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Turning the corner

3Q25 review: A long-awaited consensus beat; encouraging growth in China

For 3Q25, F&F reported above-consensus results, with revenue of W474.3bn (+5% YoY) and operating profit of W128bn (+18% YoY). The company returned to growth in both revenue (for the first time in six quarters) and operating profit (for the first time in eight quarters), driven by strong MLB earnings both domestically and overseas.

Domestic demand has improved compared with 1H25. Alongside a pickup in overall consumer sentiment, apparel spending is recovering (with department store apparel sales growth turning positive in 3Q25 and the October apparel spending outlook index reaching 99p). Against this backdrop, MLB sales grew 3% YoY in 3Q25 (vs. +1% YoY in 1Q25 and -5% YoY in 2Q25), returning to positive growth, while Discovery sales declined 20% YoY (vs. -17% YoY in 1Q25 and -24% YoY in 2Q25), marking a slower pace of decline. While the recovery remains modest (and was likely supported by an early cold spell in October), the domestic demand environment no longer seems to be acting as a drag on overall earnings.

In China, revenue expanded 14% YoY, surpassing expectations, driven by MLB. While the number of MLB stores continues to decrease YoY and QoQ, per-store efficiency has improved, driving the brand’s overall sales higher. YTD, retail sales at renovated stores have expanded 16% YoY, and average per-store sales are also estimated to be rising.

For Discovery (F&F’s new business in China), the company is likely to flesh out its strategy after the winter peak season. The firm cut its full-year store openings guidance from 65 to 25, as it plans to gauge the consumer response to localized products before expanding further. Considering MLB’s stronger-than-expected earnings and Discovery’s premium positioning in outdoor apparel, we do not view the store openings adjustment as a major concern.

Earnings have bottomed; TaylorMade is an additional upside factor

We believe earnings at both the domestic and Chinese businesses have bottomed. Growth is likely to accelerate further in 4Q25, helped by strong seasonality, favorable weather, and improving consumption. Although some doubts persist about MLB’s brand power in China, quarterly results continue to demonstrate resilient demand. Even factoring in concerns such as weakening sentiment on China’s consumer market and delayed results from Discovery, the stock looks excessively undervalued at a 12-month forward P/E of 6x.

Meanwhile, the TaylorMade sale has reportedly entered the main bidding stage. F&F’s management has stated that it is open to either acquiring the business or divesting its stake, depending on the price. An acquisition would add around W300bn in annual EBITDA, while a divestiture would likely generate over W1tr in cash proceeds. Either outcome would be positive for the company. With related momentum set to materialize soon, we recommend Buy on the stock.