Citi Research said macro and geopolitical headwinds intensified in the second quarter, while a weaker retail environment and softer underlying demand slowed sales growth at mainland sportswear brands, according to ETNet.

The broker said competition risk has risen as global rivals continue to clear inventories, but most companies still maintained core profitability after stripping out one-off items. It added that July performance was hurt by severe weather and weak consumer sentiment, while August showed a slight improvement.

Citi Research said gross margins improved across the firms it covers, helped by tighter discount control, better product mix and channel structure. Anta Sports' operating margin widened by 0.7 percentage point year on year to 27%, supported by a strong premium brand portfolio, while Li Ning and Xtep International saw operating margin contraction.

For OEM manufacturers, first-half sales were hit by weak orders from brand customers including Nike, Puma and Lululemon. The broker said Yue Yuen's shipments may have bottomed after weak July data, while Shenzhou International is also expected to improve in the second half. It said foreign exchange, raw material prices, tariff sharing and higher wage costs weighed on margins, though FX and tariff pressure should ease later in the year.

Citi Research kept Anta Sports as its top pick, citing its multi-brand portfolio and global expansion potential. It also highlighted near-term improvement at Li Ning and the attractive dividend yields of OEM makers such as Shenzhou International and Yue Yuen. The broker kept its target price and rating for Anta Sports and Li Ning unchanged, while cutting Yue Yuen's target price to HK$15 from HK$16.