A customer looks at gold jewelry, center, as employees work inside a Chow Tai Fook store
Chow Tai Fook Jewellery Group Ltd., the world’s largest publicly traded jewelry chain, reported first- half profit plunged 42 percent amid weak demand in Hong Kong and Macau as China’s economic slowdown hurt sales of luxury retailers.
Net income fell to HKD1.56 billion (USD201 million) for the six months ended September from HK$2.69 billion a year earlier, the jeweler said in a statement Tuesday. The company warned Nov. 10 its profit will plunge as much as 50 percent mainly due to weakness in the two cities, increased sales of lower-margin gold products and unrealized hedging losses.
Chow Tai Fook and other high-end retailers will continue to shut down unprofitable shops in Hong Kong, as the market grapples with the impact of China’s crackdown on corruption, economic slowdown and stock market volatility, said Michael Cheng, retail and consumer leader for the Asia-Pacific region at PricewaterhouseCoopers LLP.
In contrast to the fast-paced expansion plans of retailers during the peak growth period from 2009 to 2012, “they now need to reduce shops to optimize their operations,” Cheng said via telephone before the result announcement. Luk Fook Holdings International Ltd., another Hong Kong-based jewelry chain, also warned this month of a 40 percent year-on-year slump in profit.
U.K. luxury retailer Burberry Group Plc said earlier this month it’s scaling back its biggest store in Hong Kong, while Louis Vuitton, part of France’s LVMH Moet Hennessy Louis Vuitton SE, is reviewing eight of its stores in China’s second-tier cities, according to a person familiar with the situation.
Chow Tai Fook shares fell 1.2 percent to HK$5.88 at the close in Hong Kong. The shares have plunged 43 percent year to date, against the 4.3 percent decline in the benchmark Hang Seng Index.
The company reported sales in the six months ended September fell 4.1 percent to HK$28.1 billion, while same store sales, referring to outlets open at least a year, slumped 18 percent in Hong Kong and Macau. Same store sales in mainland China rose 0.1 percent.
It declared an interim dividend of 8 Hong Kong cents per share and a special dividend of 42 Hong Kong cents per share.
Hong Kong, once seen as a shopping paradise for mainland Chinese visitors, has seen retail sales slump as visitor numbers declined. Chow Tai Fook plans to close a few more shops in the city the second half of this year, Chairman Henry Cheng said in a briefing in September. It was seeking a 20 percent reduction in rent for some of its stores in the city when contracts come up for renewal this year, Managing Director Kent Wong had said in an interview in May.
Chow Tai Fook’s retail network expanded to 2,286 points of sales as of end-September, with a net addition of 29 during the period, it said yesterday. Daniela Wei and Annie Lee, Bloomberg
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