Goldman Sachs: China Tourism Group Duty Free’s Hainan sales slow in third quarter; gross margin improves but inventory rises

Why did profit growth not translate into a stronger operating improvement?

China Tourism Group Duty Free reported third-quarter 2026 revenue of 11.166 billion yuan, down 5% year over year. Net profit attributable to shareholders rose 25% to 563 million yuan, although relatively large asset impairments in the prior-year period created a low base.
Operating profit was broadly flat year over year in the quarter, while the operating margin rose to 7.2%, up 0.3 percentage points. Some of the benefit from the higher gross margin was offset by rising selling expenses: summer seasonal factors drove a 5% year-over-year increase in selling expenses.
Net profit attributable to shareholders for the first three quarters was 3.67 billion yuan, reaching 79% and 78% of Goldman Sachs’s and Visible Alpha’s full-year forecasts, respectively. That pace was below the corresponding 85% in the same period of 2025.

Sales at the company’s Hainan duty-free stores rose 7% year over year in the third quarter, down from 28% and 14% in the first and second quarters. Goldman Sachs believes extreme weather and weak seasonal performance weighed on sales.
Hainan’s industry-wide duty-free sales rose 3% year over year in the third quarter, down from 5% in the second quarter. The number of shoppers rose 3%, while spending per shopper was approximately 5700 yuan, broadly unchanged from a year earlier. The company said its market share had risen 2 percentage points since the start of the year, thanks to its store locations and supplier relationships.
Third-quarter revenue from airport and online channels fell 15% year over year, a narrower decline than the 38% and 23% drops in the first and second quarters. Combined outbound passenger traffic at the three major airports in Beijing, Guangzhou and Shanghai rose 8% year over year, while the phased completion of new duty-free stores also supported higher spending per airport passenger.

Third-quarter gross margin was 34.0%, up 2 percentage points year over year. Goldman Sachs attributed the improvement to a higher share of higher-margin products such as jewelry and watches, and to renminbi appreciation against the US dollar and euro, which reduced import procurement costs.
Inventory at the end of the third quarter was 19.07 billion yuan, up 11% from the previous quarter, while inventory turnover days rose to 224 from 214 in the second quarter. Goldman Sachs believes the increase may reflect advance purchasing ahead of the opening of Taikoo Li Sanya at year-end.
Operating cash flow was a net outflow of 412 million yuan in the third quarter, following a net outflow of 1.411 billion yuan in the second quarter. Changes in inventory and cash flow added constraints to operating performance beyond the improvement in gross margin.

Goldman Sachs believes sales momentum during Hainan’s duty-free peak season from the fourth quarter of 2026 to the first quarter of 2027 will depend largely on whether the local government issues consumption vouchers again. The bank expects industry-wide and company Hainan duty-free sales to rise 3% and 5% year over year, respectively, in the fourth quarter of 2026.
Taking account of the latest industry trends, Goldman Sachs cut its earnings-per-share forecasts for 2026–2028 by 0% to 5%. It lowered its 12-month target prices for the A-shares and H-shares from 67 yuan and 62 Hong Kong dollars to 64 yuan and 60 Hong Kong dollars, respectively, and maintained its neutral rating.
Goldman Sachs noted that the shares trade at approximately 19 times its 2027 earnings forecast, below their historical average of 25 to 30 times but still above most Chinese consumer companies. Weak consumer sentiment and uncertainty over the resumption of consumption voucher issuance constrain its assessment.