Investors and analysts, welcome to H1 2025-2026 annual results presentation of Topsports International Holdings Limited. I am Rebecca, Head of Capital Markets of the company. Please allow me to introduce you to the management team with us here today. They are Mr. Yu, Chairman, Chief Executive Officer, and Executive Director, Mr. Zhang Qiang, Senior Vice President, Ms. Zhang Huijing, Vice President, Mr. Ding Chao, Vice President, Ms. Zhong Yu, Vice President. For today's session, Mr. Yu will first provide opening remarks for a briefing recap of the past financial year. Then the management team will walk you through the financial performance and the business program, followed by a Q&A session. Ladies and gentlemen, please allow me to welcome Mr. Yu for his opening remarks, please.
Good morning, dear investors and analysts.
Good morning.
Very happy to meet all of you. Welcome to join us for Topsports results presentation.
Over the past year, the market environment remained under pressure. The industry is going through a phase of structural adjustment. Consumer demand has become more rational and cautious. The channel formats are evolving rapidly and the competition has intensified. The whole industry is now facing painful hacking[inaudible]. However, we have always believed the challenges often open up windows of opportunity to reshape value and build capacity. The fact that Topsports has been able to weather the pressure and maintain steady operation is a testimony of our clear and consistent strategic direction, the pragmatic execution of the entirety, and continued trust from our partners. This year, we stayed focused on our core business with emphasis on increasing quality and efficiency.
On one hand, we optimized our earth live store network, sharpened our focus on single store operational quality, and deepened the integration of online and offline channels into many refined operations who are exploring incremental growth opportunities. On the other hand, we deepened user value through professional services, the network-based experience, and the community engagement, solidifying our core customer base. At the same time, we kept pace with the new wave of sports consumption trends and quickly secured strategic positioning in huge segments such as running and the price outdoor. Anchored by our well-built operational capacity, we are now building competitive modes for the future. Looking into the long-term capacity building, we have continued to advance the application of digitalization and artificial intelligence across the entire business supply to drive efficiency, laying a solid foundation for sustainable development.
On the operational side, we have remained firmly committed to our responsibility to the shareholders, deliberate long-term and stable returns through solid cash flow and consistent dividend payout. I would like to sincerely thank all the investors and analysts for your continued attention, trust and support. Next, our management team will walk you through the full year financials and operational progress across our various business in detail. Thank you. Let me welcome Rebecca.
Thank you, Mr. Yu. Let me start with a brief overview of our financial performance for the full year. Overall, we delivered in line with our plan and expectations. First of all, affected by sluggish consumption demands and fluctuating offline foot traffic, revenue declined by 4.7%, reaching CNY 25.7 billion. Second, the gross profit margin declined by 0.4 percentage points, reaching 38%. The main factor was the deepening of the discount rate driven by the change in revenue mix.
Let's take a look at the story behind the scene. As discussed with you during the interim results, we do see a change in the revenue mix, specifically higher online contributions led to deeper retail discount rates. In other words, we have more sales from the online channel, which will impact our discount rate. At the same time, on the positive side, the lower inventory provisions were likewise together with the revenue mix shift. I was talking about the wholesale and the retail business, meaning a lower wholesale contribution and a higher retail contribution, where retail can maintain higher 50 margins than the wholesale. Partly offsets the negative drag. The net gross margin being declined to 0.4 percentage points year-over-year to 38%. However, we have the two positives. The two positives be able to help to offset the negatives.
The third point, our overall selling, distribution, general and administrative expenses continued to decline by 6.7%. The flexibility and efficiency of our omni-channel layout, together with prudent expense control, helped to drive the SG&A expense ratio down 0.7%, reaching 32.4%. Other income declined by 49% during the period, mainly related to the government incentives, a trend largely consistent with the broader industrial observation. Excluding other income, the core operating profit adds up 0.1% on YoY basis, driving the corresponding core operating profit margin up to 0.3 percentage points, reaching 5.6%. Basically, the profit attributable to equity shareholders decreased 0.1%, 1.5%, reaching CNY 1.367 billion. The corresponding profit margin reached 4.9%, up by 0.1 percentage points. In addition, the board has recommended the final dividend of CNY 0.3 cents a share and a special dividend of 12 dividends percent. Together, the interim dividend, the total annual dividend amounted to 28%.
The dividend payout ratio was 137.1%, so we continue to maintain high-quality dividend payout to reward shareholders and continue to deliver the full return to the shareholders. Coming next, please allow me to walk you through revenue dynamics during the period. If we take a look at the revenue split between H1 and H2 revenue declined by 3.7%, recovering from 5.8% in H1. Secondly, by channel, the retail revenue was down by 2.7%. Wholesale revenue was down by 60.6%. This trend was largely consistent across the H1 and H2 of the year. Thirdly, by brand, the sales of the key brands declined by 4.2%, reaching CNY 22.3 billion. The sales of other brands decreased by 7.4%, reaching CNY 3.2 billion. With the other brand performance primarily affected by the leisure sports brands.
