Chow Tai Fook Jewellery Group (1929) H1 2015 earnings summary

Executive summary

• H1 FY2015 revenue was HKD 29.3B, down 22.4% YoY, largely against the prior-year gold-rush base; attributable profit fell 23.3% to HKD 2.7B.

• Gross margin rose to 31.8%, up 540 bps YoY, driven by a richer product mix and an unrealized gold-loan hedging gain.

• Business priorities included expanding lower-tier Mainland China retail, developing omnichannel/O2O, and optimizing inventory and store productivity.

Financial highlights

• Revenue HKD 29.3B, down 22.4% YoY; same-store sales declined 31.2%, comprising -20.4% in Mainland China and -40.9% in Hong Kong, Macau and Taiwan.

• Profit attributable to shareholders HKD 2.7B, down 23.3% YoY; basic EPS HKD 0.269; interim dividend HKD 0.13/share, ~48% payout.

• Inventory fell 8.2% from March to HKD 39.1B; gold inventory declined HKD 3.5B, offset by a similar reduction in gold loans.

• Operating free cash flow was HKD 850M; cash and bank balances decreased HKD 1.3B to HKD 8.7B.

Outlook and guidance

• Cautiously optimistic for H2 FY2015; peak retail seasons and festivals typically support stronger sales, with Mainland China expected to outgrow Hong Kong and Macau.

• H2 SG&A expected around 17% of revenue; FY SG&A forecast at 18%–19%.

• FY inventory turnover expected to improve to 270–280 days; inventory balance expected to be further controlled in H2.

• FY CapEx forecast remains HKD 3.5B–4B; FY2015 Mainland China plan targets 200 net jewellery-store openings.