Mubasher: Jarir Marketing has reported a weak set of Q2-16 results, with earnings falling significantly below the estimates of NCBC, according to a recent report issued by NCBC Research unit.
With net income falling 17% YoY to SAR 128.5 million in the second quarter, NCBC considered it the lowest Q2 earnings level since 2013.
“We believe this weakness is attributed to weak sales, but mainly due to record low margins as a result of discounts, change in the sales mix and higher Opex from store openings,” the report said.
A margin contraction at both the gross and operating level is believed to cause the weakness in profits, the report said, adding “Weak sales also contributed to this weakness. Sales declined on a YoY basis for the third consecutive quarter.”
Sales marginally shrank by 1.1% YoY; this was 4.9% below the NCBC estimates.
“Gross margins contracted 191bps YoY to 11.7%. This is the lowest level on record and compares to our estimates of 14.0%,” the report added.
Opex increased by 17.7% YoY to SAR 47 million. NCBC Research believed this came due to increased expenses such as marketing in order to raise market share, as well as the opening of four new stores.
“Total store counts stood at 42 in 2Q16 vs. 38 in 2Q15. As a result of this, EBIT margins contracted 244bps YoY to a record low of 8.3% vs. 10.8% in 2Q15 and our estimates of 10.5%.”
NCBC Research said “We remain Overweight on Jarir, given the positive earnings outlook and attractive valuations. We expect revenues to grow at a CAGR of +7.7% over 2015-19E, with earnings growing at a CAGR of 8.0% during this period.”
