Gross margin reaches 30% CHOW TAI FOOK brand transformation first-year report card

Hong Kong-funded gold and jewelry leaders are quietly gaining momentum.

As of March 31, 2025, Chow Tai Fook (1929.HK) reported a year-on-year revenue decline of 17.5% to HKD 89.656 billion.

Soaring gold prices have suppressed consumption, becoming an opportunity for Chow Tai Fook to accelerate its transformation.

In the 2025 fiscal year, the sales of Chow Tai Fook's priced products fell nearly 30% year-on-year. In contrast, the sales of fixed-price products achieved a counter-trend doubling growth, driving profits to significantly exceed market expectations.

Operating profit increased by 9.8% year-on-year to HKD 14.746 billion.

However, combined with losses from gold lending contracts due to rising gold prices, net profit decreased by 9% year-on-year to HKD 5.916 billion.

The optimization of channels and product structure continues to improve overall performance.

In April and May of this year, Chow Tai Fook's revenue year-on-year decline has narrowed to 1.7%.

The year-on-year revenue decline in mainland China was 2.9%, while Hong Kong, Macau, and other markets have achieved positive growth.

This also marks the beginning of the subsequent transformation.

Pressure from Rising Gold Prices

As of March 31, gold prices have risen over 40% in the past year.

In the first quarter, gold jewelry consumption in the Chinese market decreased by 32% year-on-year to 125 tons, which is 29% lower than the average level of the same period over the past decade; consumer spending on gold jewelry decreased by 7% to RMB 84.1 billion.

The rapid rise in gold prices has deterred many consumers, but it has also attracted traffic and attention to the industry.

A trend of lightweight consumption in the mass market has emerged, with products weighing as little as a hundred grams becoming popular in live e-commerce channels.

Traditional luxury consumption among high-net-worth clients has shifted towards gold, leading to a surge in interest for ancient-style gold and diamond-inlaid jewelry represented by Lao Pu Gold (6181.HK).

Chow Tai Fook has also shown this change.

In the 2025 fiscal year, Chow Tai Fook's sales of jewelry inlaid with platinum and K gold fell by 13.8% year-on-year, while sales of gold-inlaid diamond products doubled year-on-year.

The frequency of price adjustments for fixed-price products lags behind gold prices, highlighting their cost-effectiveness during rapid price increases.

In the 2025 fiscal year, the sales proportion of fixed-price products in the mainland's gold jewelry category increased significantly from 7.1% in the same period last year to 19.2%.

This drove Chow Tai Fook's overall gross profit margin up by 5.5 percentage points to 29.5%, and operating profit margin increased by 4 percentage points to 16.4%.

Behind the iteration of consumer demand lies the company's subjective drive.

In April 2024, Chow Tai Fook officially announced its brand transformation plan on the occasion of its 95th anniversary.

The transformation focuses on product iteration, with Chow Tai Fook recruiting former Tiffany & Co. design director and Chinese international jewelry designer Liu Xiaopeng as the brand's senior jewelry creative director.

Under his leadership, the Chuanfu series and the Palace Museum series launched in April and August 2024 respectively achieved cumulative sales of HKD 4 billion.

At the same time, the brand actively expands its customer base by closely following fashion trends through co-branded IP collaborations.

Collaborations with "Black Myth: Wukong" and the streetwear brand CLOT founded by Edison Chen aim to attract male consumers. The recently launched jewelry exclusive category "CTF PET" targets the market increment behind the pet economy

Transformation Anxiety

Actively attracting young people is the solution for traditional gold stores to address transformation anxiety.

The rise of the Shuibei model and the convenience of purchasing gold are pushing the traditional "price per gram + processing fee" model downhill.

As a raw material, the price of gold is transparent and stable, making expansion difficult to achieve economies of scale.

Amid weak demand, major brands are generally increasing discounts on price per gram, resulting in shrinking profit margins.

Chow Tai Fook is digesting the impacts of aggressive sinking and expansion.

In the past decade, gold and jewelry brands have collectively focused on sinking channels.

Chow Tai Fook launched the "New Town Plan" and "Provincial Agent" strategy after 2018, accelerating store expansion through a franchise model.

By the end of 2023, Chow Tai Fook's store count rapidly expanded to 7,510, doubling the number of stores in mainland China within three years, with over half of the stores located in third-tier and lower markets.

Faced with more pragmatic consumers in small cities, Chow Tai Fook's brand advantages have not successfully translated into sales.

