A Chow Tai Fook Jewellery store.

SHANGHAI — Jewelry giant Chow Tai Fook Jewellery Group witnessed a 37 percent plunge in its annual profit as the COVID-19 pandemic, a surge in international gold price that dampened the retail demand for gold products, and a struggling performance in its home market of Hong Kong weighed on its results.

Profit attributable to shareholders was 2.90 billion Hong Kong dollars, or $374.18 million at current exchange, while the group’s revenue declined by 14.9 percent to 56.75 billion, or $7.32 billion.

COVID-19 hit the company with the worst timing possible, management said on a web conference call. The fourth quarter is usually a peak season driven by two main festive occasions — Chinese New Year and Valentine’s Day — and this year, it reduced the contribution of the quarter to its yearly sales to just 20.1 percent, much lower than usual. At the same time, the average international gold price was 15.9 percent higher when compared to last financial year.

Same-store sales growth fell 15.1 percent in mainland China, while the same metric fell 38.7 percent in Hong Kong and Macau. The percentage of sales settled by China UnionPay, Alipay, WeChat Pay or in renminbi in Hong Kong and Macau, a proxy for sales contribution from mainland Chinese tourists, lowered from 46.5 percent a year ago to 36.9 percent.

Despite the challenges, total group stores at the end of March grew to 3,699, a net increase of 711 stores with the flagship brand Chow Tai Fook Jewellery accounting 623 of those new stores. In the network, 1,936 points of sales were operated by franchisees, a strategy to capitalize on the population’s consumption upgrade from lower living costs.

By brand, Chow Tai Fook accounted for still close to 90 percent of retail sales, while other brands contributed 5.9 percent. Although the company has been working on developing online channels, it remains a heavily brick-and-mortar company. E-commerce sales grew 2.4 percent from a year ago, but the segment still only accounts for less than 5 percent or total sales.

Management said it was cautiously optimistic on a recovery in mainland China, but it said Hong Kong is likely to remain challenging for the foreseeable future over social unrest. It said would focus on its expansion in mainland China using a two-prong approach. In tier-one and tier-two cities, it was working to upgrade the customer experience in stores introducing the higher-end Artrium and Jewelria concepts to the Chow Tai Fook Jewellery brand.

Whereas in lower-tier cities, it was relying on a franchise model. Nearly half, or 45.7 percent of their point of sales in mainland China are located in tier three or lower cities, up from 33.3 percent in March 2017.

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