Gold saves Chow Tai Fook as revenue drops

by Avery Booker

Data Snapshot?

Hong Kong-based jeweler Chow Tai Fook (CTF) reported a 4% YoY increase in operating profit to HK$6.77 billion ($870 million) for the six months ending September 30, 2024, even as revenue declined by 20.4% to HK$39.41 billion ($5 billion). The group’s gross profit margin improved significantly, rising by 6.5 percentage points to 31.4%, buoyed by higher gold prices.

However, CTF’s interim net profit fell sharply, sinking by 44% YoY, as rising gold prices suppressed demand for gold jewelry — a key driver of sales. According to HSBC Global Research, these results were unsurprising as CTF had disclosed preliminary data earlier in October. The broker noted that despite the revenue and profit contractions, the company’s financial position remains robust, with an expected FY25 dividend payout ratio of 85%, reflecting strong cash flow management.

Despite a downturn in same-store sales on the Chinese mainland, the rate of decline narrowed in the second fiscal quarter. Moreover, CTF launched a robust product mix during the period, with its premium Rouge collection achieving over HK$1.5 billion ($192.7 million) in retail sales within just six months — exceeding expectations.

Analysis?

CTF’s resilience in the face of declining revenue underscores its agility in navigating challenges throughout 2024. Thanks to China’s surging gold market earlier this year, the group offset top-line pressure with a notable improvement in profitability. The 6.5 percentage-point jump in gross profit margin reflects favorable market conditions and effective pricing and inventory strategies, critical for navigating fluctuating demand.

The narrowing decline in same-store sales on the mainland suggests stabilization, likely bolstered by targeted marketing and an evolving product lineup. The successful launch of the Rouge collection highlights CTF’s ability to tap into cultural resonance while appealing to consumers’ growing preference for premium, culturally inspired designs. This strategy aligns with the broader trend of heritage-based luxury gaining traction among Chinese consumers, particularly in Tier-1 and Tier-2 cities.

Looking ahead, CTF’s decision to open its first flagship store in Shanghai in 2025 signals a commitment to strengthening its brand presence in mainland China’s luxury epicenter. The company’s emphasis on digitalization, evident in its data-driven approach to store expansion and product launches, positions it well to capitalize on emerging trends. Meanwhile, management’s confidence in the long-term prospects of the sector reflects optimism about a rebound in discretionary spending as macroeconomic conditions stabilize.

The Jing Daily Data Snapshot presents a swift take and analysis on the latest data from the leading research firms in the Chinese luxury and lifestyle markets.