Overall speaking, the performance sports category continues to clearly outperform the recreational sports and leisure sports on a YoY basis. Such trend has been continued until H2 of this year. We also notice that the trend is very much consistent with what we saw last fiscal year. Coming up, let's take a look at the expense ratios during the period. The revenue declined by 6.7%, but the total expense was also down by 6.7%. The expense ratio was down by 0.7 percentage points, reaching 32.6%. Against a challenging backdrop, our omni-channel layout across online airlines, together with refined cost efficiency management, helped to mitigate the operating expense pressures on the airline side. The total exemption of rent expense declined by 12.5%. The rental expense ratio was down by 1 percentage point, the largest contributor to the overall expense ratio improvement. There are several factors behind this thing.
First of all, on the airline channel side, we continue to streamline our network with route control and efficiency enhancement. The efficiency of the new opening and the reservation also being improved on YoY basis. Mr. Zhang Qiang is going to provide a detailed remarks on that. Secondly, the channel mix shift, with online contributing a higher share of the total revenue. On staff cost, we kept staffing aligned with our omni-channel layout, building an agile and efficient talent pipeline that strengthened our cost efficiency edge. The total number of the employees down by 18%. The total staff cost decreased by 0.3%. The staff cost ratio declined by 0.2p, reaching 10%.
This trend, as you can see, was more pronounced in H2 of the fiscal year, which is also consistent with what we shared with you at our interim results in last exposure, namely, the cost efficiency benefits from the organizational effective in first half of this year would gradually flow through over time. In other words, in H2 of this year, we see a more pronounced improvement, where all the expenses decreased by 0.6%, including the depreciation of the properties, plant and equipment, services from the e-commerce platform and logistics. The ratio of other expenses rose by 0.5p, primarily due to the faster growth of online channel sales during the year, which resulted in higher related platform operating costs. From an overall business perspective, the main negative factor was operating deleverage from the fluctuating offline foot traffic.
However, this impact was offset by the continued optimization of our offline network and the rising contribution of the retail online business. Now let's turn to our net profit YoY changes analysis. Look at the net profit waterfall on the left. The negative contributor to the net profit was declined in the gross margin on the right side. You see, there are few factors that have a negative impact over the net profit. That was the decline of the gross profit and the decline in other income, but both being largely affected by the lower total expenses and reduced net financial costs and income tax expenses.
Looking at the YoY changes in the net profit margin drivers, the decline in the gross margin and the decline in other income were the negative factors, where the lower total expense ratio and reduced net finance cost as well as income tax contributors provide a positive impact. Despite a 4.7% revenue decline, the net profit decreased only by 1.5% YoY. The net profit margin improved by 0.1%, reaching 4.9%. Now let's move to our operating working capital efficiency. During the year, inventory management was still the top priority for the company. Guided by the principle of maximizing inventory efficiency, we managed and circulate inventory across the two omni-channel networks. Inventory decreased by 8.6% YoY. The inventory turnover days decreased by 3.5 days, reaching 131.4 days.
If you take a look at our track record, 131.4 days as a turnover is already the lowest level in the past four financial years. The trade receivable increased by 78%. Turnover days up by 0.7 days, reaching 40.8 days. The increase in the trade receivables was mainly due to the timing mismatch of the Chinese New Year between 2026 and 2025. The Chinese New Year 2026 fell later in February, while the Chinese New Year 2025 fell in January, which leads to a relatively large YoY increase in trade receivables. As of end February 2026, due to the mismatch of the Chinese New Year timing, the trade payable increased by 17.6%. The turnover days up slightly, which is consistent with what we saw last year, 8.5 days.
In terms of the operating working capital efficiency, despite the YoY revenue decline, our average operating working capital as a percentage to the revenue remained flat YoY, indicating we have largely maintained efficient working capital management. Ladies and gentlemen, now let's turn to our cash generation capacity. The net cash generated from operating activity was CNY 2.73 billion, down by 27%. There is one factor we would like to explain to you because here we released the report last night, today's morning. I received many inquiries from the investors regarding the reasons of the net cash generated from operating activity down by 27%. The change was primarily driven by the timing difference of the Chinese New Year between the two years, which were led to a YoY increase in trade receivables and a corresponding impact on the operating cash flow.
In the same period of last year, the Chinese New Year timing difference has instead been a positive contributor. As a result, the swing of this factor between the two years had a CNY 1.16 billion impact on the operating cash flow at this year end. Well, if you take a look at the actual YoY increase in the net cash from operating activities during the period, it was CNY 1.03 billion. Compared with CNY 1.16 billion against CNY 1.03 billion, you can see the Chinese New Year trades and receivable timing difference between the two years was the most important factor influencing the operating cash flow performance during the year. We are a retail company. There will be some impact from the timing mismatch of the Chinese New Year. If you take a look at our track record, similar dynamics also appeared in fiscal year 2024 and 2021.
Again, driven by Chinese New Year timing mismatch and resulting in receivable swings. What was happening in the past fiscal year can also be seen from the track record. Free cash flow was CNY 2.44 billion during the period. Dividend payouts were CNY 1.67 billion, representing 65% at the beginning of the period cash. Period-end cash was CNY 1.77 billion. Bank borrowings and cash were CNY 2.44 billion. The net cash was CNY 1.17 billion. During the year, we continued to maintain solid cash generation capacity. Well, in the final part of the financials, please allow me to walk you through the key details. Let me just walk you through the underlying logic of the capital allocation. Underpinned by our cash generation capacity, our capital allocation framework consists of three priorities. First of all, supporting strategic business growth. Secondly, investing in expansion opportunities. And thirdly, delivering strong cash returns to the shareholders.
