Chow Tai Fook end-December SSSG -15%

It was a lackluster performance.

It has been noted that Chow Tai Fook (CTF) delivered overall group SSSG of -15%, vs. -3% in 2Q and -15% in 1Q.

According to a research note from Jefferies, SSSG remained lackluster. SSSG for gold products was -14%, vs. +13% in 2Q and -12% in 1Q; that for gem-set jewellery was -12%, vs. -13% in 2Q and -10% in 1QFY.

Further, retail revenue in HK/Macau (40% of group revenue in FY15) declined 20% yoy, vs. -5% yoy in 2Q and -16% yoy in 1Q. SSSG was -23% in HK/Macau (-16% for gem set and -24% for gold), vs. -13% in 2Q and -24% in 1Q. Retail revenue in mainland China (45% of group revenue in FY15) dropped 6% yoy (-2% yoy excl. forex), vs. +9% yoy in 2Q and +0% yoy in 1Q. SSSG was -6% (-7% for gem set and -3% for gold), vs. +6% in 2Q and -7% in 1Q.

Here's more from Jefferies:

Product mix: Gold products contributed 56% of retail revenue, while gem-set jewelley accounted for 28%. Platinum/k gold products and watches accounted for 12% and 4% of group sales, respectively. These are similar to that in 3QFY15. 5) The company opened a net of 31 POS during Jul-Sep.15 (net addition of 30 in mainland China and net addition of 1 in HK/Macau/other markets) with number of POS increasing to 2,317 (+1.4% QoQ).

Management expects the HK/Macau market to remain challenging in the next 12 months due to lower tourist arrivals; expect gradual improvement in mainland China. In the near term, management expect sales performance for Chinese New Year to remain similar to that in 3Q for both HK/Macau and mainland China.

Its wholesale business in mainland China was weaker than that for retail in 3QFY16 as franchisees are conservative in restocking. Management expect prices for small diamonds (<1 carat) to stabilize in the next 6 months. GP margin remain stable in 3Q; no impact on GP margin from the new competition law in HK.

YTD it achieved average low teens decrease in rental on lease renewal. Management expects total rental expense to drop by single digit to low teens in FY17e. They expect to close 5-6 stores in HK in FY16e and 6-8 stores in FY17e. 7) Management guided 5% depreciation in RMB will result in c.5% lower net profit.