Luk Fook profits slump 42% on weak Hong Kong, Macau sales

Jeweller Luk Fook Holdings is looking to Mainland China to restore growth after a heavy drop in profits due to the Hong Kong and Macau market slump.

Lukfook Group says its sales declined 7.7 per cent to HK$6.965 billion in the half year to September 30 and profit attributable to shareholders slumped 42.4 per cent to $463 million.

Same store sales across the business fell 11.6 per cent, largely due to falling sales of gem‐set jewellery products in Hong Kong and Macau. Sales fell 16.2 per cent in Macau alone.

However in Mainland China, gem-set jewellery sales rose 17.5 per cent, marking the 10th consecutive quarter of positive growth in that market.

Wong Wai Sheung, chairman and CEO of Lukfook Group said the slowing economic growth in Mainland China, relaxed visa requirements and currency devaluation in Europe, Japan and Korea as well as a strong Hong Kong dollar against other currencies had caused Mainland tourists to switch to overseas for consumption.

“These adversely affected the retail industry in Hong Kong and Macau and hindered the recovery of the retail business of the group.”

Hong Kong rents also took their toll on Luk Fook profits.

“The decrease in revenue, together with the increase in total rental expenses mainly contributed by the high rental of the loss‐making new shops in certain Hong Kong prime locations, resulted in the increase in the total operating expenses to revenue ratio to 14.6 per cent (2014:13.0%),” the company said in its filing.

The company opened a net total of 29 Lukfook shops (including 23 licensed shops and six self‐operated shops), and four 3D‐Gold self‐operated shops established by the new joint venture (the group has 51 per cent equity) with a licensee in Mainland China. The number of shops in Hong Kong and Macau and overseas remained unchanged. As at September 30, the group had 1412 Lukfook shops globally in Mainland China, Hong Kong, Macau, Singapore, Korea, the US, Canada and Australia; and four 3D‐Gold shops operated in Mainland China.

Mainland Chinese visitors remained the primary customer group for the Hong Kong retail business, which contributes 60 per cent of the group’s turnover.

Wong Wai Sheung said with continuing uncertainty in the global economy, the overall operating environment will remain challenging in the short term.

“However, in the long run, as the per capita income in Mainland China increases, the group believes that there will still be strong customer demand for jewellery products, therefore the group remains positive about the mid‐ to long‐term business prospects. The group will continue to optimise the retail network, maintain the expansion strategy of focusing on the development in the Mainland China market, and further strengthen the cooperation with eCommerce platforms to expand our distribution channels, and also offer more fashionable and affordable jewellery products which are suitable for wearing in workplace, in order to attract middle‐class consumers.”

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