Weak Q3 sales growth for China's top footwear firm rattles investors

Mon Oct 15, 2012 2:45am EDT

* Same-store sales growth in footwear business just 2.8 pct

* Belle shares fall more than 4 pct to six-week low

* Footwear and apparel companies fall across the board

HONG KONG, Oct 15 (Reuters) - Shares of Chinese footwear and apparel companies fell on Monday after disappointing quarterly sales growth at the country's top footwear retailer, Belle International Holdings Ltd, reignited fears about a weak outlook.

Scores of retailers have struggled in recent months as China's soaring economic growth slows, leaving inventories bloated and leading some analysts to wind back earnings estimates due to a downturn in demand.

Belle, which distributes Nike and Adidas footwear through some 16,500 stores in China, said late on Friday its footwear business posted third-quarter same-store sales growth of 2.8 percent, while sportswear grew 3.6 percent.

That compared with second-quarter growth of 10.5 percent in footwear and 5 percent in sportswear, and was below company guidance for mid-to-high single digit same-store sales growth.

"The growth was lower than the management guidance and that reaffirmed relatively weak consumer sentiment," said Patrick Yiu, a director at CASH Asset Management.

"We don't expect to see a V-shape rebound," he added, pointing to ongoing consumer caution.

The weak sales growth comes just a month after Nike said orders in China for the next several months had fallen for the first time in three years.

Shares of Belle, which has a market value of about $15.3 billion, fell more than 4 percent to a six-week low, lagging a 0.1 percent drop in the benchmark Hang Seng index.

Smaller footwear rival Daphne International Holdings Ltd said at the weekend its third-quarter same-store sales grew a weaker-than-expected 5 percent, down from 14 percent in the previous quarter. Its shares eased 0.1 percent.

Sportswear brands were also hit with shares of ANTA Sports Products Ltd down 1.8 percent, China Dongxiang (Group) Co Ltd off 3.4 percent, and Xtep International Holdings Ltd down nearly 5 percent.

"The weaker-than-expected 3Q and Golden Week sales prompt us to revise down our estimates and PO (price objective) for most discretionary names under our coverage," Bank of America Merrill Lynch wrote in a research note, referring to third quarter and recent holiday sales.

Shares of luxury retailers also came under pressure, with jewellery retailer Chow Tai Fook Jewellery Group Ltd falling 2.5 percent. Luxury watch distributor Hengdeli Holdings Ltd lost 1.8 percent, and Italian fashion house Prada SpA was down nearly 1 percent.

While Belle's margins were expected to come under further pressure, Citi analyst Catherine Lim said in a note its strong operations meant it was well placed for a recovery.

"Beyond this blip in growth that most retailers will register in 2012 earnings, we believe Belle is well-positioned to stage one of the strongest recoveries into 2013 earnings."

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