We have constantly followed this framework, as you can see from our dividend payout performance. Looking at the actual cash position during the year, after meeting the funding needs of these two priorities, we still retain ample cash reserves to support the future business growth. On the right side of the slide, you can see our free cash flow was CNY 2.44 billion, representing 1.9 times of the net profit of the same period, laying a solid foundation for our dividend payout. Accordingly, for this financial year, the board has recommended a final dividend of CNY 0.03 per share and a special dividend of CNY 0.12 per share. Together, the interim dividend would be CNY 0.28, as well as the dividend payout rate would be 137.1%, which is slightly higher than last year. Last year, the number was 135% for dividend rate.
Compared with the whole industry, we are still having a high dividend payout ratio. Based upon yesterday's Hong Kong dollar to RMB exchange rate and closing share price, our dividend yield is around 12%. We aim to continue driving healthy cash flow through efficient operation, creating sustainable value returns to the shareholders. This concludes the financial review. Now I'd like to hand over to Mr. Zhang for the business review speech. Thank you.
Thanks for Rebecca. Looking back at 2025, consumer confidence index remains at a lower level. Total retail sales of the consumer goods grow at low and volatile pace. The recovery of the consumption remains relatively slow. Consumers become more cautious in their purchasing decision. This creates a direct market pressure on sportswear industry, a common challenge faced by all. That said, challenge comes with opportunities.
Against a backdrop of industry-wide pressure, each segment, such as performance sports, casual, and emerging trend-driving sports continue to demonstrate a strong growth momentum. This clearly shows consumer demand is upgrading towards more segmented, precise, and a more experience and diversified product and performance. Decoupled from the transformation of retail space in channel and operation, traffic operation has been shifted from a previous floor-based standard placement model to a fine-tuned, aided operation that combines scenario and user-specific characteristics in multi-scenario in-depth deployment. Precisely reaching target consumers and improve our ROI has become core priorities. Consumer fulfillment paths has also become more diversified. The rapid rise of the emerging online channel has created a highly diverse channel structure, driving the post-transaction fulfillment paths evolving to a single transition model into diversified at-home, in-store, and on-site model. The overall fulfillment moving towards an instant and a decentralized model.
Channel diversification and rising market complexity are placing higher demands to the operating models, requiring us to actively adopt, reflect, and respond. Only by proactively embracing industrial change, strengthen the core capacities, we can solidify foothold in the competitive environment to achieve sustainable development. Faced with challenges from the structured industrial change, Topsports continues to strengthen our core operating capacity, lay a solid foundation for long-term steady development. During the year, we reinforced our operational resilience, gave us confidence to navigate market volatility. We have constantly treated efficient inventory management and solid cash generation capacity as our core assets, ensuring a steady operation in complex environments. We have enhanced our omnichannel scenario, leveraging more than 4,000 data upgrades at offline stores, connecting them with online channel and the private domain operation. We have built an extensive and deep consumer reach network.
Those stores are not only sales terminals, they are also brand experience venue, community activity hub, and core fulfillment nodes. On the user side, we have accumulated a user base of more than 90 million with a solid purchase foundation among the purchasing users. This is our most valuable core asset. We continue to deepen our private domain operation, strengthen emotional connection with the user, earn their long-term trust, and continue to attract them through precise service. At the same time, we have deepened our brand strategic cooperation, building a portfolio of more than 20 brand partners across diverse Topsports scenario by forging deep strategic live team brand partners through diversified models, including wholesale distribution, joint operation, and investment. We have continued to strengthen our digital and AI capacity to optimize operational process and enhance decision-making efficiency.
Through the above strategic measures, Topsports aims to become a trustee that long-term only operational partners on the various sports formats, achieving mutually beneficial outcome with our partners. Now talk about omnichannel retail layout. We continue to solidify and implement omnichannel retail framework. Our core approach is clear. Anchor our offline store as the foundation, fully covering the three major consumption areas: at-home, in-store, and on-site. We are connecting with online channels including content, e-commerce, private domain operation, localized services, and decentralized retail to help the traditional store to complete their omnichannel capacity upgrade. We have used a one earth live store and depend on live scenario, viewing operating models. Stores are no longer just a sales point. They now serve as hub for public domain traffic acquisition, private domain user accumulation, instant fulfillment, and content creation.
Opening national events, the inventory circulation and has a deep online offline integration, which can also help to cushion the pressure from the external retail environment. More importantly, we have built a flexible intuition and scalable omnichannel operating capacity. In terms of the offline store layout, we have heightened resources to conduct with more business approach, prioritizing on single store profitability and the strength and omnichannel synergies across stores. We maintain a prudent and discipline pace of store expansion, avoiding blind spots and strictly control new store quality while applying differentiated operating and renovation of the existing stores as needed. With operational efficiency as our end goal, we tailor our adjustments to each brand positioning, target consumer group, and the product feature, applying one brand, one strategy to continue to optimize overall store structure.
