Macquarie published a report maintaining the neutral rating of New World Department Store (00825.HK), lowering earnings forecasts per share for FY2016 and FY2017 by 15% and 26.8% respectively. The target price for the next 12 months fell from 1.9 yuan to 1.47 yuan, mainly due to the company's weak same-store sales growth data, and stores continued to close.

The bank's analysts pointed out that NWDS management is determined to integrate store efficiency and improve productivity. It is expected that the company will continue to close stores in FY2016. Since impairment provisions have been reflected in this year's financial statements, there will be little impact on the next fiscal year. In addition, rent and labor costs are the company's main expenses. The bank believes that labor costs can be reduced by closing stores, reducing the area, and restructuring the structure. However, the bank also pointed out that weak consumption and negative growth in same-store sales could lead to deleveraging of operations.

The report also suggests that the company is facing online and offline competition. Although the company acquired LOL and Well Metro Group brands by purchasing and acquiring brand agency rights to expand its direct sales business and reduce franchise counter sales, management also expects direct sales growth of 20-25% in FY2016, with a gross margin of 25-30%, but the bank still has reservations about the growth of the two brands because they are still in an immature stage.