Here's the consequence to Sa Sa's sales growth in 2Q FY13

There might be high base effect.

Sa Sa attended Barclays conference Tuesday (3 September).

Here are the key takeaways:

We believe its sales growth slowed in July and August in its core Hong Kong/Macau market, but we estimate the growth rate was still at least in the high teens for the two months.

Although there is a slight downside risk to our sales growth estimate for FY14, we believe its gross margin improvement might be better than we now estimate although we still look for strong earnings growth of c20% for FY14. We maintain our OW rating on Sa Sa.

Sales growth in 2Q FY13 could mean a slower growth rate for 2Q FY14: Management cautioned that 2QFY14 (Jul-Sep) could see a slower growth rate due the high base effect and given the potential for Mainland tourists to visit other destinations other than Hong Kong during the summer.

It maintained its guidance for 15-20% sales growth for FY14. We note the slower growth rate for cosmetics sales in the retail data for July for Hong Kong, and we believe there could be downside risk to our sales growth rate estimate of 23% for Hong Kong for FY14.

The company's store expansion plan remains on track in Hong Kong with it planning to balance openings in both residential and tourist areas.

Gross margin improvement guided to remain strong: However, management noted that its gross margin improvement remains strong with continued strength in sales of house brands.

We see upside risk to our gross margin estimate for just 1ppt of improvement this year, and therefore, despite downside risk to our sales forecasts, we are comfortable with our earnings growth rate estimate of 20% for this year.

Management noted that its rate of rental increase continues to be more negotiable as well.

Sa Sa China: Management focused on its initiatives in China, such as its smaller store format and the streamlining of its product offerings in its stores.

Management expects its losses in China to narrow, but it still does not expect to break even until FY16.

Sa Sa Supreme store: Management highlighted its new Sa Sa Supreme store concept. For details and to see our pictures from our last visit, please refer to our report "Visit to the new Sa Sa Supreme store" published 2 August 2013.