The mainland's sportswear retailers have been struggling with sagging numbers after over-expansion in the lead-up to the 2008 Beijing Olympics and unrealistic expectations of demand from the middle class.
Although experts agree that the sector has gone through most of the consolidation it needs and these stocks for the most part have low valuations, it may be too early for investors to go bottom-fishing.
There were 4,663 net store closures in 2012 and more than 3,000 last year, according to an HSBC report this month.
"We're coming to the end of the major store closures, but earlier this year, it turned bad again," KGI Securities analyst Flannery Huei Chen said. "The whole retail consumer goods sales, it's really not looking good in the first quarter. They haven't announced it but listening to people talk about January and February sales, the numbers are not going to look good, especially same-store sales growth."
According to the China Beige Book survey of businesses nationwide, retail sales over the Lunar New Year holiday were the weakest in at least three years. Revenues, sales and profits were all lower than a year ago, the survey showed.
Xtep and Peak Sport Products saw a profit decline of more than 20 per cent last year. Net profit for 361 Degrees International, which took the biggest plunge, dropped 70.1 per cent on a 28 per cent fall in revenue due to a write-off of all account receivables over 180 days.
"They all gave loose credit terms for years, especially all those companies that mainly rely on distributors," Chen said.
Meanwhile, HSBC noted that Li Ning, which is expected to announce its results today, was still discounting up to 40 per cent on its products last month, although this was an improvement from 70 per cent off last year.
Standard Chartered head of consumer research Charles Yan Zhixiong remains bearish on the sector, especially given the increased competition from fast-fashion brands like Uniqlo and Gap all the way up to high-end clothing labels.
"The whole environment has changed," he said. "Before, fashion brands didn't have casual and sportswear, but now all the men's and leading brands, even LVMH, Gucci, Prada, they have sportswear."
Chen said: "All these local brands, they look pretty much the same. Although they like to say they have high functionality, the products are very casual."
Anta Sports Products, one of the better-performing companies, reported marginally better full-year results.
Its profitability improved, with discounts normalising to about 25 per cent. Last year's net profit dropped 3.2 per cent year on year.
"Anta is probably the best among them," Chen said. "However, the stock price already went up. If you look at valuation, it isn't cheap. So I think there is not much upside unless the company delivers better-than-expected numbers."