LAOPU GOLD "tears apart" Cartier's defense line

Author | Liu Baodan

Editor | Huang Yu

For Lao Pu Gold, which aspires to become a leading luxury brand in China, every step taken at this moment is crucial.

On May 21, Lao Pu Gold announced that based on the voting results from the previous day's annual shareholder meeting, the company will distribute a final dividend of HKD 6.88 per share (approximately RMB 6.35) for the year ending December 31, 2024, on July 2, 2025.

The absolute value of Lao Pu Gold's dividend is not low, but due to the surge in stock prices, its dividend yield is relatively low among Hong Kong stocks and also lower than traditional gold and jewelry companies. Industry insiders believe that the appeal of Lao Pu Gold comes more from business growth and brand premium.

More than a month ago, Lao Pu Gold's founder Xu Gaoming stated at the 2024 financial report meeting that the company's goal is to achieve a store efficiency of over 1 billion, and stores with a store efficiency of less than 500 million may be eliminated in the future. "If selling gold cannot compete with selling leather goods (like Hermès), we need to reflect on ourselves."

Store efficiency mainly reflects the sales capability of a store per unit area or per unit time, with Hermès currently achieving a store efficiency of 600 million. Lao Pu Gold not only aims to surpass luxury brands represented by Hermès but also to lead significantly, indicating its lofty ambitions.

Founded in March 2009, Lao Pu Gold is a brand that pioneered the promotion of the "ancient method gold" concept in China. According to its financial report, in 2024, Lao Pu Gold achieved sales of 9.8 billion yuan, a year-on-year increase of 166%, with a net profit of 1.47 billion yuan, a year-on-year increase of 254%, and a gross profit of 3.5 billion yuan, a year-on-year increase of 162.9%.

In addition to its high growth performance, Lao Pu Gold has also become a darling of the capital market. On June 28, 2024, Lao Pu Gold officially listed on the Hong Kong Stock Exchange with an issue price of HKD 40.5. As of the close on May 21, Lao Pu Gold's stock price reached HKD 801, an increase of 1878%, with a market capitalization of HKD 138.3 billion (approximately RMB 127.2 billion).

Currently, Lao Pu Gold is in a critical period of business expansion. On May 15, Lao Pu Gold announced that it had completed a placement on that day, with total proceeds and net proceeds amounting to HKD 2.715 billion and approximately HKD 2.698 billion, respectively. Of the raised funds, 80% will be used for the development of core businesses, including accelerating the expansion of stores in mainland China, optimizing and expanding existing stores, and supporting same-store sales.

According to insiders from Wall Street, Lao Pu Gold has signed contracts with mainstream top commercial centers in China, with new stores in Shanghai Xintiandi, Shanghai IFC, and Shanghai Hang Lung Plaza set to open in the second half of the year. Lao Pu Gold is steadily expanding around its high-end brand positioning.

In the wave of consumer goods going overseas, Lao Pu Gold has also begun its international layout. At the performance meeting, Xu Gaoming revealed that the first step for Lao Pu Gold's overseas expansion is to penetrate the Chinese community, followed by the non-Chinese community. It is reported that Lao Pu Gold has chosen Singapore and Japan as its first overseas destinations.

The confidence behind Lao Pu Gold's ambitious goals lies in the fact that its products have initially undergone market testing in terms of sales and premium, achieving a positive cycle. Notably, Lao Pu Gold has also seen daily queues outside of holidays, indicating that the brand is continuously breaking boundaries LAOPU GOLD, formerly known as Golden Treasure, specializes in cultural relics and gold jewelry, primarily serving a clientele of collectors. This genetic trait has also been carried over to LAOPU GOLD. In 2019, the company pioneered the use of pure gold as the base material, hand-inlaid with diamonds, which disrupted the traditional standard of using K gold as the base material in the diamond jewelry industry.

LAOPU GOLD adopts a luxury brand strategy in its operations. Firstly, it has a relatively restrained store expansion approach. In 2024, LAOPU GOLD added 7 new stores and optimized and expanded 4 existing stores. As of December 31, 2024, LAOPU GOLD has a total of 36 self-operated stores, mainly located in high-end malls of the SKP and MixC series.

