Chow Tai Fook Profit Drops 46% as China Slowdown Hits Sales

  • Sees challenging Hong Kong and Macau markets in year ahead
  • Same store sales in the two cities fell 21.7% in year to March

Chow Tai Fook Jewellery Group Ltd., the world’s largest publicly traded jewelry chain, reported full-year profit declined 46 percent amid weak demand in Hong Kong and Macau as China’s economic slowdown hurt sales of luxury retailers and said outlook for the region remains challenging.

Net income fell to HK$2.94 billion ($379 million) for the year ended March 31, the jeweler said in a statement Tuesday. That compared with the HK$3.19 billion average of 11 analyst estimates compiled by Bloomberg. The Hong Kong-based retailer warned May 12 full-year profit fell as much as 50 percent.

China’s slowdown has damped the buying habits of its consumers. Hong Kong retailers are also hurt as mainland Chinese tourists, who account for almost a third of luxury spending globally, skip the shopping mecca for other destinations. The government’s crackdown on corruption has also caused big-spending Chinese to avoid neighboring Macau, causing a two-year gambling decline in the world’s largest casino center.

Chow Tai Fook was affected by persistently weak retail sentiment in Hong Kong and Macau, and decline in tourism, especially from mainland China due to the stronger U.S. dollar and changing travel preferences, the jeweler said in the statement. “We expect the market environment for the region to remain challenging in the year ahead,” it said.

Chow Tai Fook shares rose 4.8 percent to HK$5.88 by the close of trading in Hong Kong, the highest level since Dec. 4, helped by rising gold prices that are seen to help reduce its hedging losses. The benchmark Hang Seng Index rose 1.4 percent.

Hong Kong retail sales fell 12 percent in the first quarter, with jewelry and watch sales plummeting nearly double that, contributing to Chow Tai Fook’s lowest profit since 2010.

* Full-year sales fell 12 percent to HK$56.6 billion
* Mainland China sales at stores opened before April 1, 2014 fell 10.3 percent
* Sales of Hong Kong and Macau stores opened before April 1, 2014 fell 21.7 percent

Chow Tai Fook is planning to shut outlets that do not perform well, and reduce its number of employees, Managing Director Kent Wong had said in January. The retailer last November posted its steepest decline of 42 percent in half-year profit since it went public.

Mainland Chinese tourists to Hong Kong, who accounted for more than 70 percent of the total in the first four months this year, have dropped 13 percent in the period compared to a year ago, according to the city’s tourism board.

The luxury chain’s retail network expanded to 2,319 sales locations as of end-March, including a net opening of 62 in the fiscal year, according to the company’s statement in April.

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