 million yuan, of which 440 million yuan will be used for marketing network construction projects, 152 million yuan will be used for information system construction projects, and 170 million yuan will be used to invest in the construction of production bases in Vietnam.
Aimer said that it plans to build 362 new directly-operated terminals in major cities in various provinces in China within three years, and upgrade and optimize 576 existing directly-operated terminals.
In addition, the company currently has four production bases in Beijing, Suzhou, Xuzhou and Xiping, and in 2019, the capacity utilization rate of the company’s own bases was 105.96%. In order to solve the problem of insufficient self-owned production capacity, Aimer Co., Ltd. tried to raise funds and build a production base in Vietnam, planning to invest 358 million yuan, and planned to use the raised funds to invest 170 million yuan, and will increase the production capacity of intimate clothing by 6.1926 million pieces per year after reaching production.
There is a VAM agreement between the actual controller and the investment shareholder
The actual controller and controlling shareholder of Aimer is Zhang Rongming.
As of the signing date of the prospectus, Zhang Rongming directly holds 163 million shares of the company, accounting for 45.37% of the total number of shares of the company, and is the controlling shareholder of the company. At the same time, Zhang Rongming holds 67.2467 million shares of the company through Aimer Investment, and indirectly controls 18.68% of the company’s shares; As the managing partner of Ai Ai, Ai Morisawa, You, and Ai, T Zhang Rongming directly and indirectly controls a total of 70.11% of the company’s shares and is the actual controller of the company. In addition, Zhang Rongming, as a limited partner, also holds 16.89% of the capital contribution of Meishanzi Technology, which holds 25.88% of the company’s shares.
It is worth noting that there is a VAM agreement between Zhang Rongming and the investment shareholders.
In May 2017, Zhang Rongming signed the Supplementary Agreement to the Capital Increase Agreement with five investors: Zhonghai Jiaxin, October Haichang, Jiangsu Chenhui, October Shengxiang and Yan Xiaoping; In July 2019, Zhang Rongming and Yingrun Huimin signed the Supplementary Agreement to the Share Transfer Agreement.
The above agreement stipulates the protection of the rights of six investors including Zhonghai Jiaxin after investing in Aimer shares, including one or more of the repurchase clauses and priority rights clauses. In addition, the above agreement also stipulates the termination conditions of the VAM clause and the reinstatement of the VAM clause. The VAM clause shall automatically terminate from the date when Aimer submits its IPO application to the CSRC, but if the company withdraws its listing materials or the listing application is rejected by the CSRC, the relevant VAM clause will automatically resume its effect.
Aimer said that the above-mentioned VAM clause is limited to shareholders, which is a true and accurate expression of the intention of all parties, does not take the company as a party to the VAM clause, there is no agreement that may lead to a change in the control of the company and does not involve the interests of the company.
However, Aimer frankly admitted that if the VAM clause stipulated in the above agreement is triggered, it will trigger the repurchase or compensation obligation of Zhang Rongming, the company’s controlling shareholder and actual controller, and there is a risk of changes in the company’s existing shareholding structure and the risk of disputes between Zhang Rongming, the company’s controlling shareholder and actual controller, and relevant shareholders.
Beijing News shell financial reporter Zhang Zeyan Editor Yue Caizhou Proofreader Li Shihui