The continuous rise of gold prices did not make Chow Tai Fook "rich overnight".
After the stock price fell 7.7% to HKD 7.3 per share yesterday, on July 25, Chow Tai Fook's stock price fell again to HKD 7.25 per share, a new low since September 2020. The closing price of Chow Tai Fook was HKD 7.26 per share, and its market capitalization was HKD 72.5 billion. Its stock price has fallen 37.52% so far this year.
In 2024, the international gold price maintained an upward trend, and the spot gold price continued to hit new highs, and the soaring gold price has always been a hot topic. Since this year, the highest price of Shanghai gold futures has reached 588.28 yuan/gram, with a cumulative increase of more than 20%. COMEX gold futures also hit a historical record of 2,488.4 US dollars/ounce in intraday trading on July 17.
While the gold price continues to soar, the "jewelry king" Chow Tai Fook is struggling in the "high gold price".
On July 23, Chow Tai Fook released unaudited key business data for the three months ended June 30, 2024. The group's retail value in this period decreased by 20% year-on-year, of which the retail value in mainland China decreased by 18.6% year-on-year, and the retail value in Hong Kong, Macau and other markets decreased by 28.8% year-on-year. The above two markets respectively accounted for about 87.8% and 12.2% of Chow Tai Fook's total retail value.
In the context of the high gold price, the demand for gold jewelry in the season was affected, which is a phenomenon in the entire industry. In the last quarter, Chow Tai Fook Group's retail value increased by 12.4% year-on-year. Chow Tai Fook explained that the gold price hovered at a high level, which affected the demand for gold jewelry in the season.
Due to the continuous impact of the macro environment on consumption, the mainland market, which accounts for more than 80% of the retail value, did not contribute much to Chow Tai Fook's performance this quarter. Same-store sales in mainland China, Hong Kong, and Macau all declined, with same-store sales of Chow Tai Fook's directly operated and franchised stores in mainland China down by 26.4% and 19.1% year-on-year, respectively. In Hong Kong and Macau markets, which are mainly directly operated stores, same-store sales of Chow Tai Fook declined by 30.8% year-on-year.
As the offline store sales were under pressure, Chow Tai Fook's online sales increased slightly compared to the previous quarter. In this quarter, e-commerce contributed 5.8% to the retail value in mainland China and accounted for 13.8% of the sales volume.
On July 25, the price per gram of 24K gold jewelry for Chow Tai Fook, Lao Feng Xiang, Zhou Liu Fu, and Zhou Dasheng was 728 yuan, and only Chow Sang Sang was slightly lower than the above brands, at 725 yuan. The "unattainable" gold price also made consumers hesitant to buy.
In terms of products, as Chow Tai Fook's performance "backbone", gold jewelry and products showed negative growth this season, with a year-on-year decline of 18% in retail value; jewelry inlay, platinum, and K gold jewelry also performed poorly, with a drop of 23.1% in retail value year-on-year after a 14.2% decline in the previous quarter.
The gold and jewelry industry has always been a red sea competition. As gold prices continue to soar, on one hand, gold and jewelry companies flock to Hong Kong for listing, and on the other hand, the "jewelry king" has fallen on hard times, and its strategic expansion of opening stores has failed.
According to data, the Chow Tai Fook brand was founded in 1929 and has a history of 95 years. Currently, Chow Tai Fook has nearly 8,000 stores worldwide. The market value of Chow Tai Fook, which went public as early as 2011, once exceeded HKD 160 billion, becoming China's "jewelry king".
After going public, Chow Tai Fook took the lead in focusing on franchise and sinking markets, and began to rapidly expand its stores. In 2018, Chow Tai Fook launched the "New Town Plan" to open up franchise in sinking markets; the following year, it launched the "Provincial Representative" policy. In 2021, Chen Shichang, the then executive director and CEO of Chow Tai Fook, proposed that the mainland stores of Chow Tai Fook Jewelry should increase from 4,500 to 7,000 in the next three years.
In the 2023 fiscal year, Chow Tai Fook achieved its goal of 7,000 stores ahead of schedule. However, the rapid increase in stores did not bring it an increase in revenue and profits. That year, Chow Tai Fook's revenue was HKD 94.684 billion, a year-on-year decrease of 4.3%, while its revenue growth rates in 2021 and 2022 were 23.6% and 41%, respectively. Although Chow Tai Fook's revenue surpassed HKD 100 billion in 2024, its gross margin was only 20.5%, the lowest in years.
After the acceleration of store openings failed, Chow Tai Fook seemed to realize this in 2024. In the 2023 fiscal year, the number of its Mainland stores increased by 1,576 compared to the 2022 fiscal year. However, the number of Mainland stores in the 2024 fiscal year increased by only 130 compared to the 2023 fiscal year, indicating that Chow Tai Fook has significantly slowed down the pace of opening stores in the Mainland market.
As of the end of June 2024, Chow Tai Fook had 7,284 stores on the Mainland, a net decrease of 91 stores. In the previous quarter, from January to March of this year, Chow Tai Fook had 7,403 Mainland stores, a net decrease of 89 stores. In other words, Chow Tai Fook reduced 180 Mainland stores in the first half of this year.
Previously, Chow Tai Fook stated that in the 2025 fiscal year, it will not set a net target for store openings and will focus on efficient and high-quality store management, as well as improving store productivity and profitability.
With the gold price hovering at a high level, the demand for gold jewelry in the quarter was affected and chilled both the sales and stock prices of Chow Tai Fook, leading to multiple brokerages such as Credit Suisse, Daiwa, and Bank of America Merrill Lynch lowering their target price for Chow Tai Fook's fiscal year.