In terms of pricing, LAOPU GOLD breaks the conventional pricing logic of gold brands, which is typically "gold price + processing fee," by implementing a fixed price and price increase strategy to achieve premium pricing. The gross profit margins of companies like Chow Tai Fook, Lao Feng Xiang, and Zhou Dasheng are generally around 20%, while China Gold's gross profit margin is even below 5%. In contrast, LAOPU GOLD's gross profit margin has reached 41.2%.

Notably, LAOPU GOLD's performance is not reliant on store expansion but rather on same-store growth. According to financial reports, as of December 31, 2024, LAOPU GOLD had approximately 350,000 loyal members, an increase of 150,000 compared to 2023, indicating a continuously expanding consumer base. The company's same-store revenue growth rate exceeded 120.9% in 2024.

In terms of business performance, LAOPU GOLD continues to maintain a strong momentum. According to Wall Street Journal, on the opening night of Tmall's 618 sales, LAOPU GOLD broke its first-hour sales record, exceeding 40 million, an 800% increase compared to last year. During the May Day holiday, LAOPU GOLD's popularity remained high; for instance, at the Shanghai Hongqiao Hang Lung Plaza, consumers had to wait five hours to enter the store on May Day.

Currently, LAOPU GOLD has indeed shaken the established perceptions of luxury brands in the market and can even compete with international luxury brands.

On May 16, one of the world's three major luxury goods giants, Richemont, announced its fiscal year 2025 performance report, showing an annual operating profit of 3.76 billion euros, a year-on-year decline of 1%. By region, the Asia-Pacific market saw a 13% decline in annual revenue, marking it as the only core market to record double-digit declines, with the Chinese market plummeting by 23%.

Cartier contributed over 70% of Richemont's profits, and the brand's pressure in the Chinese market is a major reason for the group's weakness in the Asia-Pacific market. Richemont CEO Nicolas Bos specifically mentioned LAOPU GOLD, believing that its roots in Chinese culture have driven the desire and vitality of the jewelry market, allowing Richemont to maintain its creativity. Implicitly, Cartier has already taken note of this rapidly rising jewelry brand.

Just two days before Richemont's financial report, Morgan Stanley released a research report indicating that the rapidly growing LAOPU GOLD has become a competitor to Cartier in China. The institution believes that LAOPU GOLD's outstanding performance in China is sufficient to overturn the long-held perception that European luxury brands are not threatened by local competitors, including Chinese brands.

However, compared to luxury brands that have been around for centuries, LAOPU GOLD is only 16 years old, and whether it can replace brands like Hermès and Cartier still needs to be validated over time.

As an emerging high-end consumer brand, LAOPU GOLD still has many issues to address. The company's brand effect has been amplified by the capital market, but titles like "king of stocks" or "the three sisters of consumption" can easily change with market fluctuations LAOPU GOLD needs to consider how to address the potential negative impact of stock market fluctuations on its brand.

There is significant divergence in the market's judgment of LAOPU GOLD's stock price. Morgan Stanley believes that the current stock price trend of LAOPU GOLD is mainly driven by the "bullish" side, which focuses more on short-term factors such as rising gold prices, high efficiency of stores, and the resilience of high-income consumers. The "bearish" side, on the other hand, focuses on medium to long-term risks, such as the sustainability of demand, the difficulty of achieving sales targets, and the risk of gold prices peaking.

On June 27, LAOPU GOLD is about to face the largest wave of lock-up share releases since its listing, with 143 million shares becoming freely tradable. Shen Meng, a director at Chanson Capital, believes that LAOPU GOLD's stock price has risen steadily since its listing, but this has also raised market concerns about whether a large-scale reduction in holdings will occur when the lock-up expires. If international gold prices remain strong in the near term, these concerns may ease; otherwise, they may prompt some secondary market investors to choose to sell before the lock-up expiration.

For LAOPU GOLD, addressing each issue is an essential path for the company to become a luxury brand