Luk Fook is progressively replacing its diamond jewelry with gold as Chinese consumers increasingly invest in products made with the yellow metal.
While the Hong Kong-based jeweler notes that the recent sharp increase in gold prices may affect sales in the short term, it believes once consumers adjust, they will resume purchasing. Meanwhile, over the past year, Chinese buyers have been turning away from luxury purchases, with diamonds seeing a big hit.
“Although the spike in gold prices may affect sales performance, an increase in profit margin will help mitigate the impact of the decline in sales,” Luk Fook said Friday. “Sales of gold products are expected to resume to the normal levels after consumers adapt to the high gold prices. Moreover, despite the sustained weak demand for diamond products, the group will continue to actively promote non-diamond fixed-price jewelry products following the successful implementation of a strategy to gradually replace diamond products with fixed-price gold products.”
The surge in prices of the yellow metal, which rose by 18% between September and March, caused Luk Fook to lose HKD 300 million ($34.6 million) from gold hedging, it said. That decrease will see the jeweler report lower-than-expected revenue for the full year.
Overall sales fell 2% in the fourth fiscal quarter. However, that decline is an improvement from much steeper decreases over the last three quarters, with all regions showing some recovery.
Sales in Hong Kong and Macau slid 11% year on year, up from the 20% drop in the third quarter. Same-store sales of gold products dipped 22% during the quarter, while fixed-price jewelry advanced 13%. In the fixed-price-jewelry category, gold products grew 87% and diamond items plunged 36%.
Meanwhile, China saw a rebound, with sales gaining 1% for the three months ending March 31. Same-store gold sales also grew 1%, with fixed-price jewelry climbing 14%. Sales of fixed-price gold products improved 51% on the mainland. Revenue from fixed-price diamond pieces fell 25%.
The company has some concerns about the effect of tariffs on its bottom line. Earlier this month, US President Donald Trump imposed 125% tariffs on Chinese goods, at the same time he put taxes on pause for other countries. However, Luk Fook believes it can weather the storm by investing in its domestic consumers.
“US tariff policies are impacting the global economy and heightening tensions between China and the US,” the company said. “The mainland government is actively implementing its ‘dual circulation’ strategy, elevating its force in boosting domestic demand and promoting various policies to support property and capital markets. As such, the group remains cautiously optimistic about its mid- to long-term business prospects in the mainland and plans to expand its footprint in the market. Furthermore, the group is excited about the immense growth potential in the overseas markets. The group will allocate more resources to expand its footprint across the world.”
Luk Fook closed a net 56 shops during the quarter, bringing its total to 3,287 stores as of March 31.
Image: A Luk Fook store in China. (Shutterstock)
