Cenomi Retail turns profit on non-core brand sale program: CFO

Ahmed Belbesy, CFO of Cenomi Retail

Fawaz Abdulaziz Alhokair Co. (Cenomi Retail) turned profitable in Q3 2024 as it proceeded with its non-core brand sale program, CFO Ahmed Belbesy told Argaam in an interview.

Belbesy emphasized that Cenomi Retail's strong financial performance underscores its commitment to cost control through various initiatives.

He explained that the 5.7% quarterly revenue decline was primarily due to the ongoing disposal of non-core brands and a reduction in sales seasonality compared to Q2.

Cenomi Retail aims to finish the year on a strong note, focusing on maintaining growth momentum through strategic actions to boost financial performance, the CFO mentioned.

Additionally, Belbesy noted that by concentrating on top-tier core brands, the company will be better positioned to build a stronger and more focused brand portfolio, supporting sustainable growth.

Cenomi Retail's profit increased to SAR 19 million in Q3 2024, compared to a net loss of SAR 203 million in the same period last year. What is your comment on these results? What factors contributed to the significant improvement in profit?

The shift to profitability this quarter is a milestone for Cenomi Retail, showcasing the progress on the non-core brand sale program, with capital gains of SAR 47 million.

Enhancing customer experience was a key factor enabling this growth through store renovations, store openings, and strategic retail price positioning, which also supported the improvement in gross profit margin, which reached 10.6% in Q3 2024 versus 7.5% in Q3 2023, despite a low demand season.

Furthermore, our robust financial performance this quarter is a reflection of our commitment to cost optimization through a number of wide-ranging initiatives, in addition to our focus on driving the growth of tier 1 champion brands.

Altogether, these factors complement each other to provide a solid foundation that is helping us build a financially resilient business that’s well-positioned for future growth.

Revenues from the food and beverage sector declined by 18.5% year-on-year (YoY). What are the main reasons behind this decline?

The YoY decline of 18.5% in F&B revenue to SAR 81 million in Q3 2024 is primarily attributable to the rationalization of our store network, with the net closure of three stores, which aligns with our goal of concentrating on high-performing outlets that are in prime locations with high footfall.

However, our F&B segment remains profitable with a positive earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 7.6% in Q3 2024.

Additionally, we will continue to introduce new and distinctive dining concepts to the market and strategically grow our operations. In this regard, we recently set a new world record by opening 12 Subway branches in one day in Saudi Arabia, including a mix of cloud kitchens as well as traditional and non-traditional restaurants, demonstrating our commitment to capitalizing on emerging opportunities for the growth of Tier 1 and popular Champion brands.

Which sectors performed better compared to others in Q3? What factors contributed to this performance, and are you focusing on strengthening these sectors in the coming periods?

In Q3 2024, retail revenues in the Kingdom grew by 3.6% YoY, reaching SAR 709 million. Our performance during the quarter was supported by the implementation of strategic sales measures during the seasonal change, which included optimizing retail price positioning, streamlining operations, and enhancing the customer experience.

This has enabled us to achieve a 6.6% rise in like-for-like sales of Inditex brands such as Zara. We also concluded the sale of 24 brands within Saudi Arabia in 9 months, which is aligned to our brand rationalization program.

Moreover, our international segment continued to witness strong momentum, showing a 30.9% YoY increase in revenue to SAR 380 million, with notable growth in markets like Azerbaijan and Georgia.

These results stem from a few key factors: first, we’ve strategically targeted prime locations for new store openings, which helped us capture strong demand. Additionally, the economic conditions in these regions have been supportive, with a forecast real GDP growth of 3% and 8%, respectively, in 2024, according to the International Monetary Fund (IMF).

Furthermore, through tailoring our offerings to cater to the unique preferences of consumers in each country, we can further reinforce our market position. We are planning to continue building on this success by expanding in select high-growth markets across the globe, where we see substantial potential and opportunities.

How do you evaluate the demand for online sales in Q3? Is this demand negatively impacting physical store traffic? What percentage of total revenues in Q3 came from online sales?

Online sales reached SAR 84 million in Q3, making up about 7.1% of our total revenues. Although this is a slight decrease from last year, it’s primarily due to the brand divestment program.

We have continued to reinforce our online platforms to complement our physical stores rather than compete with them, as online demand has not had a noticeable negative impact on in-store traffic.

What are your expectations for the company's performance in Q4 2024?

Looking ahead to Q4, we’re gearing up to continue building on this momentum with solid steps to further enhance our financial performance. In Saudi Arabia, we’re preparing for high-demand periods, such as White Friday and end-of-year sales, and investing in strategic store renovations, including for Zara & Inditex at an estimated net capex of SAR 25 million.

We are also expanding the Zara store at Nakheel Mall from 2,960 sqm to 3,450 sqm, which is expected to be opened by December 2024.

For the F&B segment, we have successfully opened 12 Subway stores in October, and additional new stores are expected to be opened in December 2024, taking the total number of owned Subway stores to 50.

Internationally, we’re strategically expanding our presence through targeting prime locations in select global markets such as Azerbaijan, Georgia, Armenia, and Uzbekistan, where we’ve seen strong demand.

Our ultimate goal at Cenomi Retail is to conclude the year on a high note, backed by our unwavering focus on revenue growth, wide-ranging cost optimization, and further progress on our brand rationalization program, to ensure a strong foundation for sustainable growth going forward.