Editor’s Note
This article discusses Chow Tai Fook Jewellery Group’s recent operational data, including a net reduction of retail points in Mainland China and a reported decline in sales. The information is based on the company’s unaudited quarterly report.
In the three months ended June 30, 2024, Hong Kong’s Chow Tai Fook Jewellery Group net closed 91 retail points in Mainland China, with 85 new retail points opened and 176 closed. By the end of the reporting period, Chow Tai Fook’s total number of retail points in Mainland China was 7,284.
On July 24, Chow Tai Fook released the unaudited key operating data for the first quarter of the 2024 fiscal year. Regarding the reduction in sales points, the company stated in its performance announcement:
The market situation is indeed severe. From April to June 2024, Chow Tai Fook’s retail value in the Mainland China market fell by 18.6% year-on-year, while the Hong Kong, Macau, and other markets fell by 28.8% year-on-year. Among them, same-store sales for both Chow Tai Fook’s directly operated stores and franchise stores showed double-digit declines.
Data shows that during the quarter, same-store sales for Chow Tai Fook’s Mainland China directly operated stores and franchise stores fell by 26.4% and 19.1% year-on-year, respectively. In the Hong Kong and Macau markets, which are dominated by directly operated stores, Chow Tai Fook’s same-store sales plummeted by 30.8% year-on-year.
According to data released by the National Bureau of Statistics, total retail sales of consumer goods in the first half of 2024 increased by 3.7% year-on-year, with retail sales of goods up 3.2%. Since April, the year-on-year growth data for total retail sales of gold, silver, and jewelry by enterprises above a designated size has turned from positive to negative, hovering in negative territory for three consecutive months. In April and May, the total retail sales of gold, silver, and jewelry by enterprises above a designated size decreased by 0.1% and 11% year-on-year, respectively.
The surge in gold prices suppressing gold jewelry consumption is key. During the quarter, gold jewelry and products, which had helped Chow Tai Fook make significant profits in Mainland China in recent years, also showed negative growth, recording an 18% year-on-year decline. Coupled with the persistently weak performance of jewelry inlaid with natural diamonds, platinum, and K-gold jewelry in recent years, it was unsurprising that they continued to show negative growth in the quarter, with retail value falling 23.1% year-on-year.
During the pandemic, Chow Tai Fook rapidly expanded in the Mainland China market by “staking out territory,” quickly expanding through partnerships with distributors in lower-tier markets and profiting handsomely from the gold jewelry consumption boom. By the end of this reporting period, 77% of Chow Tai Fook’s retail points in Mainland China were franchise stores, with over half opened in the previous 2 to 4 years.
However, with changes in consumer sentiment, accelerating store openings is not only ineffective but also a significant burden if many stores are poorly managed. In fact, Chow Tai Fook’s management realized this early in the 2023/24 fiscal year, clearly stating they would slow down the pace of store openings in the Mainland China market. The net new store target for the fiscal year was reduced from over a thousand to 600-800, focusing on brand store upgrades and improving operational efficiency.
But the market situation is more severe than expected. At the end of the 2023/24 fiscal year (as of March 31, 2024), Chow Tai Fook’s net new retail points in Mainland China were only 143, significantly lower than the target set at the beginning of the fiscal year.
In response, Chow Tai Fook told Jiemian News:
Chow Tai Fook also stated:
Chow Tai Fook’s dilemma is that reform must ensure growth while delivering returns to shareholders. Over the past year, Chow Tai Fook has already been in an awkward situation of increasing revenue without increasing profit.
At the end of the 2023/24 fiscal year, Chow Tai Fook achieved a 14.8% year-on-year increase in total operating revenue, with main operating profit up 28.9% year-on-year. During the reporting period, profit attributable to shareholders was approximately HK$6.499 billion, a 20.7% increase from the 2023 fiscal year, but only recovered to 96.8% of the same indicator in the 2022 fiscal year, far below the previous market estimate of HK$7.71 billion.
Since 2024, Chow Tai Fook’s stock price has fallen by 36%. From the beginning of 2023 to the present, Chow Tai Fook’s stock price has fallen nearly 50%, with its market value estimated to have evaporated by about HK$80 billion.
Following the release of the first-quarter report for the 2024/25 fiscal year, several brokerages including UBS, Citigroup, and Bank of America Securities lowered their target prices for Chow Tai Fook for the fiscal year. Chow Tai Fook’s stock price fell as much as 7.7% to HK$7.3 that day, hitting its lowest level since September 2020.
