Beijing's corruption crackdown knocks growth prospects at jeweller
Beijing's crackdown on gift giving is making Emperor Watch & Jewellery more cautious about opening shops on the mainland this year as an anti-corruption campaign continues to take its toll on luxury sales across the border.
The high-end watch and jewellery retailer saw its shares fall 4.7 per cent to close at HK$0.81 yesterday after the company reported a 37 per cent slump in net profit to HK$404 million last year.
Total revenue for the year to December grew 11 per cent to HK$6.5 billion. But the gross profit margin declined by 2.8 percentage points to 26 per cent, dragging down the net profit.
Cindy Yeung, Empire Watch's chairman, said the company closed around 12 to 14 shops last year but had no plans to close shops in 2013.
However, the company would take a "cautious" attitude in future shop opening because the mainland government's crackdown on corruption and gift giving may affect the sales of high-end watches and jewelleries, she said.
Beijing has shown a tough line on tackling corruption since the country's new leadership team took over the helm last November.
The government rolled out a series of rules last year forbidding civil servants from spending public money on buying gifts. It also halted television and radio advertisements promoting expensive gifts before the Lunar New Year in February.
Yeung said the company would focus more on mid-priced watches this year to offset the impact of a possible decline on high-priced watches sales.
Despite the fall in profits last year, Emperor expects to enjoy a recovery this year in its home market of Hong Kong, which contributed 80 per cent of its total sales.
Last year, Emperor's overall same-store sales remained almost flat. However, the company expects to see the same-stores sales figure grow in the first quarter of this year.
As of last December, the company had 21 shops in Hong Kong, 54 on the mainland and five in Macau.
A third of the shops need to renew their leases this year, though the rent growth it has seen so far is lower than the previous two years, Emperor said.
The company has recommended a final dividend of 0.8 HK cents per share for the period.