Sales decline hits jeweller's shares
Chow Tai Fook Jewellery, the world's largest listed jewellery retailer, slumped almost 9 per cent after reporting a decline in second-quarter same-store sales in Hong Kong and Macau.
The Hong Kong-based retailer closed 8.8 per cent lower at HK$9.45 yesterday as investors worried the economic slowdown might have a deeper than expected impact on high-end jewellery consumption.
Chow Tai Fook said in a filing on Wednesday night that same-store sales in its Hong Kong and Macau stores dropped 1 per cent for the three months to June, despite a 5 per cent increase in volume. This is a sharp decline compared with the 48 per cent growth in same-store sales recorded for the fiscal year to March.
'While the weakness may not be totally unexpected, the reported sales growth and same-store growth were still notably below the market and our estimates,' said Catherine Lim, an analyst with Citi Research.
The retailer, which has 1,674 points of sale in Hong Kong, Macau, the mainland and other countries, said total revenue for the past three months rose 16 per cent, while same-store sales grew 4 per cent.
The mainland market performed better than Hong Kong and Macau, with a 19 per cent year-on-year revenue increase and 10 per cent growth in same-store sales for the reporting period.
Henry Cheng Kar-shun, chairman of Chow Tai Fook, said the weak figures in Hong Kong and Macau were mainly due to 'the exceptionally high base' for the same period last year and 'less high-end gem-set jewellery sold due to the global economic slowdown'.
The retailer said 22 per cent of its revenue for the period came from gem-set jewellery, which has a higher profit margin, down from 27 per cent for the last fiscal year.
Gold products, which have a lower margin, accounted for 58 per cent of total revenue, compared with 53 per cent in the last fiscal year.
Hong Kong Census and Statistics Department figures showed the sales of jewellery, watches and clocks in the city rose 3.1 per cent in May, down from 15.1 per cent a month earlier. Last year, sales jumped as much as 46 per cent from a year earlier.
Shares of Chow Tai Fook, which listed in Hong Kong in December, have dropped by a third this year. Rival jewellery retailers Luk Fook and Chow Sang Sang lost 40 and 2.24 per cent, respectively, for the period.
A spokeswoman at the Hong Kong Retail Management Association said mainland consumers have cut spending on jewellery, apparel and cosmetics in their shopping trips to Hong Kong this year.
To deal with the challenging market environment, Cheng said the company had adjusted the product mix to meet consumer demand.
Chow Tai Fook has expanded aggressively across the border in recent years, which has strained its cash flow.
The retailer received net proceeds of HK$15.4 billion in its initial public offering but said it held only HK$10 billion in cash at the end of March.
Growth in Chow Tai Fook's same-store sales on the mainland in the second quarter from a year earlier