Savola misses Q3 estimates on food, retail sales decline: NCBC

Savola Group reported a net loss of SAR 50.7 million in the third quarter (Q3) of 2018 as compared to a net profit of SAR 829 million in the same period last year. This is lower than the NCB Capital (NCBC) estimates of SAR 196 million.

“The losses are due to year-on-year (YoY) decline in food and retail sales, lower than expected retail margins, lower income from Almarai and higher foreign exchange (FX) losses,” the brokerage firm said in its earnings review.

Savola’s sales declined 6.9 percent YoY to SAR 5.2 billion, which was in-line with NCBC’s estimates. Food sales declined by 14.2 percent YoY to SAR 2.3 billion and retail sales declined by four percent YoY to SAR 2.7 billion, mainly “due to the expat exodus and market share loss at Panda”, the report said.

Gross margins contracted 95bps YoY to 17.9 percent, coming lower than the firm’s estimates of 18.4 percent. “The margin contraction was due to higher discounts in the retail segment due to the 40th anniversary promotional campaign.” the report noted.

NCBC maintained a “neutral” rating on Savola with a price target of SAR 43.3.

“We believe a turnaround in the retail segment in terms of returning to store expansions, Like for Like (LFL) growth and margin expansion are critical to Savola’s outlook,” the report concluded.