Chow Tai Fook (01929)'s big gamble: the gross margin of a thousand stores jumped, and the life and death transformation of a 96-year-old jewelry giant

As the price of gold continues to rise, the sales of most gold and jewelry companies have been generally impacted. Only old gold and jewelry companies are completely ruined. From a performance perspective, gold and jewelry companies can be divided into old gold and other gold and jewelry companies. Recently, Chow Tai Fook (01929), a leading gold and jeweller, disclosed results for the 2025 fiscal year further confirming this phenomenon, and its revenue fell 17.5% year on year.

Although the performance of Chow Tai Fook is still declining, it is easy to see from its performance that Chow Tai Fook is already actively transforming.

Performance continues to be under pressure, and the number of stores is declining

Recently, Chow Tai Fook revealed its results for the 2025 fiscal year (ending March 31, 2025). Financial reports show that in fiscal year 2025, the company's turnover was HK$89.656 billion, a year-on-year decrease of 17.5%. Regarding the decline in turnover, Chow Tai Fu admits that it is mainly caused by external macroeconomic factors and consumption affected by high gold prices. Net profit attributable to mother was HK$5.916 billion, a year-on-year decrease of 8.98%.

The decline in profit was mainly due to losses in gold loan contracts. After deducting factors such as changes in the fair value of gold loans, the company's operating profit was HK$14.746 billion, an increase of 9.8% over the previous year.

By product, Chow Tai FY 2025's priced-price gold jewellery revenue increased 105.5% year-on-year to HK$12.782 billion, accounting for 8.8 percentage points to 14.6% of retail sales. Heavy gold jewellery products were constrained by high gold prices, and revenue fell 29.4% year over year to HK$57.955 billion. Diamond-set and other categories fell 13.8%, but among them, the turnover of gold and diamond products more than doubled year-on-year.

In terms of stores, Chow Tai Fu closed 905 stores in fiscal year 2025 to 6,644 by the end of the fiscal year. Although the number of stores is declining, the quality of individual stores has been further improved. The average monthly sales of a single store in fiscal year 2025 was greater than HK$10 million, up from HK$9 million the previous year.

Looking at financial data, Chow Tai Fu's gross margin for fiscal year 2025 was 29.5%, up 5.5 percentage points from the previous year. The increase in gross margin was mainly due to the increase in the share of high-margin pricing products and the rise in gold prices. The sales expense ratio was 9.7%, up 0.95 percentage points from the previous year, mainly due to a decline in revenue and an increase in marketing expenses for product promotion. The number of inventory turnover days was 320 days, an increase of 34 days over the previous year. Affected slightly by the decline in gram heavy gold products, the net operating cash flow was HK$10.255 billion, a decrease of 25.9% over the previous year.

In addition, Chow Tai Fook's unaudited operating data for April-May showed a 1.7% year-on-year decline, which was further narrower than the 11.6% decline in January-March. Furthermore, same-store sales of gold jewelry and products in the Chinese market (excluding Hong Kong, Macao and Taiwan) achieved a positive 0.9% increase.

It is easy to see that although Chow Tai FY 2025 is still closing its stores and its performance is declining, as can be seen from its financial report, excluding the impact of gold loans, Chow Tai Fook's overall performance is still very resilient, and the operating data for April-May of this year shows that the decline in the company's retail value has narrowed further.

Strategic transformation, store closure and efficiency increase go hand in hand with high-end product

Against the backdrop of rising gold prices, the overall performance of the gold and jewellery industry was weak. Judging from the results disclosed by relevant listed companies in 2024 and the first quarter of 2025, Hong Kong stock companies performed better than A-share companies, but most showed negative growth. On the A-share side, the gold and jewelry industry achieved a total revenue of 171.91 billion yuan, a year-on-year decrease of 4.73%; realized net profit to mother of 4.907 billion yuan, a year-on-year decrease of 17.75%. In the first quarter of 2025, the gold and jewelry industry achieved a total revenue of 60.88 billion yuan, a year-on-year decrease of 25.22%, and realized net profit of 1,968 billion yuan to mother, an increase of 3.46% over the previous year. Gold prices continued to rise in Q1 in 2025. The negative impact on consumer demand for gold and jewelry continued. The industry's revenue performance was weak, but benefiting from significant profit side improvements in some companies, the overall profitability of the industry recovered.

According to data from the China Gold Association, the closing price of Au9999 gold on the Shanghai Gold Exchange at the end of December 2024 was 614.80 yuan/gram, up 27.87% from the opening price of 480.80 yuan/gram at the beginning of the year. Due to the rapid rise in gold prices, consumer wait-and-see sentiment and caution have increased, leading to weak consumption of gold jewelry. In 2024, the country's gold consumption was 985.31 tons, a year-on-year decrease of 9.58%. Among them, gold jewelry was 532.02 tons, down 24.69% year on year; gold bars and coins were 373.13 tons, up 24.54% year on year; industrial and other gold was 80.16 tons, down 4.12% year on year.

It is worth mentioning that although the rapid rise in gold prices suppresses consumption, the performance of companies in the industry is seriously divided, and some have allowed companies to achieve relatively rapid performance growth. For example, companies that have a high share of investment gold bars and therefore benefit from rising gold prices, as well as companies that have strong brand attributes and follow a high-end path.

