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Chow Tai Fook's FY Revenue +2%, Profit Drops

Same-Store Sales -3%

Jun 18, 2013 10:58 AM   By Jeff Miller
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RAPAPORT... Chow Tai Fook's revenue climbed 1.5 percent year on year to $7.4 billion (HKD 57.4 billion) for the fiscal year that ended on March 31; however, same-store sales fell 3.3 percent.  Cost of goods increased 2.6 percent to $5.4 billion (HKD 41.2 billion) and gross margin fell to 28.4 percent from 29.1 percent one year earlier. Profit fell 17.1 percent to $730 million (HKD 5.7 billion)  or 7 cents (HKD 0.551) per share.

By product segment, Chow Tai Fook recorded a 14 percent decline in gem-set jewelry sales at $1.7 billion (HKD 13.2 billion,) but gold product sales jumped 11 percent to $4.3 billion (HKD 33 billion).  Platinum and gold item sales improved almost 7 percent to $1 billion (HKD 8.3 billion). Watch sales dropped 18 percent to $387 million (HKD 3 billion).   chow tai fook

Retail sales on Mainland China rose 4 percent year on year to $3.1 billion (HKD 24.3 billion), while wholesale revenue plunged 32 percent to $773 million (HKD 6 billion). Retail sales from Hong Kong, Macau and other Asian markets increased 8 percent to $3.4 billion (HKD 26 billion), while wholesale revenue surged to $206 million (HKD 1.6 billion) from $75 million one year earlier.

Chow Tai Fook added  192 jewelry points of sale (POS) on Mainland China, 10 in Hong Kong, Macau and other Asian markets, and seven watch POS during the fiscal year.

Due to an economic slowdown in the region,  the Hong Kong and Macau markets inevitably faced considerable business challenges in the year, according to Chow Tai Fook. Consumer sentiment in both Hong Kong  and from Mainland Chinese visitors have weakened and consumers were more cautious in spending. Given those trends,  consumers tended to purchase a higher ratio of jewelry items necessary for special events and festive celebrations, such as gold wedding jewelry. Their purchases also shifted from high-end luxury jewelry pieces to mass jewelry products with an average selling range of $255 (HKD 2,000) to $1,300 (HKD100,000).

Additionally, revenue settlement currencies indicated that Mainland Chinese visitors out-purchased Hong Kong locals  and became the major source of revenue in Hong Kong and Macau. The increase in proportion of sales from Mainland Chinese visitors  was largely driven by the rising number of high-net-worth-individuals and a burgeoning middle class in Mainland China, according to Chow Tai Fook.

Chow Tai Fook described the short-term macro-economic environment as uncertain, with gradual signs of recovery.  Mainland China will see a continuation in economic growth attributable to the government’s on-going supportive monetary and credit policies; and the accelerating urbanization, rising disposable income and the consumers ever increasing desire to buy luxury goods.

The fast-growing middle class and high-net-worth population in the world’s largest retail market by population count, indicates rising demand for jewelry, especially bridal  as tens of millions of couples will marry in 2013, according to the company.  Management believes it is poised to benefit from this huge bridal market, which will continue to contribute a fair share of revenue in fiscal year 2014. 

The Hong Kong retail market has seen signs of recovery this year, the company observed. The steady increase of tourists, in particular from lower tier Mainland China cities, has become a driving force of growth and development to the local retail market. Hong Kong’s reputation as a shopping paradise and eminence as a luxury center will bolster sales, according to the firm.

Chow Tai Fook’s chairman, Henry Cheng, said, “Chow Tai Fook has experienced a challenging year in fiscal 2013. It is important to realize we are investing for the future. Our strategy for expanding into tier III and lower tier cities (in Mainland China), our plans to increase comparable-store sales next year through expansion of retail floor area and optimization of product offerings, and our  fast developing e-commerce business are all reasons for optimism.”

Kent Wong, the group’s managing director, concluded, “I believe, with our deep understanding of our market, extensive retail network penetration, as well as our reputation for authenticity and sincerity, we will continue to be the market leader in the jewelry industry in the years ahead. Our attention to product quality, design and craftsmanship, and our increased investment in production and logistics technology have further enhanced productivity and operational efficiency. We will continue to promote our brand in the mass luxury, wedding and fashion diamond jewelry, and the high-end luxury jewelry markets.”

 

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Tags: Chow Tai Fook, diamonds, economic, gems, Hong Kong, Jeff Miller, Jewelry, mainland china, retail sales, trends
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