Chow Tai Fook's retail revenue dropped 22% in 2Q16

Performance outlook in near-term is bleak.

According to Jefferies, Chow Tai Fook’s sales performance in Apr.-Jun.2016 remained weak but improved from that in Jan-Mar.2016. Management expects the decline to widen in 2Q due to a high base but improve in 2H. The operating environment is unlikely to rebound meaningfully in the near-term, but the rally in gold price could help sentiment on the stock.

Here's more from Jefferies:

CTF’s sales performance in 1QFY17 remained weak but improved from 4QFY16. Retail revenue in HK/Macau (39% of group revenue in FY16) declined 22% yoy, vs. -26% yoy in 4QFY16. SSSG was -20% in HK/Macau, vs. -27% in 4QFY16, mainly driven by improvement in gold as a result of some big ticket gold bar transactions during the quarter. SSSG for gem-set jewellery deteriorated to -27% in 1QFY17 from -22% in 4QFY16.

Retail revenue in mainland China (47% of group revenue in FY16) dropped 13% yoy, vs. -25% yoy in 4QFY16. SSSG was -17% (-12% for gem set and -22% for gold), vs. -25% in 4QFY16.

The company had net reduction of 4 POS during Apr-Jun.2016 (net reduction of 2 in mainland China and HK/Macau/other markets, respectively) with number of POS decreased to 2,315 (+2% yoy, -0.2% QoQ).

Management maintained the guidance of mid to high teen revenue decline for HK/Macau and flattish to low single digit decline for mainland China in FY17e.

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