Operational update for 3QFY17
Belle announced its 3QFY17 operational update after the market closed today.The footwear business saw SSS decline 13.4% while sportswear saw 4.6%SSSg. It net increased stores by 30 during the quarter. The company owns20,630 stores (13,145 footwear and 7,485 sportswear).
Key updates from management
Sportswear – of the +4.6% SSSg, 3% was from ASP due to a product mix shift,with the highest growth in sports shoes, while accessories remain the weakestsegment. After an adjustment with a net decline in the store network in 2Q, itresumed store openings in 3Q, with a net increase of 269 stores (or 5% storegrowth for 9M). Tier-1 brands also saw an increase of 100+ stores. 4Q hashistorically been high season for store openings. However, as the 2017 CNY isclose to Christmas, we expect that planned store openings will not be as manyas last year’s 315. Management is still testing the multi-brand strategy,however, the current mono-brand store format still draws better traffic.
Footwear – saw a ~2-3% ASP decline, which was in line with management’sexpectations as the company has been proactively lowering its tag prices inZhejiang and other markets, offering more VIP promotions. The whole idea isto push forward sales transactions. As a result of lower manufacturing costs,we believe that GPM remained intact, but that the opex ratio will be affectedgiven the decline in SSS. Management believes the market has slowed sinceAugust. As some stores (we estimate less than 10%) are loss-making, weexpect it to close 700-800 stores this year. Shopping mall stores’ sales sharehas increased to a teens %, while department stores retain an 80% share.
Deutsche Bank’s view: we see upside risk to the sportswear store number, butdownside risk to footwear’s SSS decline
Sportswear performance has improved and stabilized, with SSS at ~5% and aresumption of store openings. This is compared to management’s commentthat 3Q SSS trended below Q2’s 5% 2Q. Footwear performance was, however,very disappointing with SSS declining further despite a lower base in 3QFY16.