China Duty Free Corporation (CDF), once a darling of the stock market with an 800 billion RMB market value, has seen its shares plummet to a new low in over five years. The company’s market capitalization has shrunk to approximately 1211 billion RMB, representing a loss of about 85% in just three and a half years. From April 2020, CDF’s stock price soared from 60 RMB to a peak of 403.78 RMB within a span of over half a year, a gain of more than 500%, earning it the moniker Tax-Free King. At its peak, the company’s price-to-earnings ratio exceeded 100.
However, the good times have come to an end. According to CDF’s semi-annual report for 2024, both its operating revenue and net profit attributable to the parent company have decreased compared to the same period last year. In the second quarter, revenue was 12.4 billion RMB, down 17.43% year-on-year and 33.76% from the first quarter. Net profit was 976.4 million RMB, a 37.61% decrease year-on-year and a 57.66% decline from the first quarter.
The decline in performance in the Hainan region is considered a major factor in the company’s overall financial downturn.
Major Brands Slide Over 50%
Analysts suggest that although the profit of Dufry Shanghai improved significantly to 310 million RMB in the first half of the year, thanks to the gradual recovery of customer traffic and renegotiated rental agreements, Hainan remains CDF’s main profit source, contributing over 80% of the company’s profits. Therefore, the performance of the Hainan market directly dragged down CDF’s results.
Industry insiders note that the Sanya Duty-Free Store accounts for about 50% of CDF’s sales in Hainan, while the Haikou Duty-Free Store accounts for about 15%. The semi-annual report shows that CDF achieved an operating revenue of 16.785 billion RMB in Hainan (53.90% of total revenue). If we calculate based on the combined revenue of Sanya Duty-Free Store and Hainan Duty-Free Company (19.684 billion RMB), there was a decrease of approximately 14.73% year-on-year.
During the first half of this year, the number of visitors to Hainan’s offshore duty-free program decreased by 336.1 million. According to a research report by Ping An Securities, CDF’s sales are closely related to the number of inbound and outbound tourists and the conversion rate of purchases. Although domestic tourism and international travel markets were relatively hot in the first half of the year, with international and regional passenger traffic at Shanghai airports recovering well, there was a divergence in passenger traffic at Hainan’s two airports. The Hainan offshore duty-free market faced diversion of some tourists’ consumption abroad and a decline in the current conversion rate of consumers.
Analysts suggest that in the first quarter, CDF’s fragrance category sales decreased by 30% to 40%, while boutique sales decreased by about 20%. In the second quarter, fragrance sales slowed to a decline of over 20%, while boutique sales decreased by more than 40%. Some major brands, such as Cartier and Gucci, saw declines of over 50%. Moreover, the sales of boutique products are highly dependent on offline channels, and the quality of customer traffic is lower than during the pandemic. Additionally, CDF’s online sales ratio has significantly decreased from over 30% to less than 20% this year.
Two Major Duty-Free Stores Bleeding
CDF’s 2024 semi-annual report shows that its main operating data have all seen varying degrees of decline. The total operating revenue decreased by 12.81% year-on-year, net profit attributable to shareholders of the listed company decreased by 15.07%, and net profit attributable to shareholders of the listed company excluding non-recurring gains and losses decreased by 16%.
Additionally, the net cash flow from operating activities was approximately 4.309 billion RMB, a decrease of 49.74% year-on-year. The report states that the change in net cash flow from operating activities was mainly due to a decrease in sales collections during the reporting period.
From the data in the semi-annual report, in a situation where both operating revenue and cost of goods sold decreased, sales expenses increased by 8.51% and research and development expenses increased by 9.84% in the first half of the year.
Especially noteworthy is that both of CDF’s major flagship stores in Hainan have seen performance declines, with the Haikou Duty-Free Store incurring a loss in the first half of the year.
CDF’s
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