Should Old Shop Gold worry about the surge in inventory?

Why has the inventory turnover model of Laopu Gold led to cash flow pressure?

Interface News Reporter | Lou Jiaoqin

Interface News Editor | Xu Yue

After announcing its financial report for the fiscal year 2025, Laopu Gold attracted attention for its astonishing revenue growth of over 200%, but it also raised concerns due to the simultaneously skyrocketing inventory figures—will it be overwhelmed by inventory pressure?

According to the financial report, as of the end of 2025, Laopu Gold’s inventory was 16.044 billion yuan, a staggering increase of 347.6% compared to 2024. The main reason for this strong increase in inventory is its confidence and forecast for future sales growth, leading to increased stockpiling of gold raw materials and finished products. This seems somewhat aggressive compared to its revenue growth rate of 221% in 2025. Additionally, considering its inventory turnover days of 210 days, or about 7 months, there are concerns about inventory accumulation risks, especially when gold prices decline and demand from some price-sensitive consumers is suppressed.

However, the first quarter performance forecast for fiscal year 2026, announced simultaneously with the 2025 annual report, can largely alleviate these concerns.

According to the forecast, Laopu Gold expects to achieve sales performance of approximately 19 billion to 20 billion yuan in the first quarter of 2026, with revenue expected to be around 16.5 billion to 17.5 billion yuan. If the inventory at the end of last year is all counted as finished products, the inventory quantity should be sufficient to be digested. Meanwhile, the forecast also indicates that its cash flow and inventory turnover cycle are likely to improve significantly. As of the end of 2025, its net cash outflow was 2.215 billion yuan, primarily due to inventory tying up a large amount of cash. In the short term, if the above performance forecast is realized, the short-term liquidity crisis risk for Laopu Gold could be manageable.

Image source: Interface News Reporter Zhu Yongling

However, the inventory issue for Laopu Gold cannot be said to be completely resolved. In fact, the risk is not inherently in the high inventory itself, but in the inventory turnover model behind it.

Currently, Laopu Gold adopts a cycle model of procurement, sales, and re-procurement, characterized by “fully self-operated” and “high inventory,” resulting in extremely high capital demand. For comparison, in 2025, it conducted multiple rounds of financing through share placements, with the vast majority of the funds invested in raw material procurement and other segments. This is part of its luxury brand operation, but it also places it in a long-term cycle of “growing and needing more money.” This means that once growth slows or stagnates, the pressure on cash flow could increase sharply.

In fact, according to the business model that Laopu has always promoted, its product pricing model is based on a luxury brand-style “fixed price,” not on the costs of gold and craftsmanship. This pricing method worked well in the past year when gold prices continued to rise, directly contributing to strong growth, making it a leading gold jewelry brand in terms of revenue and profit levels. However, from external reactions, its “luxury narrative” has not been fully recognized. At least for now, when gold prices fall, not only is the capital market worried about the sustainability of its increasingly high premiums, but consumers are also questioning on social networks: With gold prices dropping, when will Laopu Gold adjust its prices?

This directly leads to a question: The sustainability of its growth may largely depend on fluctuations in gold prices.

From a revenue perspective, due to its self-pricing and price increases two to three times a year, a decrease in gold prices results in an increase in the premium rate for individual products. Increasing premiums will inevitably deter some price-sensitive customers. According to a report by Citibank, it is estimated that price-sensitive customers account for about 40% of Laopu Gold’s revenue in the first quarter of fiscal year 2026.

Regarding profit, the impact of lower gold prices on the value of inventory will affect the company’s gross margin.

According to a report by “China Fund News,” Laopu Gold has stated that it will not use common hedging methods such as gold leasing and futures tools to offset the risks brought about by fluctuations in gold prices. This also means that fluctuations in gold prices will directly impact the profit performance of every product sold by Laopu Gold.

Specifically, considering its stockpiling model, gold jewelry sold during periods of declining gold prices is likely to have had its raw materials procured six months earlier when gold prices were still high. Citibank once estimated in a report that Laopu Gold purchased a batch of gold raw materials at the peak price in November 2025 for products to be sold at the end of 2025 and in the first quarter of 2026, and considering gold price fluctuations, the jewelry sold during the Spring Festival may have lost about 4% of its profit.

For Laopu Gold, whether it can break free from its dependence on gold prices is increasingly becoming a pressing issue.