Chow Tai Fook Shares Hit Month-Low as Profit to Miss Estimates

  • Jewelry retailer’s fiscal 2016 earnings to drop 40%-50%
  • Profit decrease due to weak Chinese demand and gold hedge loss

Chow Tai Fook Jewellery Group Ltd.’s shares fell to the lowest in a month after it said full-year profit fell as much as 50 percent as weak Chinese consumer demand undercut revenue and the world’s largest jewelry retailer posted hedging losses on gold loans.

Profit for the year that ended March 31 decreased 40 percent to 50 percent compared to the previous year, the company said in a Hong Kong stock exchange filing Thursday, citing a preliminary review. Analysts had estimated a 36 percent decrease in net income before the profit warning, according to data compiled by Bloomberg. The company issued a similar warning in November for first-half earnings, which plunged 42 percent from a year earlier due to weaker sales in Hong Kong and Macau.

Chow Tai Fook fell as much as 3 percent to HK$4.92 in Hong Kong trading, the lowest intraday level since April 13. It rose 1.4 percent this year through Thursday, compared to a 9 percent drop for the benchmark Hang Seng Index.

“The main focus for the company in the near future is when can consumption sentiment in Greater China recover,” said Zhang Jialin, an analyst at ICBC International Research Ltd on Friday. The profit drop is not a surprise as it’s similar to Chow Tai Fook’s estimate for the first-half, he said.

Retail Slump

China’s economic slowdown and anti-corruption campaigns have hurt luxury retailers in Hong Kong and Macau, as Chinese tourists, who account for almost a third of luxury spending globally, are skipping the shopping mecca for other travel destinations. Hong Kong retail sales fell 12 percent in the first quarter, with jewelry and watch sales plummeting nearly double that.

If hedging loss on gold loans and foreign exchange fluctuations were excluded, the company’s profit is expected to decrease 20 percent to 30 percent, according to the statement. The retailer reported last month first quarter sales for stores open a year or more in mainland China fell 25 percent.

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