3Q FY17 footwear SSS decline widened likely due to priceadjustment
Sportswear growth slowed too
Maintain Hold with unchanged TP HKD4.5
Footwear SSS decline widened: Footwear same-store-sales (SSS) decline widenedto -13%yoy in 3Q FY17 (Sep-16 to Nov-16), from -10% in 2Q FY17. We think thewidened decline is mainly attributable to a new pricing strategy as an effort on brandrepositioning. Belle closed a net of 239 stores during the quarter, similar to 2Q, and ison track to deliver a mid-single-digit yoy closure for full year as guided previously.
Sportswear slight deceleration: The sportswear segment reported a 4.6% SSSgrowth during the quarter, versus 6.0% during the previous quarter. We estimate thegrowth is mainly driven by a more favourable product mix which helps average sellingprice. Pou Sheng (3813 HK, not rated), which is another key distributor of Nike andadidas in China, also reported a slowdown in SSSg from 6%yoy in 2Q CY16 to a lowsingle-digit growth in 3Q CY16.
TP HKD4.5 unchanged; maintain Hold: We remain concerned about deleveragingin footwear, particularly as SSS decline widened. We make no change to our forecastin this report. For ladies footwear unit, we use an unchanged segmental PE of 8x onFY17e earnings, as this represents the trough valuation level for the sub-sector givenlow visibility. For sportswear unit, we apply segment target PE of 14x to reflect theother Hong Kong-listed sportswear peers’ average trading level. Our unchanged TPof HKD4.5 implies c3% downside, and we reiterate our Hold rating on Belle.