Starting from the first quarter of 2024, Chow Tai Fook's same-store sales growth in mainland China has been negative for five consecutive quarters.

In the 2025 fiscal year, Chow Tai Fook's same-store sales shrank by more than 30%, with operating cash flow down 25% year-on-year to HKD 10.3 billion, and inventory turnover days increased by 73 days year-on-year.

The operational goal has shifted to improving store management quality while integrating and closing inefficient stores.

In the 2025 fiscal year, Chow Tai Fook closed 896 stores, with the proportion of stores in first-tier cities rising to 16.5%.

Newly opened stores are more focused on prime locations, with single-store efficiency being twice that of closed old stores.

The average sales of new stores in less than two years reached 90% of the overall average in mainland China, the highest level in recent years.

After optimizing channel efficiency, the decline in Chow Tai Fook's same-store growth has significantly narrowed.

In the first quarter of 2025, the same-store sales decline for Chow Tai Fook's direct-operated and franchise stores in mainland China was 13.2% and 8.7%, respectively.

In April and May of this year, the declines narrowed to 1% and 2.7%, respectively, soon to turn positive.

As of March 31, Chow Tai Fook still had 6,274 stores in mainland China.

Analyst Yang Ying from Guosheng Securities believes that in the 2026 fiscal year, Chow Tai Fook will maintain a relatively cautious channel operation approach, but the pace of store closures is expected to significantly weaken.

With gold prices still high, franchisees tend to reduce inventory and lower financial pressure to avoid losses from high entry and low exit.

Chow Tai Fook's sales expectations for the coming year are conservative.

Through strict procurement and the recycling of aging inventory, as of March 31, Chow Tai Fook's inventory balance decreased by 14% year-on-year to HKD 55.4 billion.

Path to Ascend

In the gold and jewelry industry, where raw material prices are transparent, the degree of premiumization is concentrated in the ability to "set prices detached from costs."

Leading Hong Kong brands like Chow Tai Fook and Luk Fook (0590.HK) have gross profit margins exceeding 20%, while Lao Feng Xiang (600612.SH) and Meng Jin Yuan (2585.HK) have gross profit margins of less than 10%.

Lao Pu Gold, through stable price increase expectations and luxury-oriented operational strategies, benchmarks its single-store revenue against Hermès, further raising its gross profit margin to over 40% The "Shuibei Model" is sweeping the gold and jewelry market, but relying solely on craftsmanship and design makes it difficult to tell a brand story.

CHOW TAI FOOK launched its heritage series featuring traditional craftsmanship back in 2017, but the sales proportion of this series has remained stable at around 40% in recent years, struggling to break through.

The large scale of its stores means it must cater to the mass market, which often limits its innovation direction.

CHOW TAI FOOK has chosen to "jump out of gold" to find opportunities.

The company has opened five new image stores in prime locations or luxury malls in Hong Kong, Shanghai, Shenzhen, Wuhan, and Xi'an, focusing on high-end retail experiences.

The store image and product mix are significantly different from regular stores.

The SKU of gold jewelry has been greatly reduced, focusing only on high-priced styles from key product lines such as the heritage series, fortune series, and Palace Museum series.

In their place are more profitable products like jade, pearls, colored gemstones, and diamond-set items.

Using jewelry as a springboard, CHOW TAI FOOK seems to have anchored its customer base to a higher-end clientele.

In June, CHOW TAI FOOK launched its first high-end jewelry series "He Mei Dong Fang Timeless Harmony." The products primarily feature diamonds, complemented by jade, rubies, and pearls.

In the diamond and jewelry field, CHOW TAI FOOK is not a pure newcomer.

In the 1970s, CHOW TAI FOOK collaborated with De Beers Group, the world's largest diamond supplier, becoming the first Chinese jewelry brand to own its own mining resources.

The company has established a complete vertical supply chain from procurement, cutting, to the manufacturing and retail of diamond jewelry.

Zheng Zhiwen, Vice Chairman of CHOW TAI FOOK Jewelry Group, stated: "Original design, exquisite craftsmanship, and rare gemstone resources in the high-end jewelry sector are our core advantages in launching the high-end jewelry series."

However, compared to well-known jewelry brands like Van Cleef & Arpels and Cartier, CHOW TAI FOOK's influence in the international market is somewhat weaker.

For the 96-year-old CHOW TAI FOOK, reversing brand perception is no small challenge