A contraction in retail sales at Hong Kong-based Chow Tai Fook Jewellery Group eased somewhat in the quarter ended June, although the world’s largest publicly-listed jeweler still warned of headwinds in China’s luxury goods industry.
The group’s quarterly retail sales in Hong Kong and Macau fell 22% on the year, while those in mainland China fell 13%, resulting in an overall drop of 17%. Its mainland jewelry business remained one of the few brighter spots, where same-store sales fell 12% but were less severe than the drop of 24% in the previous quarter.
“[Fiscal] 2017 will still be a very challenging year,” said managing director Kent Wong on Monday, adding that the recent rally in the gold price had not stimulated a “gold rush” and that the demand for gold products would reflect “China’s wider economic slowdown.” He expects sales figures in the next quarter will still be in negative territory, due to the high levels seen a year earlier.
The jewelry chain is controlled by the family of Hong Kong tycoon Cheng Yu-tung, whose business includes developer New World Development.
The group announced plans to shut seven or eight stores in Hong Kong and Macau to cut costs, after announcing in June its steepest full-year profit slump of 46% since its 2011 listing. Its plan to add 50-60 stores in mainland China to its network of 2,315 sales outlets remains unchanged.
Smaller rival Tse Sui Luen Jewellery said its net profit plunged 40.6% last year, while Luk Fook’s net profit dived 41%.
Hong Kong retailers saw their sales in May shrink for the 15th consecutive month, hit hard by the double whammy of sluggish local consumption and fewer wealthy mainland Chinese buyers.
The combined impacts of a weaker Chinese yuan and austerity measures in mainland China have discouraged ostentatious spending. In May, the fall in Hong Kong sales of luxury goods, including jewelry and watches, widened to 18.7% on the year, in line with a steep decline in mainland tourist arrivals, who account for nearly 80% of total visitors.
Calling the operating environment “still tough,” Kevin Guo, an analyst at Guotai Junan, said the outlook for Hong Kong’s jewelry sector has not shown any signs of improvement. The Shanghai-based brokerage maintained a “reduce” rating for Chow Tai Fook over the next 12 months.
But HSBC was more bullish, upgrading Chow Tai Fook to a “hold” in late June.
Before earnings were announced, the jeweler’s shares closed 2.64% higher at HK$5.83 on Monday. They have rebounded nearly 38% in value from the trough they reached in late January, as bargain hunters moved in on the stock, outperforming the 8.5% gain in the Hang Seng Index in the same period.
“[Chow Tai Fook] is finally seeing the light at the end of the tunnel,” wrote Lina Yan, a consumer analyst at HSBC. “We believe the company is at the end of a downgrade cycle” due to improved profit margins that have benefited from rental adjustments recently, she said.