HONG KONG (Nikkei Markets) -- Chow Tai Fook Jewellery Group is pinning hopes on China's attempts to shore up consumption against the backdrop of the trade war to yield rewards as it digs deeper into the country.
The Hong Kong jewelry group, which earns almost two-thirds of its total revenue from China after years of rapid expansion there, expects Beijing's fiscal and monetary stimulus measures to mitigate impact from the Sino-American trade war, which it expects will "take some time to settle."
Company officials on Thursday said they plan to open as many as a net of 500 stores in China during the current financial year that began on April 1 -- a sixth of the existing number in the country -- on top of the 539 stores they opened last year. The focus will be on opening stores in villages and county-level cities to increase penetration, and more than half of the total is expected to be opened by franchisees.
Chow Tai Fook, among the largest jewelry chains in the world, had 2,988 stores in China as of March 31, out of a total of 3,134 points of sale worldwide. The company is controlled by the family of billionaire Chairman Henry Cheng, who is also the Chairman of Hong Kong property major New World Development.
While growth momentum slowed down in the second half of last fiscal year because of an "uncertain global economy," the company expects measures to stimulate domestic consumption to ease the impact, Cheng said on Thursday.
Although revenue at new jewelry stores usually takes several years to reach the amount earned by a mature store, the ramp up in business volume at stores in the hinterland is in favor of the company's push, according to executive director Hamilton Cheng. Hamilton Cheng isn't related to Henry Cheng or his family.
Within the first two years of opening, new stores in rural China have been contributing as much as half of the revenue that a mature store generates -- about 1.6 million yuan ($231,548) a month on average -- compared with about 55% to 60% for points of sale in urban areas.
"The performance of new stores in lower-tier Chinese cities is comparable to those in top-tier cities," with the return on investment in "high-teen" percentages, Hamilton Cheng said.
The company, which was founded in 1929, also operates stores in Japan, South Korea, Southeast Asia and the U.S., in addition to Hong Kong, Macao and mainland China.
Earlier on Thursday, the company reported an 11.8% increase in net profit for the year ended March 31 to HK$4.58 billion. Revenue increased 12.7% to HK$66.66 billion.
Profitability improved, with gross profit margin for last year climbing 0.5 percentage point to 27.9%, even as the share of revenue from gold products outpaced that from gem-set jewelry, on which jewelers typically make more money.
The company said it will continue to offer jewelry under multiple brands to reach the most number of customers.
While the eponymous Chow Tai Fook Jewellery remains the company's single-largest brand by points of sale, its network now consists of multiple other brands, including those catering to millennials.
Looking ahead, Chow Tai Fook said it plans to roll out more of its Soinlove and Monologue branded stores through online and offline channels to acquire younger consumers. As of March 31, it had 27 Soinlove and 38 Monologue stores in China.
Shares of Chow Tai Fook climbed 2% to HK$6.76 in Hong Kong on Thursday, valuing the company at HK$67.6 billion. The city's benchmark Hang Seng Index increased 0.3% to 26,965.28.
-- Benny Kung