Sunday, July 7, 2024

TSL Profit Plunges on Stagnant Diamond Demand

Hong Kong-based jeweler Tse Sui Luen (TSL) has reported a significant financial loss for the full fiscal year, primarily attributed to declining demand for diamond jewelry in China. The company recorded a loss of HKD 374.3 million ($47.9 million) for the 12 months ending March 31, compared to a loss of HKD 71.5 million ($9.2 million) the previous year.

Challenging Market Conditions

The jeweler pointed to a “significant” drop in consumer demand for natural-diamond jewelry, which typically commands higher price points than plain gold. Despite an initial sales boost following the reopening of the border between Hong Kong and mainland China at the start of the year, the momentum did not sustain.

“It was a very challenging year for the group,” the retailer noted. “Following the easing of the pandemic, the group observed a mild recovery of the retail industry at the beginning of the year. However, worldwide geopolitical tension and the persisting deterioration of the global economy inevitably affected consumers’ spending behavior and sentiment throughout the year. Accordingly, the performance of the group was greatly affected by the significant decline in consumer demand for natural-diamond jewelry products, especially in the mainland China market, and diminishing profit margins arising from the adjustment of sales mix to 24-karat gold products with a relatively lower profit margin.”

Revenue Increase but Declining Profit Margins

Despite the challenging market conditions, TSL’s group revenue for the year saw a slight increase of 2.5%, reaching HKD 2.65 billion ($339.8 million). In Hong Kong and Macau, sales rose 25% to HKD 821.4 million ($105.1 million) as borders reopened and tourism resumed. Revenue was further supported by various government initiatives, including a voucher scheme and cultural and entertainment programs.

However, in mainland China, sales slipped by 7% to HKD 1.69 billion ($216 million). TSL attributed this decline to the consolidation of property markets, which dampened consumer sentiment and slowed spending.

Shift to 24-Karat Gold Jewelry

TSL noted a shift in consumer preference from natural-diamond jewelry to 24-karat gold products, which have a relatively lower profit margin. “In 2023, the group observed a slight uptick in sales performance of its self-operated stores but witnessed a decline in the turnover of its franchising stores. This was mainly due to a considerable decline in market demand for natural-diamond jewelry, in contrast to a significantly increasing consumer demand for 24-karat gold products. The group reacted proactively by enhancing sales in 24-karat gold jewelry products. The increasing sales of 24-karat gold products with a comparatively lower gross profit margin to that of natural-diamond jewelry products, however, contributed to a significant reduction in gross profit margin as a whole during the year.”

Looking Forward

The year ahead presents continued challenges for TSL as it navigates the fluctuating demand dynamics in its key markets. The company remains committed to adapting its sales strategies to align with current consumer trends while also exploring opportunities to bolster its product offerings and operational efficiencies. As the global economy remains volatile, TSL’s ability to pivot and innovate will be crucial in sustaining its market position and improving financial performance.

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