We expect NWDS to record low-teens SSSg in 2QFY13 (October-December2012), higher than most of its peers. With the company having completedrebranding and renovations at c.85% of its total store GFA by the end ofDecember 2012, we believe the rebranding strategy is bearing fruit. Based onour channel checks, the relatively stronger SSSg also appears to have beenpartly driven by more creative and intensive promotional activities, which may,however, weigh on the concessionaire rate for 4Q12. The gold and jewelry,footwear and young ladies' casual wear operations performed better thanaverage, whereas sportswear and women's wear under performed.
For FY13, we are still expecting low-teens SSSg, as 2H (January-June) isusually a high season for NWDS compared to 1H (July-December). Based oncurrent trends, we believe the commission rate may be lower for FY13 thanFY12’s 18.5%, dragged by more aggressive promotional activities.
1HFY13may see an even lower commission rate, as most retailers were under pressureto meet their 2012 annual targets, which triggered massive promotions in themarket, especially in December 2012. That said, management believes thesituation in 2012 was better than that in 2008-09, when even aggressivepromotions failed to stimulate an increase in consumption.
We now believe new store losses in FY13 might be higher than management'sprevious guidance of RMB60m. This is due to the early opening of a few storesincluding the Yancheng store, and faster-than-expected construction progressat the Hebei Yantai store and Phase II of the Shenyang Nanjing street store.The payback period for new stores is maintained at around two to three yearsfor cash flow breakeven, and three-four years for P&L breakeven. Managementdisclosed that new stores can normally achieve c.60% of the sales level of amature store, and thus it will take at least three complete years for a new storeto become a mature store.
14% of NWDS's total GFA was self-owned, while the remaining 86% wasleased from related parties (c.26%) or third parties (c.60%).
Managementdisclosed that it has more fixed rental in Tier-1 and Tier-2 cities, but moreturnover rental in Tier-3 and Tier-4 cities.
Prepaid card business accounts for only c.10% of total sales. The percentage ishigher in Beijing and Wuhan, but lower in Shanghai where various multipurposeprepaid cards are available to customers.