The 3Q13 same store sales of core brands business is -18.1%, which is lower than the -13.7% in 2Q13, due to the slow consumption recovery in China, sharp decrease of consumer traffic in street shops and fierce competition from regional players. We believe the sharp decrease of consumer traffic in street shops results from slow consumption recovery, emerging online shopping as well as more and more shopping malls starting operation. As the SSSG was continuously lower than expected in 2Q13 and 3Q13 coupled with the slowdown of store expansion, the spring and summer inventory remains a key pressure point in the near term.
As discounts were adjusted as compared to the same period last year, the retail gross margin was hence improved in 3Q13. We believe the gross profit margin is still under huge pressure in the second half of this year as similar amount of inventory provision is expect ed compared with the first half of this year. We are now modeling a -10% SSSG for 2013, cutting again from -6%. The Company is starting to consolidate its network and expects net closure of stores in 4Q. We cut our net store addition forecast from 450 to 250 in 2013. We have revised down our basic EPS forecasts by 5.2%/9.2%/15.8%, respectively, to HKD0.346/0.376/0.381 in FY13/14/15.
The structural decrease of consumer traffic in street shops and fierce competition from regional players will continue to plague the Company. We maintain the Company’s ‘Reduce’ rating and target price of HKD4.39, which corresponds to 12.7x and 13.7x 2013 basic EPS and fully diluted EPS.