Xtep to focus on running sports by selling K·SWISS and Palladium brands

On May 9th, Xtep International announced on the Hong Kong Stock Exchange that the group will strategically sell its wholly-owned subsidiary KP Global, which holds the K·SWISS and Palladium brands, and carry out a series of financing tools restructuring aimed at optimizing the group's investment portfolio and strengthening its core business operations.

Xtep stated that the group has signed a final agreement with its controlling shareholder Ding Shuibo and his family to sell and privatize KP Global. The transaction is valued at $151 million.

Ding Shuibo, Chairman and CEO of Xtep International Holdings Limited, stated: "After a comprehensive review of the group's business strategy and financial goals, we have made the decision to sell and privatize KP Global. Since acquiring KP Global for $260 million in mid-2019, we have experienced three years of pandemic-related impacts and a slowdown in the Chinese economy, resulting in reduced consumer spending and adverse effects on KP Global's business performance. This strategic sale of assets will help eliminate the continued impact of KP Global's losses on Xtep's profitability and cash flow."

In 2019, Xtep acquired the sports brands K·SWISS and Palladium, owned by the South Korean fashion retail group E-Land, for $260 million (equivalent to about 1.642 billion RMB). That same year, Xtep also formed a joint venture with Wolverine Worldwide to develop, market, and distribute the Saucony and Merrell brands in Chinese domestic market.

Following two rounds of acquisitions, Xtep Group formed an initial brand matrix with Xtep targeting the mass sports market, Saucony and Merrell focusing on the professional sports market, and K·SWISS and Palladium targeting the fashion sports market.

However, due to the pandemic and weakened consumer demand, these two brands have incurred accumulated operating losses totaling over $100 million since 2019, with a loss of approximately $9 million in the first quarter of this year alone. It is projected that by the end of 2024, the annual losses of these two brands will remain at the same level as the previous year, still facing significant losses.

To mitigate the ongoing negative impact of these two brands' losses on the group's overall profitability and cash flow, the controlling shareholder Ding family proposed to acquire KP Global, the company holding the K·SWISS and Palladium brands. The acquisition price is set at $151 million and aims to improve the group's financial situation through privatization.

After this "slimming down" process, Xtep Group's brand matrix will undergo significant changes, with a more streamlined business structure and a focus on running sports: Xtep will target the mass market; Saucony will serve a high-end and mature customer base; and Merrell will focus on trail running and outdoor activities.

According to data, Xtep International Holdings Limited was listed on the main board of the Hong Kong Stock Exchange in 2008. The group is mainly engaged in the design, research and development, manufacturing, sales, marketing, and brand management of adult and children's sports products (including footwear, apparel, and accessories). With a diversified brand portfolio including Xtep, K·SWISS, Palladium, Saucony, and Merrell, the group strategically targets the mass sports, fashion sports, and professional sports segments, and has a vast global distribution network with over 8,500 stores in the Asia-Pacific region, North America, Europe, the Middle East, and Africa.

Data shows that Xtep International achieved revenue of 14.346 billion yuan in 2023, a year-on-year increase of 10.9%. Xtep's main brand revenue reached 11.947 billion yuan, reaching a new high. Revenue from the professional sports segment increased by 98.9% to 796 million yuan, accounting for 5.5% of the group's total revenue.