Rising Health Trends And Digital Channels Will Redefine Athletic Retail

Key Takeaways

• Innovation, premiumization, and e-commerce are driving margin expansion, improved efficiency, and rapid earnings growth across core sports categories.
  
• Strong brand prestige, consumer health trends, and financial flexibility position Li Ning for substantial revenue growth and high-impact strategic expansion opportunities.
  
• Heavy dependence on China, slowing domestic growth, fierce competition, rising costs, and weak e-commerce threaten sustainable revenue, margin expansion, and long-term market relevance.

Catalysts

A sports brand company, engages in the research and development, design, manufacture, marketing, distribution, and retail of sporting goods in the People’s Republic of China.

• Analyst consensus expects premiumization and innovation to drive steady margin improvement, but the explosive sales growth in core professional segments-such as running (up 25% in retail sell-through) and record-breaking performance of flagship models-suggests pricing power and net margins could accelerate even more rapidly as Li Ning further dominates high-value sports categories.
  
• Analysts broadly agree e-commerce penetration will incrementally boost margins, but with 10–20% online sales growth, improved traffic, rising conversion rates, and optimized omnichannel inventory, Li Ning is on track to achieve a structural step-change in both gross margins and working capital efficiency, driving sustained high-teens or even higher earnings growth over multiple years.
  
• With China's population deeply embracing wellness and active lifestyles, and Li Ning's continual expansion and engagement across trending sports, the company is primed to capture outsized incremental revenue as health-conscious consumer demand explodes, significantly enlarging the addressable market ahead of expectations.
  
• Li Ning's strategic status as long-term official partner to the Chinese Olympic Committee secures a moat of national brand prestige and access, positioning it to disproportionately benefit from government investment and rising national pride in domestic brands, supporting both long-term volume growth and premium pricing.
  
• Substantial cash reserves and robust operating cash flow-combined with a record of highly disciplined inventory and receivables management-provide Li Ning with the flexibility to rapidly scale emerging categories, enter international markets, or make transformative acquisitions, opening potential for step-change revenue and earnings upside beyond what is implied by consensus forecasts.

Li Ning Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Li Ning compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Li Ning's revenue will grow by 10.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 10.5% today to 13.7% in 3 years time.
• The bullish analysts expect earnings to reach CN¥5.3 billion (and earnings per share of CN¥2.06) by about July 2028, up from CN¥3.0 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 18.4x on those 2028 earnings, up from 13.3x today. This future PE is greater than the current PE for the HK Luxury industry at 9.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.68%, as per the Simply Wall St company report.

Li Ning Future Earnings Per Share Growth

Risks

• The company's heavy reliance on the domestic China market and limited evidence of substantial international expansion, amidst rising geopolitical tensions and global trade barriers, increases long-term vulnerability to Chinese macroeconomic slowdowns and policy risks, raising the likelihood of volatile revenue and profit streams.
  
• Slowing population growth and a more aging consumer base in China, as acknowledged by management's expectation of flat revenue for 2025 and soft offline traffic trends, threaten to reduce long-term demand growth for sportswear, ultimately dampening the company's ability to sustainably grow revenue.
  
• Intensified competition from both global brands like Nike and Adidas and domestic upstarts such as Anta and Xtep, coupled with flat year-on-year retail sell-through and instances of deeper discounts eroding average selling prices, may continue to suppress pricing power and gross margin gains, compressing operating margins.
  
• Increasing investment in R&D, marketing, and store optimization-amid heightened consumer and regulatory expectations for sustainability-could drive up costs faster than revenues grow, especially if innovation efforts do not yield clear product differentiation, thus putting downward pressure on net margins and cash flow.
  
• The rise of e-commerce disruptors and digital-first direct-to-consumer models, alongside only modest growth in Li Ning's e-commerce revenue share (now 31 percent), risks eroding the company's market share and relevance, leading to potential stagnation or decline in both revenue and long-term earnings.

Valuation

• The assumed bullish price target for Li Ning is HK$32.47, which represents two standard deviations above the consensus price target of HK$18.65. This valuation is based on what can be assumed as the expectations of Li Ning's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$51.21, and the most bearish reporting a price target of just HK$12.01.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be CN¥38.9 billion, earnings will come to CN¥5.3 billion, and it would be trading on a PE ratio of 18.4x, assuming you use a discount rate of 8.7%.
• Given the current share price of HK$17.04, the bullish analyst price target of HK$32.47 is 47.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.