Core Insights - CTFJ reported a 4.1% year-on-year growth in group-wide retail sales value during 2QFY26, indicating a sequential improvement, particularly with a same-store sales growth of 7.6% in mainland China [1] - The company experienced a net closure of 296 stores during the quarter, bringing the total store count to 6,041, with a year-on-year net closure of 1,305 stores, a decrease of 17.8% [1] - CTFJ improved its product mix by increasing sales of high-margin products, such as fixed-price gold products and Fei Cui jades, contributing to a positive outlook for gross profit margin (GPM) and operating profit margin (OPM) [1][3] Retail Sales Performance - The group-wide retail sales value (RSV) improved by 4.1% year-on-year, showing a significant quarter-on-quarter improvement compared to a decline of 1.9% in 1QFY26 [1] - New stores opened in 2QFY26 achieved monthly sales of RMB 1.5 million, which is three times higher than the sales of closed stores [1] Product Mix and Growth - Same-store sales growth (SSSG) for gold products in the mainland market grew by 10.6% year-on-year, while SSSG for gem-set and other products increased by 7.2% year-on-year [2] - The contribution of high-margin product categories reached 29.9% in 2QFY26, up 5.1 percentage points year-on-year, indicating a successful strategy in enhancing product offerings [2] Future Guidance - CTFJ's management anticipates better-than-expected GPM and OPM due to an improved product mix, better store network, and positive gold price movements [3] - A revision of guidance is expected during the actual 1HFY26 earnings release in November 2025, with initial expectations of a decline in GPM and OPM being reassessed [3][4]

Investment Rating - The report indicates a slight improvement in China's retail sales, with an expected growth rate of 4%-5% for 2025, establishing a new normal driven by government subsidies for durable goods [1][4]. Core Insights - Essential goods are expected to see relatively higher growth, while discretionary spending is significantly impacted [1][4]. - The consumer price index (CPI) shows a positive correlation with consumer stock valuations, with overall consumer stock P/E ratios currently low due to deflationary pressures [1][6]. - Emerging consumer companies have achieved remarkable growth, with some stocks rising over 150%, while the worst-performing stocks have seen declines of 9%-30% [1][8]. - The liquor market faces challenges in 2025, with weak enterprise demand and government controls affecting wholesale prices [1][10]. Summary by Sections Retail Sales Trends - Retail sales in China are projected to improve slightly in 2025, with growth between 4% and 5%, supported by government subsidies for durable goods [1][4]. Impact of Raw Material Prices - Rising prices of raw materials like gold and palm oil may pressure margins for noodle and food companies, while many essential goods companies could benefit from lower raw material costs [1][5]. Consumer Stock Valuation and Growth Outlook - The CPI is closely linked to consumer stock valuations, with current P/E ratios being low. Earnings growth for 2025 and 2026 is expected to be in the low single digits to 10% range [1][6]. Market Dynamics and Investment Flow - There has been a significant increase in southbound capital inflow into the Greater China consumer sector, which has positively impacted market indices [1][7]. Performance of New vs. Traditional Consumption - There is a stark performance disparity between new and traditional consumption sectors, with emerging companies showing exceptional growth while traditional sectors lag [1][8]. Liquor Market Challenges - The liquor market is expected to remain challenging in 2025, with weak demand and government regulations impacting wholesale prices [1][10]. Beer and Spirits Industry Challenges - The beer and spirits industries face multiple challenges, including fluctuating sales and pressure from restaurant demand [1][11]. Dairy Market Conditions - The raw milk market is currently in a surplus cycle, expected to end by the end of 2025, potentially leading to a slight price recovery in early 2026 [2][12]. Food and Beverage Sector Performance - The food and beverage sector shows varied performance, with noodle businesses under pressure from palm oil prices and a shift towards healthier beverage options [2][14]. Consumer Preferences - Consumers prioritize product quality and cost-effectiveness when choosing brands, indicating a shift in purchasing behavior [2][15]. Restaurant Sector Developments - The restaurant sector, represented by companies like Yum China, is navigating challenges but is focusing on service quality and efficient supply chains to improve profitability [2][16]. Large Appliances Market - The large appliances sector benefits from government subsidies and export opportunities, but faces uncertainty as subsidy effects diminish [2][17]. Jewelry Market Trends - The jewelry market is evolving, with emerging brands focusing on high-end fixed-price gold products gaining popularity [2][21]. Duty-Free Sales Performance - Duty-free sales in Hainan are stable, but meaningful growth will depend on macroeconomic improvements and competitive dynamics [2][24]. Cosmetics Industry Dynamics - The cosmetics industry is experiencing pressure from consumers seeking value, but growth is expected to stabilize as pricing pressures ease [2][25].