Luk Fook’s gem-set focus pays off

Jeweller Luk Fook says despite a 17.1 per cent fall in sales in the last financial year, it still achieved its second best sales year on record.

And it says focusing on gem-set sales, with higher margins, meant its profit for the year to March 31 fell just 9.1 per cent.

The group recorded revenue of HK$15.923 billion (2014: HK$19,214,930,000). With its gross margin up by 2.2 points to 24.1 per cent, thanks to solid growth in gem-set sales, gross profit reached HK$3.832 billion. The profit attributable to equity holders decreased by 13.4 per cent to HK$1.61 billion, which was better than expected and marked the group’s second highest record.

All jewellery retailers have posted declining sales by dollar value, largely due to the ‘gold rush’ of 2014 which created a high baseline to compare 2015 sales against.

“Although the high base effect as a result of the gold rushes has faded in the second half of the year, the challenging global economy, currency depreciation and relaxed visa requirements in other popular tourist destinations hampered the consumer sentiment of Mainland Chinese tourists in Hong Kong and Macau,” Luk Fook chairman and CEO Wong Wai Sheung said.

“Nevertheless, with the group’s outstanding sales strategy, sales mix of gem-set jewellery products which bear higher gross margin has been successfully increased. The growth in overall gross margin resulted in a profit improvement of the retail business in Mainland China. Together with the satisfactory performance in the wholesale business, it mitigated the impact of the drop of retail revenue in Hong Kong and Macau market.”

Wong Wai Sheun said the group performed beyond expectation for the year, coming off the ‘gold rush’ of 2014.

The retail business continued to be the primary sales driver for the group with its revenue down 22.3 per cent to HK$12.552 billion, accounting for 78.8 per cent of the group’s total revenue. After the completion of the acquisition of 50 per cent interest in the issued share capital of China Gold Silver Group, an operating company engaging in jewellery retailing and franchising under the brandname of “3D-Gold”, the group became one of its suppliers.

Together with the increase in number of licensed shops, the wholesale revenue grew by 14.8 per cent over the previous year to HK$2.794 billion, 17.6 per cent of the group’s total revenue. Licensing income decreased by 6.6 per cent to HK$578 million, mainly because gold sales returned to a relatively normal level.

Throughout the year, gold products remained the most favourite item among customers and together with platinum products contributed approximately 60.2 per cent of sales.

Same store sales for Hong Kong and Macau fell 28.2 per cent and for Mainland China by 29.8 per cent.

Mainland Chinese visitors continued to be the major driver for the retail business in Hong Kong, which remained the key source of revenue for the group, contributing approximately 59.8 per cent of total sales.

During the year Luk Fook opened 115 new licensed shops and closed four self-operated shops. As at March 31, the group had a total of 1383 shops globally in Mainland China, Hong Kong, Macau, Korea, Singapore, the US, Canada and Australia.

Looking forward, Wong Wai Sheung said Mainland China’s economic slowdown, the adjustment to the policy of Individual Visit Scheme, and the overseas currency devaluation have caused the Mainland Chinese tourists to switch to neighbouring countries for consumption, which affected the business growth of the group.

“The group remains prudent about our business development in short term. However, we are still optimistic about the mid- to long-term business development. We will continue to utilise cross-selling techniques and offer more product series which are diversified and may meet mass market needs. This helps to entice customers’ desire for consumption and boost the sales of gem-set jewellery products which bear relatively higher gross margin.”


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