Highlights

• In 2Q26, Li Ning recorded a low single-digit yoy decline in retail sell-through, (if including Li Ning Young, total sell-through would be flat yoy), with deepened discounts. Looking ahead, the company intends to set inventory health as its top priority. However, given the tepid consumption demand and the highly competitive industry landscape, this may result in further discount pressure and, in our view, could weigh on gross margin.
   
• Management continues to maintain its full-year targets of high single-digit revenue growth and a high single-digit net margin range, though pressure is expected to intensify in 2H26. 
   
• Maintain BUY but cut target price by 6% to HK$23.30.
   

Analysis

• 2Q26 retail sell-through weakened vs 1Q26. In 2Q26, Li Ning recorded a low single-digit yoy decline in retail sell-through (excluding Li Ning Young), below management's expectation, due to a softened consumption environment and unfavourable weather. If including Li Ning Young, which recorded low-teens sell-through growth, total sell-through would be flat yoy. By channel, the offline channel registered a low single-digit decline, with retail down by low single digits and wholesale down by mid-single digits (retail outperformed wholesale mainly driven by outlets). E-commerce grew by mid-single digits, though growth moderated qoq.
  By category, running and sports casual sell-through turned to a yoy decline in 2Q26 (vs growth in 1Q26), while basketball's decline widened vs 1Q26. Badminton weakened notably on a high base after two years of an industry-driven surge. Training delivered decent growth in 2Q26, helped by functional apparel and the peak season. Outdoor and Glory Gold Label grew rapidly, but their contributions remained limited, accounting for only mid-single digits and low single digits of 2Q26 sell-through, respectively.