By the end of February 2026, we operated 4,260 directly operated stores. Total stores account down by 30.1%. During the year, we opened 201 new stores, fewer than 458 in the five-year period. However, the newly opened stores and renovated stores outperformed the same period last year, with those 861 stores significantly lower than 1,382 in the prior year period. The loss reduction from the closure was more better than last year. The selling area per store grew by 3.9%, and overall stores were paced than 7.2% growth in the prior base year. To enhance our subject of store efficiency and sell service promising, reflecting on mainstream line resources allocation, the capital expenditures decreased by 25% on YoY basis.
We firmly believe the core value of physical store in sportswear retail industry. During the period, we are optimizing and upgrading traditional offline stores. We apply the differentiated strategy to extend their omni-channel operating capacity, kept pace with evolving consumption trends and explore new growth opportunities. We ramp up content e-commerce, building a hub matrix around interest-driven consumption, leverage a hit product combination to reach more customers, replicating proven models by itself. At the period end, we operated more than 700 accounts on Douyin and WeChat digital channels. Deepened private domain operation is also key. It is not only a sales channel, but also a core arena of generating user and health engagement value. We have 3,700 mini program stores where we have built a service plus sale closed loop through community operations and leverage data-driven insights for precise recommendation, enhancing user stickiness and conversion.
At the same time, we strengthen our intra-city instant full-fulfillment capacity to meet the consumer needs to ready to stay at any time here enhance instantly. We have 3,800 stores now connected to intense retail. We have also partnered with localized service platform using online voucher offline redemption model to drive traffic to store, effectively easing offline traffic pressure. Keeping omni-channel operations rely on continuous evolution of the retail capacity. During the period, we focused on upgrading inventory management and empowering our operations with digitized AI tools to free the omni-channel retail capacity potential. On the product side, we continue to expand the product share and the circulation between online and offline for omni-channel scenarios, upgrading our omni-channel product operation model powered by digital and data-driven management with achieved merchandise return in one week circulation.
Ensuring such product flows between online and offline require technical efficiency to fully efficient operation of the entire omni-channel system. We developed our in-house digital tool that is a Panoramic Compass dedicated to the stores. This tool integrates four key functions, smart SOP, single operational model, management diagnostics, and AI knowledge base. Precisely addressing the four practical needs in daily store operations, including execution management, business review, optimization, and learning. With this system, the store management no longer requires manual data sourcing and regards. Instead, data is proactively delivered and precision or intelligence is proceeded. We have also made the complexities of the omni-channel retail management into standardized daily workplace. This not only helps the frontline staff to assess operations and execute effectively, but also unlock single store potential and comprehensively elevate the independent operating capacity of the store personnel.
To sum up, in a complex market environment, our active exploration and broadening omni-channel retail footprint help to cushion the revenue decline. On top of that, refined omni-channel inventory management and accelerated turnover, proactive channel optimization and adjustments, along with prudent expense control help to ease operating speed leverage pressure. Average workforce productivity increased. The stock cost ratio for the year decreased by 0.26, reaching 10%. At the year-end, inventory decreased by 8.6%, and inventory turnover days decreased by 3.5 days, which improved inventory turnover efficiency. The estimated rental expense ratio, including rental from operating lease and depreciation on right of use assets decreased by one tick, reaching 11.2%. Slowly the profitability resonance and the steady cash flow anchored by enhancing quality and the efficiency through omni-channel operation, all lay a solid foundation for the company's long-term sustainable development. That concludes my part.
I will hand over to Zhang Huijing, who will walk you through our initiatives and progress in user operations and digital intelligence.
Thank you very much, ladies and gentlemen. Regarding the user operation, Topsports has continued to build a diversified value system. It requires consumer potential and builds a healthy ecosystem for user relations. During the year, we focused on two main pillars, user acquisition and activation plus deepening member value, driving user base growth and member value uplift through segmented operations and innovative privileges, while completing our omni-channel user growth strategy. We refreshed our membership tier system, upgrading from the previous four tiers, including Silver, Gold, Black, Diamond, to five tiers, including Rookie to Legend. The new naming better resonates with the mindset of sports consumers, optimizes tier structures, extending the proportion of the mid-tier members, making the overall member structure more balanced and healthy.
We also roll out innovative offerings like exclusive cards and brand co-branded cards, upgrading the existing four payments to new plus eight payment methods, effectively retain high-value consumer cohorts. We have implemented revised member segments. Designed differentiated privileges, metrics, and outreach strategies for users at different tiers with differentiated needs. We focus on four core magnets, the birthday customer, the spend consumer, brand loyal customer, and first-time consumer, enabling the scenario-based precision marketing. During the year, around the key marketing moments, we deployed innovative campaigns such as transaction upon transaction rebates and the treasure code to drive repurchases. For the offline interactive installations and external channel like Douyin, we further strengthened omni-channel user outreach and engagement. Through all those initiatives, our total customer base hit 90 million. Contribution of the repurchasing maintained at 70%. Our high-value loyal customer base also grows steadily.
