Chow Tai Fook reports operating profit up 24.7 per cent in fiscal half year

Chow Tai Fook Jewellery, the world’s largest listed jeweller by market value, said on Thursday that it plans to open 400 new shops in the fiscal year beginning in April this year, with an emphasis on capturing the market potential in secondary cities in China.

While the group foresees a sales slowdown in the remaining months of the current financial year which ends in March, they hope to drive sales through a multi-brand strategy and innovative retail experience.

The company reported operating profit surged 24.7 per cent to HK$2.989 billion (US$382.09 million) for the six months ended September 30.

Earnings per share amounted to 19 HK cents, while the jewellery chain will pay an interim dividend of 15 HK cents per share.

In the fiscal first half Chow Tai Fook’s same store sales in Hong Kong and Macau grew by 24.4 per cent, lifted by higher average prices and rising volume. Same store sales growth in mainland China rose by 4.9 per cent, mainly driven by an increase in the average selling price.

The group aims to further expand its extensive retail network in China, executive director Adrian Cheng Chi-kong said during the results briefing on Thursday evening.

“Chow Tai Fook wants to open around 400 stores in mainland China in the financial year from April this year, with a focus on deepening market penetration in lower tier cities through our franchised model,” Cheng said.

Over the past financial year, the jeweller closed three shops in Hong Kong, yet managed to grow its retail network by a net 233 outlets over the period thanks to expansion in China. It also added four retail locations in South Korea, Japan, Malaysia and Singapore. The company had 2,822 retail locations globally, of which 2,682 were in mainland China, at the end of September.

“While golden jewellery products have been performing very well over the reporting period, we aim to launch more gem and diamond collections to capture younger buyers in Hong Kong,” said Cheng. He added that the strategy would help to smooth earnings, as they do not want to be buffeted by the constant fluctuation of gold prices.

Chow Tai Fook has been trying to cater to different customer segments through its multi-brand strategy. For the six months ended September 30, T Mark, the group’s disruptive diamond brand, recorded retail sales value growth of 134.8 per cent on year in mainland China and 156.7 per cent on year in Hong Kong and Macau.

Monologue, was introduced last year to capture younger consumers seeking less expensive jewellery and modern design.

“To appeal to young and digital-savvy buyers and to drive turnover, the brand has adopted a similar concept of fast fashion in recent years, in which they launch a wide range of collections that are more stylish and versatile with an approachable price range,” said Kenny Tang, chairman of the Hong Kong Institute of Financial Analysts and Professional Commentators.

Nevertheless, Chow Tai Fook’s growth momentum is expected to slow in the remaining months of the current financial year.

“There has been a slowdown in same-store sales growth and a drop in gold products purchased in the jewellery market recently, owing to consumers’ cautious spending in light of the depreciation of yuan and the US-China trade war,” said Tang.

Luk Fook Holdings, one of the group’s key competitors who announced its interim results on Wednesday said same-store sales growth cooled in their Hong Kong and Macau outlets since October.

“If the situation persists, this will certainly affect the spending power and purchase sentiments of mainland Chinese jewellery buyers in Hong Kong,” said Tang.

When asked if the recently opened rail and bridge links between Hong Kong and the mainland will boost sales for 2019, Tang said he was not optimistic. “The spending power of visitors commuting via those infrastructures tends to be lower and therefore they will not contribute to a huge portion of jewellery sales,” said Tang.

Chow Tai Fook’s Hong Kong-listed shares fell 6.9 per cent on Thursday ahead of the results announcement.