Unconsciously, the price of gold has once again hit a new high.

On October 25, 2024, although the overall price of gold has fallen, the London gold price still recorded $2,720.38 per ounce, and the domestic gold price also reached 622 yuan per gram. On the same day, Chow Tai Fook's gold jewelry and craft category quoted 806 yuan per gram, which has been stable above 800 yuan for nearly a week; Luk Fook and Chow Sang Sang's situations are similar, with Chow Sang Sang's gold jewelry quoted at 808 yuan per gram and the price of craft gold sheets at 802 yuan per gram.

The continuous innovation of gold prices has seriously dragged down the performance of gold jewelry companies.

In the third quarter of this year, Chow Tai Fook and Luk Fook's performance declined across the board. According to their financial reports, Chow Tai Fook's retail value decreased by 21% compared to the same period last year in the third quarter; Luk Fook also recorded a 16% year-on-year decline in overall retail value and a 25% decline in revenue.

This is already the third consecutive quarter of poor performance for gold jewelry companies. Affected by this, the stock prices of gold jewelry companies have been retreating: so far this year, Chow Tai Fook's stock price has fallen by as much as 35%, Luk Fook's has fallen by nearly 25%, and Chow Sang Sang has also recorded a decline of more than 20%.

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The downturn of Chow Tai Fook and others cannot be entirely attributed to the soaring gold prices. Old Pavilion Gold, which is in the same gold jewelry track as Chow Tai Fook, has outstanding performance, and Chow Tai Fook's jewelry inlay products have also lost speed, with a decline even higher than that of gold jewelry products. With multiple blood losses, it is time for Chow Tai Fook and others to explore new ways to play.

Store closure tide

The store closure tide of Chow Tai Fook and others has not stopped.

According to Chow Tai Fook's third-quarter report, in the third quarter of this year, its same-store sales in mainland China's direct stores and franchise stores decreased by 24.3% and 20.3% year-on-year, respectively; affected by the change in the travel consumption patterns and preferences of citizens during the summer vacation, the same-store sales in the Hong Kong and Macao regions of China decreased by 30.8% year-on-year.Chow Tai Fook, in explaining the reasons, stated that in the third quarter of this year, macroeconomic external factors, especially the continuous rise in gold prices to new highs, have continued to impact consumer desire, which is a phenomenon across the entire industry. This has led to a year-on-year decrease of 24.3% and 20.3% in same-store sales for Chow Tai Fook's directly operated and franchised stores in Mainland China, respectively.

As performance wanes, Chow Tai Fook is frantically closing stores.

In the third quarter of this year, although Chow Tai Fook added 85 jewelry retail points in Mainland China, it reduced 230 jewelry retail points, resulting in a net closure of 145 jewelry retail points, mainly due to the lower store efficiency of franchised stores in lower-tier cities. As of the end of September, Chow Tai Fook had 7,346 jewelry and other brand retail points, a decrease of 142 from the end of June.

The trend of store closures has not been reversed, and Chow Tai Fook has also given the market a "preventive injection." Chow Tai Fook's Managing Director, Wong Shao Ki, revealed that the Chow Tai Fook Group achieved the target of 7,000 stores two years ahead of schedule, and the current store scale is not the only growth consideration for the brand. In this process, it is inevitable to close stores with poor locations or weaker performance and allocate resources to more promising places.

The implication is that Chow Tai Fook may further close more stores in the future. Chow Tai Fook also stated in its financial report, "Will focus on optimizing the overall financial health of the store portfolio by improving store productivity and profitability to maintain a market leadership position."

Luk Fook is also facing the same predicament. According to Luk Fook's previously released financial report, in the third quarter of this year, its overall retail value decreased by 16% year-on-year, retail revenue decreased by 25% year-on-year; same-store sales decreased by 35%, and the net closure of stores was 76. As of September 30, 2024, the Luk Fook Group had a total of 3,408 stores worldwide.

Luk Fook Group also attributed the poor performance to the skyrocketing gold prices in its financial report. Luk Fook stated that the gold prices repeatedly reaching new highs within the quarter affected sales, and coupled with the high base effect, the performance within the quarter was similar to the previous quarter.

Hidden Concerns

Can the poor sales of gold jewelry be entirely blamed on the skyrocketing gold prices?Drawing from comparable examples, it may be difficult to attribute the situation so simply. This is because Laopu Gold, a gold jewelry company like Chow Tai Fook, does not have a poor performance. Laopu Gold has not yet announced its performance for the third quarter of this year, but in the first half of this year, Laopu Gold recorded a revenue of 3.52 billion yuan, a year-on-year increase of 148.3%; net profit was 588 million yuan, a year-on-year increase of 198.8%.

This is in stark contrast to the performance of Chow Tai Fook and Luk Fook. A gold jewelry enthusiast told the 21st Century Economic Report, "Laopu's designs and craftsmanship are 'distinct' from other brands, and many styles have a clear brand identity. Most of Chow Tai Fook's designs are still too old-fashioned and not what young people like."

Chow Tai Fook is not unaware of its "shortcomings" in design. In August this year, Chow Tai Fook announced the launch of a new series in collaboration with the Palace Museum, the Chow Tai Fook Palace Museum series, which combines traditional Chinese gold craftsmanship to create works that meet modern aesthetics.

This series is considered to have a "similar effect" to Laopu Gold. In this series, Chow Tai Fook has turned it into a category of gold "luxury goods."

According to information obtained by a reporter from the 21st Century Economic Report from a Chow Tai Fook store employee, the Palace Museum series is mostly "fixed price" products, with a premium rate far higher than weight-based products, and different stores may have slight differences in discounts. "The Palace Museum series has many popular hits and is very popular."

Although Chow Tai Fook is actively seeking change, its basic business is still very large, and it is not easy to complete the transformation and turn around in a short time. At the same time, another category of jewelry inlay, platinum, and K-gold that contributes more to Chow Tai Fook's performance is also mediocre.

According to data released by Chow Tai Fook, in the third quarter of this year, Chow Tai Fook's jewelry inlay retail value in mainland China accounted for 14.4%, and the retail value of jewelry inlay fell by 20.3% year-on-year, which has been declining for three consecutive quarters, and the decline is slightly higher than that of gold jewelry, which fell by 19.3% this quarter.

Many uncertainties still exist, which is the reason why the market is cautious about Chow Tai Fook.

According to the latest unaudited consolidated management accounts and other information obtained at present, Chow Tai Fook expects its business volume in the first half of this year to decrease by about 18% to 22% compared with the same period last year, and net profit is expected to decrease by about 42% to 46%. After excluding the impact of gold borrowing revaluation, the adjusted net profit decline will narrow to about 12% to 16%.

Chow Tai Fook said that due to the gross profit margin benefiting from the higher average selling price of gold products sold in the first half of the year and product optimization and pricing strategy, coupled with its flexible implementation of various measures to enhance business resilience and competitiveness, it has mitigated the impact of external environmental challenges in the first half of the year, narrowing the decline in adjusted net profit.However, in a recent financial report, Bank of China International stated that Chow Tai Fook's retail sales fell by 21% in the third quarter of this year, mainly due to the macroeconomic environment being under pressure and high gold prices, which have dampened consumers' willingness to purchase gold jewelry. Although the management indicated that cash flow has improved after the Golden Week and holidays, Bank of China International believes that it is still too early to determine whether Chow Tai Fook's recovery has truly arrived, and also emphasizes that the performance for the fiscal year 2025 will continue to face pressure.