Sa Sa's 3Q FY15 sales in HK and Macau dip 1% y/y

Chinese tourists' spending habits were blamed.

Sa Sa's sales for 3Q FY15 for Hong Kong and Macau fell 1.1% y/y--Oct -2%; Nov +5%, Dec-6% y/y--and its same store sales growth (SSSG) rate was -2.7% y/y.

According to a research note from Barclays, the average sales per transaction were down 6.4% y/y while the number of transactions was up 5.6% y/y.

Sa Sa said the key reasons for the sales decline were that Chinese tourists bought fewer high-end products and sales of holiday gift sets were weak.

However, Korean products, products priced at less than HK$500 and face masks saw strong growth.

Turnover for other geographical segments was down 1.2% y/y.

Here's more from Barclays:

Store additions: Sa Sa added a net of six stores in 3Q FY15 with two in Hong Kong and Macau, two in Malaysia and two in Taiwan. As of end-December, it had 285 stores.

Margins: Sa Sa said its gross margin for 3Q FY15 was negatively affected by the lower level of house brand products in the mix (due to weakness for its high-end house brand and gift packs sales). However, while 1H FY15 saw a contraction of 2.9% y/y for the gross margin for Hong Kong, the contraction for 3Q FY15 y/y was less than 1.45% despite the lower house brand mix.

Sa Sa said that because 3Q FY14 already had promotions, the base comparison was lower. Sa Sa also noted limited scope for further promotions. Sa Sa said that other operating costs were under control and that the rental market was weak.

Management interruptions: Sa Sa had some management interruptions at the operational level with a senior person in sales and the head of its own-label products team both leaving. Replacements have already been brought on board.

Key risks: The key upside risks to our price target, in our view, include better-than-expected visitor arrivals and spending growth in Hong Kong. The downside risks include a worse macro environment and weaker Chinese visitor spending in Hong Kong as well as greater promotions or higher rental pressure than we expect.