Laopu Gold Growth Slows as Bullion Slide Hits Luxury Demand

Laopu Gold Co. reported a slower revenue and profit growth for the first half, missing analyst estimates as falling bullion prices dented Chinese consumers’ appetite for its jewelry.

Revenue increased 60 percent to 19.8 billion yuan ($2.9 billion) for the the six months ended June, the company said in its earnings statement. That compares with analyst estimates of 20.9 billion yuan and a 251 percent surge in the same period last year. Net income rose 88 percent to 4.27 billion yuan, missing analyst projections of about 5 billion yuan and slowing from a growth rate of more than 280 percent a year ago.

Laopu almost doubled its interim dividend, proposing 18.02 yuan per share, compared with 9.59 yuan the year before.

The sharp slowdown underscores Laopu’s sensitivity to gold price cycles, and highlights a key challenge for its luxury ambitions: The brand has yet to persuade consumers to embrace product premiums that far exceed the underlying value of gold. Unlike traditional gold retailers, Laopu sells all items at fixed retail prices, a strategy that has resulted in steep premiums after bullion prices retreated and the company implemented multiple price hikes.

Although cutting prices risks diluting its luxury positioning, Laopu rolled out measures to support demand, including more aggressive promotions to shore up sales. On Alibaba Group Holding Ltd.’s Tmall store, shoppers received discounts of as much as 20 percent on select Laopu gold pieces during the month’s Chinese Valentine’s Day promotion — typically one of the country’s strongest luxury shopping periods.

While the measures boosted sales, they also drove up costs. First-half selling and distribution expenses surged 50 percent to 2.2 billion yuan. Still, the gross profit margin improved to 41.3 percent from 38.1 percent a year earlier, thanks to relatively low-cost inventory reserved from the previous year and price adjustments.

Laopu reported preliminary first-half earnings on July 27, followed by a 24 percent plunge in its Hong Kong-listed shares the next day. Morgan Stanley analysts said in an Aug. 10 note that stabilising gold prices could offer near-term support for the stock, as demand for fixed-price products has improved sequentially.

By Bloomberg News

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