Higher Gold Prices Weigh on Luk Fook Sales

Nov 24, 2016 9:29 AM By Rapaport News

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RAPAPORT... Luk Fook Holdings sales plunged in the fiscal first half as higher gold prices deterred consumers and fewer tourists arrived in Hong Kong.

The Hong Kong-based jeweler reported revenue fell 22 percent to $705 million (HKD 5.47 billion) during the six months that ended September 30, with same store sales at its self-operated outlets slumping 32 percent. Profit declined by just 6 percent to $55.9 million (HKD 433.7 million) as a 27 percent drop in costs mitigated the detrimental impact of lower sales.

“With continuing weaker retail sentiment, together with the relatively high gold price and a relatively high base, gold sales fell more than expected,” Luk Fook explained.

The company responded by shifting its focus toward gem-set jewelry as demand for its gold products declined, helping profit margins improve to 28 percent from 22.7 percent a year ago. Gem-set jewelry sales accounted for 44 percent of total revenue compared with 37.4 percent a year earlier.

Luk Fook increased its store count by 27 to 1,455 shops during the period under review. While 1,389 of those outlets are in Mainland China, more than two-thirds of revenue is accrued in Hong Kong.

Retail sales in Hong Kong, Macau and other markets fell 31 percent to $445 million (HKD 3.45 billion) because of a 9 percent drop in tourism this year and a decline in consumer spending, the company explained. Retail sales in China grew 15 percent to $84 million (HKD 654.3 million) as the company preferred to expand its network of self-operated stores rather than licensed shops in the Mainland.

Looking forward, management has forecast a sequential improvement in the second half, particularly for its gem-set jewelry sales. However, the company maintains caution given the uncertainties embedded in the global economy and the economic slowdown in China.

Correction, January 3, 2017: Luk Fook's results are for the six months that ended September 30 and not three months as previously reported.

Tags: China, diamonds, Hong Kong, jewellery, Jewelry, Luk Fook, macau, Rapaport News