Retail Giants Can'T Afford To Lose 35% Of BELLE'S Turnover.

As a local retail giant in China, it has been on the decline in the depressed retail market in recent years. Fortunately, its agency business profit has increased, but in the second half of 15 years it will not be able to sustain itself.

BELLE has always been a weathervane of the retail industry. The group's 10 or so footwear brands, as well as the agency of several sports brands, have always been the market indicators to measure the consumption ability of the Chinese high-end consumers. Under the pressure of China's economic slowdown, stock market turbulence and the real estate bubble, BELLE's profit slump also indicates that China has actually fallen into the middle income trap.

Belle International Holdings Ltd, China's largest shoe retailer, issued a profit warning after today's closing of the Hong Kong stock market. It is expected that the net profit of the 2015/16 fiscal year will be reduced by 4 billion 763 million 900 thousand yuan (RMB, the same below) in the 2014/15 fiscal year due to the weakening of the footwear business, which is only 26.201-30.965 billion yuan.

BELLE international pointed out in the surplus police that the decline in the same store sales in the second half of the year has further expanded, resulting in a larger impairment loss for goodwill and other intangible assets related to footwear business.

In addition, the income and gross profit margin of footwear business decreased compared with the same period in 2014/15, but the cost continued to rise, resulting in a decline in operating profits.

Starting from the end of the fiscal year 2013/14, BELLE's international footwear business with the brand name of BELLE, StacCATo Staccato and Joy & Peace really began to decline. The decline in the second half of the fiscal year has widened to double digits. The three and fourth quarter sales in the same store fell by 10.4% and 16.5% respectively, down nine consecutive quarters, and the group decided to close the footwear store in large numbers and withdraw from the Hongkong market. The sales volume of the footwear industry in the same period of the year ended in the nine quarter of.

The decline is more of a sporting and apparel business.

In view of the unusual popularity of the sports industry, BELLE International's sports and apparel business has maintained the advantage of Nike Nike China's largest agent and the main agents of China's sports and outdoor products brands such as Adidas Adidas, Puma Puma and CAT.

Before the three quarter, BELLE international has been reducing its stores, but in the three quarter, the group has increased by 278 stores, 272 of which are sports and clothing stores, and the fourth quarter has been expanding more rapidly. 315 of the 367 sales outlets that have been net increased are sports and apparel businesses.

Data show that as of the first half of August 31st, BELLE International's sports and apparel business has been equal to the footwear business. The median revenue is 9 billion 513 million 900 thousand yuan and 9 billion 835 million 700 thousand yuan respectively, but the two business trends are just the opposite. Therefore, its expansion business is also in line with business logic, but the expansion also brings inventory risk. Once the industry is experiencing a slowdown or recession cycle, the group may lose growth support, because its footwear business is still not recovered in view of the big market and economic environment.

BELLE international is also promoting the growth of sports and apparel business by strengthening clothing brand portfolio.

Following the joint venture of Moussy and Sly of the two largest Japanese fashion brands in 2013, Barok Baroque, a Japanese fashion brand, and Japan and a joint venture with the latter to expand China's road for Moussy and Sly, announced that the group purchased 29% of the Fashion Box SpA of the Italy Cowboy brand Replay early this year. The two sides will establish a joint venture to manage the development of the Replay brand in the Greater China market.

BELLE's interim results are overall positive.

2 billion 158 million 100 thousand yuan was 3.9% higher than the 2 billion 77 million 900 thousand yuan in the same period of the previous year, and the income increased by 4.3% to 19 billion 359 million 600 thousand yuan annually, of which 5% of footwear revenue and 5% of sports and clothing business income increased by 16.1%.

Gross margin increased slightly by 40 basis points to 56.7%.

BELLE international rose 1.74% on Tuesday to HK $4.68, the lowest level since the 2008/09 financial crisis.

After the four quarter sales figures were released in mid March, HSBC securities, Goldman Sachs, Credit Suisse and UBS both lowered the target price of BELLE international. Only Morgan chase optimistic about the stock price trend.

Remittance estimates that BELLE international sales in 2017 fiscal year will continue to record a 8.4% decline, and footwear EBIT profit margins will continue to decline, so the rating downgraded from "buy" to "hold", the target price from HK $6.6 to HK $5.8.