For that, we are hoping to continue to improve the quality of our operation. In terms of the digital intelligence, we elevated the digital and AI capacity building as a core strategic priority with the aim of moving from experience-driven to intelligence-driven, building a hard-to-replicate moat, and providing technological underpinning for the company's long-term development. We firmly believe that Topsports' complex operating scenario, including multi-brands, multi-SKU, and multi-channel, together with our extensive user base, providing ideal arena for AI to leverage pre-sell and pre-session efficiency at advanced stages. Digital and AI capabilities have already become an integral part of our core competitive advantage. Our digital and AI strategy is built around five core value chains, including merchandise operations and supply chain, omni-channel retail operation, user operation and marketing, operational and management decision-making, and general management efficiency.
Guided by the principle of grasp reality, full chain efficiency, and measurable and actionable outcomes, we apply AI technology to business pain points to improve spectrum digital intelligence capacities from front line applications to management decision-making. We are focusing on advancing five core applications scenarios to deliver the solution, efficiency gain, and the result realization, ensuring that digital and AI capacity serves the business growth and our value in every operational business. In merchandise operation and supply chain, supported by an AI-powered intelligence management, and we will be able to fully optimize process of product introduction, ordering, and the pricing, effectively drive inventory management, improving inventory turnover efficiency, driving intelligent upgrade of the merchandise operation. In omni-channel retail operation, we have built a smart store ergonomics canvas, successfully optimizing the match efficiency of people, products, and space, achieving efficient user outreach and conversion.
In user operation and marketing, we have built AI-driven content factory and precision marketing system. Through AI-powered content production editor, we have connected all e-channel membership privilege with almost multiple scenario-linked operation workflows. It unlocks user lifetime value and drives the sales conversion. In operational and management decision-making, we have assembled and unified the data platform and an intelligent decision-making cockpit, consolidating full business data and completing system upgrades, significantly improving operational efficiency and accuracy in business analysis. In general management, we have rolled out the knowledge platform and the function-specific AI applications, improved asset and empowering organizational efficiency. We developed the proprietary AI tools across different scenarios, steadily building scenario-driven, data-connected, AI-enabled ecosystem that can help to build our new moat based upon AI. I will pass on the floor to Mr. Ding, who will share with us the breakthroughs and progress in innovating the strategic positioning.
Thank you. Thanks for Madam Zhang. You can see we are deepening our core business. We have also actively expanding our core business boundaries with a focused layout in professional sports segment, advancing brand mix, establishment, and operational capacity upgrades to seek for even long-term growth opportunities. Today, consumers for goods field are shifting from a basic functionality to a dual pursuit of performance and emotional values. Each market like running and climb outdoor has sustained a strong momentum, become the key growth driver of the whole industry, which also represents a clear opportunity for us to extend our boundaries. We focus on two core segments, running and climb outdoor, and are systematically building our professional operational capacity through brand strategy, content communication, omnichannel operation, and community cultivation, progressively anchoring to the minds of the consumers.
In climb outdoor, if they receive foundation-building phase in China, leveraging our existing outdoor business operations. We are focused on strengthening climb outdoor professional operational capacity. During the year, we launched the boutique store at Beijing SKP and the store pop-up at Shanghai Taikoo Center. The step validated the store model, operating workflow and service standard for climb outdoor brands. In terms of the running segment, Norda is the flagship brand we are building. We continue to engage core runners through offline events, pop-up stores, and scenario-based marketing. At the same time, we forged strategic ties with professional running communities through events, make appearance at the Jingdu Shan UTMB, hosting the Yu Shan Ling Truly Wild Journey, partnering with Nike Pace, which can also help to validate the market potential of Norda through product ranges.
During the full year, we also launched the fourth marathon limited stock product as a localized initiative, extending our boundaries among the professional runners. We also tested sports that lie beyond the running tabs, building experience for future category expansion, using running as a foundation to reach a broader consumer base. In our running segment layout, besides brand map mixed establishment, we equally value and cultivate local running culture by founding dedicated scenarios and community connections to deepen our bonds with core runners and reinforce the user management in professional sports. To date, we have incubated Echoes, the tri-running culture brand located in China. We opened our first multi-brand store in Shanghai. It's a hub for core runners, a venue for brand culture events, and an alpha incubation stage for professional brands.
In the fiscal year, Echoes Medics debuted at the Shanghai Marathon Expo, opened the Ninghai Trail Running pop-up store, regularly hosts running club and community activities, building reputation and growing into an influential running lifestyle platform, and an ultra platform for brands in its early stage. Echoes serves as a venue for ultra showcase, trial experience, and user data for stature brands such as Norda, Thor, and Spear. As a flagship case, they scan more market visibilities, an increasing number of brands are actively sought to collaborate with us, choosing Echoes to reach a broader running community. Through Echoes, we have not only elevated marketing through the professional brands, but also generated valuable capacities in community operations and offline scenario creation, lay a solid user and brand partnership foundation for long-term development in the running segment.
Going forward, we are committed to becoming a lifestyle running cooperation platform for core brands entering the China market, providing both mass and niche segmented consumer with diversified product choice and high-quality sports experience. We will continue to bring momentum to the development of the Chinese sports growth industry. Today, driven by the combined factors of the positive sports technological upgrades and the rising consumption demands, the sports consumption industry landscape continues to evolve. Competition is becoming more intensified, bringing both opportunities and challenges. In a complex market environment, we adopt our operational strategies, proactively addressing various challenges, continue to strengthen our core competitiveness through forward-looking positioning and efficient execution. On one side, we deliver comprehensive high-quality service to the consumer. On the other side, we drive collaborative development with our brand partners, constantly creating long-term and stable investment returns for the shareholders.