For companies that invest a high proportion of gold bars, gross margins are generally low, but precious metals investment products are the main growth rate. For example, precious metals investment products had revenue of 5.47 billion yuan in 2024, down 11.14% year on year, but precious metals investment products had revenue of 12.9 billion yuan, up 45.28% year on year.

However, for those with strong brand attributes and following the high-end route, the gross margin is high, the performance growth rate is good, and the impact on the price of gold is relatively small. For example, Old Shop Gold adheres to its high-end brand positioning, focuses on the field of “ancient gold”, creatively designs beautifully crafted and representative products such as the Gourd Series Pendant, Rose Window Pendant, and Filigree Pendant, and has thus won a number of loyal high-net-worth customers. Chao Hongji creatively launched the filigree series in 2024, showing the new expression of intangible heritage filigree in contemporary aesthetics and consumer sentiment; the beaded series products continue to be enriched, providing differentiated services through braided ropes, integrating more fashion elements into gold products, and its appeal to young customers continues to increase. At the same time, products with strong design attributes are more of a one-price sales model rather than a gram-weight+processing fee model. In the context of a continuous rise in gold prices, one-price products show a stronger cost performance ratio and appeal compared to gram-heavy products.

Traditional mainstream gold and jewelry companies mainly seize market share through rapid store expansion, but in recent years, due to the rapid rise in gold prices, the weak consumer market and poor economic efficiency, the speed of gold and jewelry store expansion has declined markedly or even the total number of stores. For example, in 2024, China Gold, Zhou Dasheng, and Lao Fengxiang all experienced a decline in the total number of stores.

In this context, the driving force of channels on the industry and companies has weakened, and the importance of brands and products has increased significantly. That is, whether brands can attract consumers through strong product design to resist the decline in total demand brought about by rising gold prices, which places higher demands on the brand's product design and process construction.

In the past, gold and jewelry retailers had relatively weak brand attributes. Essentially, they were more biased towards traders, that is, they earned price differences and processing fees by trading gold and selling gold jewelry. The brand premium was lower and the gross sales margin was lower. Taking the old gold store as an example, it infinitely amplifies its brand attributes through high-end brand positioning, refined product design, and pricing methods that differentiate it from the traditional gold jewelry industry, bringing higher customer stickiness, higher gross margin, and profitability. Comparing gross margin, it can also be clearly seen that the gross margin of several traditional gold and jewelry companies is extremely low. The gross margin and net margin of old gold stores are several times that of other gold and jewelry companies, so the old gold store model will also be followed by other gold and jewellery companies.

In Chow Tai Fook's annual report this year, it can be clearly seen that Chow Tai Fook is also beginning to match the old gold store model. The first is channel contraction, from quantity expansion to quality improvement. In fiscal year 2025, Chow Tai Fu closed 905 stores, to 6,644. While closing underperforming stores, new image stores were opened in Hong Kong, Shenzhen, Wuhan, Xi'an, Shanghai, etc., to provide an immersive consumer experience, and achieved higher productivity than ordinary stores in the first few months after opening.

The second is to optimize the product portfolio and provide products with different positions to meet the preferences of the customer base. The differentiated series launched by the company was well received by consumers. The retail value of the Chow Tai Fook series and the Chow Tai Fu Forbidden City series all reached about HK$4 billion in fiscal year 2025. At the same time, the company further expanded its customer base coverage through partnerships and launched partnerships with well-known IPs such as Goku and Chiikawa.

It can be said that in FY2025, Chow Tai Fook's transformation showed initial results. Management expects same-store sales (SSS) to improve quarterly in FY2026 and achieve mid-single digit growth throughout the year. In addition, Chow Tai Fook also announced a high dividend payout ratio of 87.8%. Based on this, Chow Tai Fook is also favored by major banks such as Citibank, J.P. Morgan Chase, and UBS.

Notably, after announcing high dividends, Chow Tai Fook issued 5-year convertible bonds, raising a total of HK$8.8 billion (about 6.9% of the current market value), which will be used for the development and financing of the gold and jewellery business, store upgrades, strategic expansion and general working capital in domestic and foreign markets. As can also be seen from the 2025 fiscal year, Chow Tai Fook's net cash flow grew negatively. Today's transformation, the continued rise in gold prices, and the opening of new image stores have made great use of capital, and financing is inevitable.

However, the market did not seem to pay for its high post-dividend financing. By the close of trading on the 17th, Chow Tai Fook's stock price fell 7.29% to close at HK$12.72 per share.

epilogue

It can be said that fiscal year 2025 is the year Chow Tai Fook “survives with a broken wrist.” In exchange for a jump in gross margin at the cost of thousands of stores, the Imperial Palace IP and fine jewellery were used to break the cracks in the high-end market. As gold changed from a “value-preserving commodity” to a “luxury design product,” this 96-year-old veteran brand is trying to rewrite the rules of the game — but whether it can be reborn from the double clash of the high-margin fortress of old gold and the saturation of the sinking market still depends on the depth and speed of its high-end transformation.