Looking to the future, there are going to be four directions we go for. First of all, prioritize operational efficiency with the standard strategies of the core business foundation. Secondly, pursue systematic positioning and optimize professional segment matrix, and upgrade core capacity. Thirdly, empower development through digital intelligence to deepen omnichannel digital transformation and online implementation. Fourthly, pursue win-win collaboration and follow an ESG development path with a distinctive corporate culture. I will now hand over to Zhong Yu to show our initiatives on sustainable development strategy. Thank you.
Thanks, Ms. Ding. Within this financial year, we continue to deepen our sustainable development practice and actively promote green consumption. Align the development of the circular economy, our efforts in environmental, social, and governance dimensions, working hand in hand with our brand partners to explore new approaches to low carbon strategy.
First of all, on procurement and collaboration, we have continued to drive low carbon operations. During the past year's financial year, our Scope 1 and Scope 2 GHG absolute emissions decreased by 40% as a positive amount. However, during the past year, we made a steady progress. Our Scope 1 and 2 GHG absolute emission down by 16%. We also conducted our first climate risk analysis. At the same time, in consumption and lifestyle through public welfare IP, such as Green Box, we have promoted green consumption and the circular economy. Altogether, we collected close to 3 tons of used clothing, on a cumulative basis, equivalent to reducing 10 tons of carbon emissions. Thirdly, on top of governance and responsibility, we have continued to advance initiatives in diversity and inclusion, employee empowerment, and supplier integrity and compliance, strengthening our external foundation for sustainable development.
In addition, our ESG performance has been recognized by external institutions. Our MSCI ESG rating still remains at double A, sustaining our leadership position in the industry. This concludes today's results presentation, ladies and gentlemen. Now, we are going to open the floor for the Q&A. Let me just remind the operators to inform everyone how you should raise a question. I should also remind all the investors and friends, please provide your name and the institution you are working for, and please make sure that we have no more than three questions per investor.
Thank you very much. Now we're going to open the floor for Q&A. Thank you very much. Thanks for the nice introduction. Now we're going to allow the Q&A, and please identify yourself before you raise a question. Ladies and gentlemen, if you would like to raise a question, please press star and one.
If you hear the beep sound, then you can start to raise your question. First of all, let's welcome Mr. Wei Xiaopo from Citi to raise the first question.
Hello. Can all of you hear me?
Yes, we can hear you, Mr. Wei. Please.
Hello. My name is Wei Xiaopo from Citi. I have three questions. The first question, in April and May, people started to feel uncertain about the overall consumption trend. Is it possible for you to share with us the operational progress for April and May? 618 Shopping Festival is ready to be started. Is there any strategy for discount rate you can share with investors for the 618 Shopping Day? The second question, a key brand you are working with from the U.S.-based brand. Its mainland China sales was down by 20% from March to May of this year.
We would like to ask you, do you have any new observation or insights within that company for China operation? How long does this aggressive de-stock initiative of that brand going to last? The third question regarding the dividend payout. The company attach great importance to the free cash flow. Your free cash flow is actually 1.9x of your net profit. I find out your absolute EPS being quite stable and the dividend payout ratio make 137%. In the near future, whether the company going to prioritize dividend payout ratio or absolute dividend pay? Thank you.
Thank you, Mr. Wei. Let me respond to the question one by one. First question. Right after the Spring Festival of China, the demand from the whole industry seems to slow down compared with January and February.
I have to admit the sales being more pressured compared with H2 of the fiscal year. Our retail performance has outperformed wholesale. You asked about insights of 618 Shopping Festival. 618 Shopping Festival being started from very early on. We see many of the merchants are retaining prices, so the discount rate would be consistent with what is rolled out. The second question you were asked about a key brand we're working with. At least according to our observation, that brand is already adjusting its performance in Greater China region aggressively. Being localized would be a key strategy for them. That brand has already initiated a strategy named China by Design. They also adjusted the organizational structure. I think that brand, they really want to build a localized capacity connecting product design, sales, and marketing.
However, regarding the product, they have two initiatives, local creation and the local merchandising, and the operation. For local recreation, the local faster response team and product R&D team has been operated into a localized innovation and R&D center with corresponding staff changes. I think that brand is trying to build a more localized merchandise faster response organization. Also, they are trying to build a localized product strategy that can readily respond to the local market needs. By having such a center, the brand will be able to improve their response to the China market response, and also be able to well manage their China merchandise. At the same time, regarding the local retail operation, the brand also made some adjustment over the structure. They divide the Greater China region into north and south, the two big regions.
In that way, they can readily support the terminals and the south more closer to the user needs. They can also showcase how they attach great importance to the offline and improve the store performance. That might also be a part of your question.
Mr. Wei, thank you. Please allow me to answer your first question regarding dividend payout. First of all, we would like to thank for the markets, the investors, and all the friends of recognizing the high dividend payout we made to the shareholders. As what is mentioned, the fundamental logic of dividend payout still needs to rely on a very solid cash generation and cash return capacity. As you can see that our free cash flow to the tax profit, the ratio is falling to around 2x.
Maybe second year, you know that as I mentioned, we are a retail company, so the revenue for the transition year highly impacts it. There will be some material impact over the tax load. However, generally speaking, free cash flow through tax profit is always around 2x . First of all, as a company, we do have a very healthy cash reserve as our foundation. Secondly, as you are seeking a prudent and healthy cash performance, how are we going to use this money? As I was providing you in our prepared remarks, our capital allocation will be used for three parts. The first one, the organic growth of our business. The second one, the money would be used to identify some potential areas for breakthroughs, and the third would be the shareholder returns.
For the past few years, no matter for business growth or for the new potential profiles, we use less cash to make it happen. As we still maintain a very strong cash generation capacity, then we choose to provide more returns to the shareholders. That is the reason in our prepared remarks, I have already mentioned that according to the closing price last year, actually our dividend rate is 4%, so far above the industrial average, or even so far beyond the upper target, upper limit of the Hang Seng Index. We actually made a comprehensive review of our performance for Topsports in the sportswear industry. Our free cash flow for you as well as our free dividends are all still beyond the industrial average. That is the core operational philosophy we have been using.
Comprehensively for Topsports, we still would actually maintain a very prudent cash generation capacity, and then to consider what the dividend payout ratio might be. I hope I can answer your question.
Yeah, very clear. Thank you.
Next. Let's welcome Dustin Wei from Morgan Stanley please.
Thank you. Thanks for the management team. I have two questions. First question, I would like to ask about the pricing discount and inventory of the industry. Majority of the independent brands, they mentioned that they'd like to increase the sales of the normal price products, full price products. What would be the trend now? How long is going to take to increase the full price product sales? As far as I believe, if we're going to help the brands of including the full price product sales, then the de-inventory needs to be slowed down.
From the management perspective, for the whole industry or Topsports, when the inventory is going to be further optimized? This is my first question. Second question is regarding our site channel for the Top Formats. I think for the past few years, the company closed some large format stores. However, generally speaking, the GFA per store still continues to increase. Right before COVID-19, it is around 150 to 130 GFAs per store, but now the GFA is more than 200 square meters per store. So it seems that you have improved the floor divide, 150 to 200 square meters as a GFA with good sales per square meter performance. Then what are the new Top Formats you are opening now? What we can count on?
Because many of the key brands, they also mentioned they are going to define new store format in China. We would like to hear more from you. The corresponding question is regarding the rent growth. What would be the rent over this year? Are you still going to maintain a low rent for per square meter as you adjust your stores? Or three years later, the rents for per square meter will increase as you open new stores in the near future? I also ask the question regarding the operating guidance of 2027, basically. Yeah. Thank you.
Thank you. Thanks for Dustin. Let me respond to your first question. That is the full price product sales. As far as I can see, for the whole industry, the inventory is still quite saturated or should I say, kept at a high level.
In H2 of last year, we optimized our inventory, make it down by 8.6%. Our overall inventory is well controlled. From the discount control perspective, on one side, we need to consider our own inventory structure. We should also take a look at the discount trend in the market. So I think, as far as I believe on Topsports, our own inventory discount should be well controlled. However, we also see more challenges from the external environment. For Topsports, we are going to keep an eye on the competition landscape and the discount trends in the market to adjust our performance accordingly. Full price product sales is always a priority for ourselves.
We still have a principle that is giving priority to the seasonal products and the full price products using a high full price of making sure we help to improve the sales of the full price products. That is the priority of Topsports. As long as you have a good streamlined sales, then you will be able to lay a solid foundation for the future discounted sales. Responding to your second question, you asked about the store planning of Topsports. Last year, we closed more than 600 stores. This year, we are going to narrow down the store closure. The reason is because every year we need to take care of those underperformed stores, or the stores who have not performed after years of integration. Here now for Topsports, we are quite closure on the prudent in opening new stores. We are also testing some new store formats.
For example, in Adidas Top stores and in Nike ABC stores. We continue to identify new opportunities to grow our business. I think the whole market is also marching towards professional sports and the segmented sports. We also started to build our own multi-brand running sport stores. We are going to embrace opportunities in market and capture the right opportunities to grow rate. For other store formats, one needs to take a look at the sales per square meter efficiency, and then to have a thorough review to make the structural changes to help that we can maintain a healthy store format. The third question is regarding the property rental fees. The higher the property rental fees has everything to do with the output of our single store. From that perspective, we also propose omni-channel operation for our offline stores.
In other words, supporting the offline stores with omni-channel operational capacity, providing many traffics, news as well as features from the online channel to help to overcome the fluctuation of the foot traffic in the offline channels. For that, first of all, we are going to talk to the property owner against the existing backdrop of the market. We already have some supportive measures from the property owner. Some of that will be made happen within this fiscal year. Some will be materialized in next fiscal year. That can actually help to improve our rent ratio to improve the profit of the single stores. For rental fees, on one side, we need the property owner support, and we also need to leverage our own store performance to improve the sales. That is the way out. Thank you. Dustin.
Dustin, thank you very much.
Let me just respond to your question regarding the year 2027 guidance. First of all, regarding our long-term development, the company still maintains conservative and prudent for short run and optimistic for the long run development capability. When talking about the existing fiscal year, we still need to prioritize profit and the efficiency. If you take a look at the microenvironment, as Mr. Qiang was responding to all of your questions, he has already mentioned in the opening remarks. What we observe now is that the industrial environment is still fluctuating a lot. The promotion of the whole industry and the brand promotion are still depressed in the industry. For our counter measures, what that would help to keep it prudent and to keep our disciplines and caution.
Regarding our overall revenue, factoring the microenvironment, along with the order adjustment from the brand partners, the revenue would be pressured, I have to admit. However, for Topsports, we are going to do better on our discount brand management, and very well manage our performance on discount brand management, on omni-channel efficiency optimization. By taking actions by Topsports ourselves to help us, we will be able to have a stabilized profit this year. The microenvironment is challenging, but we hope to leverage our new assets to maintain a constant development and to maintain our overall development. This is indeed what the overall principles we are going to have for fiscal year 2027. Thank you.
Ladies and gentlemen, if you would like to raise a question, please press star one to queue for the question. When you hear the beep sound, you can start to raise your question.
Now back to Liu Pei from Shenwan Hongyuan please. Hello?
Thank you. Hello everyone, my name is Liu Pei from Shenwan Hongyuan. I have two questions to the company. First of all, you have two key brands working well. What would be the performance and operationals in the year 2026, I mean the fiscal year 2026? I noticed for the non-key brands, the rent last year was declined, more aggressive compared with the key brands. Rebecca mentioned some major sports brands, the performance was pretty great. Are you going to have some new adjustment guidance for those brands? My second question is talking in the channels. In the fiscal year 2026, you grew more than 600 stores.
As you are adjusting the stores, from the sales per square meter, all the operational operations, they are in a worldwide increase and quantify the data you can share with us. I think that the online performance of 2026 will be much better than last financial. What would be the online channel performance revenue contribution? How the online channel be differentiated from one to another? Any breakdown you can provide to us. The final question regarding the new fiscal year guidelines. What would be the guidelines for expense ratio and the safety margin? Thank you.
Thank you. Let me respond to your first question. Your first question for the two key brands, Boyato and Royal Asgard [inaudible]. Their operational, I think you can read it through their financial reviews. We are not going to comment on that.
Responding to your second question, indeed, we have to admit some recreational leisure sports brands, their performance is not looking bright. We are also adjusting that accordingly. At the same time, we invest more for outdoor and running stores, opening new stores for both segments. We were always able to adjust our store according to the dynamics of the market, invest more for outperforming segments and brands, and narrow down investment for underperformed brands and segments. The second question you were asking about the stores. In this year, the store closure amount would be smaller than last year. Sorry, I think your third question is asking about the online performance, right? Let me just share with you something on that. Online business was increasing to some extent with apart the traffic food impact in the first slide. Online business is divided into two parts.
The first one is the public domain, e-commerce. The second one is the private domain e-commerce. We see that our online performance related to the store sales are performing the best.
Thank you.
You asked about more breakdowns for the guidance you provide to the market. I think I have already mentioned some of that. While facing the challenging environment and many complexities from the market, we have to structurally impose to make dynamic adjustments. It's not the best time for us to provide any absolute predictions now. However, we're going to leverage our same performance improvements to help to uplift and to mitigate the pressure from the revenue. That's the principle for next product.
Thank you.
Sorry. I would like to respond to one more question regarding the sales per square meter and the profits of our stores.
Let me say after the store structure optimization and adjustment, sales per square meter and profitability of the store are all improving on YoY basis.
Thank you. Ladies and gentlemen, we'd like to accommodate the final question. Now let's welcome Ninghong Xie from GF Securities.
Hello, everyone. Thank you. My name is Ninghong Xie from GF Securities. I have two questions. I'd like to follow on. The first question, as we can see in the current fiscal year, your sales and your expense been going down, but admin fees been increasing. Whether this going to be the trend for this fiscal year? My second question, I think that the corporate income tax rate has been reducing. So I would like to ask you for the corporate income tax, what the rate might be for this fiscal year. Thank you.
Thank you. Let me help to respond to the two questions.
First of all, regarding the expense ratio, why the sales expense ratio, the decline would be significant compared with admin fee expense reduction because the sales expense ratio is directly linked to our store format and structure adjustment, as always as an omni-channel deployment. While for administrative expenses, we have some organizational optimization work. It's going to be built into the expense ratio by time difference and phases. By over-predicting for fiscal year 2027, we will still going to have a comprehensive structurally in different aspects, including the market landscape, to make a dynamic adjustment. Regarding the corporate income tax, I think I have already shared this many views. In the mid and the short run, the rate is going to be around 20%. This is also the number we have predicted and going to maintain.
Okay, thank you.
Okay.
Ladies and gentlemen, we don't see any further questions from our online channel. Ladies and gentlemen, I would like to thank you again. Thanks for all investors and analysts. Thanks for joining us for this result presentation. The management has already walked you through our management as well as the business landscape in the presentation. In the follow-up roadshows, we are going to continue to talk with you and please keep in touch with our IR team. Thanks for your time.