Jarir's Q2 figures miss forecasts, says Al Rajhi Cap

Jarir Marketing Co.’s Q2 2019 net income increased 4 percent year-on-year (YoY) to SAR 169 million, missing Al Rajhi Capital's and consensus estimates of SAR 179 million and SAR 176 million respectively, Al Rajhi Capital said in a note. 

The earnings miss was mainly due to higher than expected cost of goods sold and higher non-operating expenditure. Top-line continued to grow at a double digit growth rate of 12 percent YoY to SAR 1.893 billion, Al Rajhi added.

"Going forward, we believe that rise in online sales, stores expansion and structural shift to organized retail should increase the market share of the company," Al Rajhi Capital said. 

Moreover, Jarir is benefiting from its strategy of adjusting its product mix in accordance with changing customer preferences. 

"Further, we expect margins to improve in the future as the newly opened stores ramp up their sales amid improvement in operational efficiency," Al Rajhi noted.

Post Q2 financials, Al Rajhi revised forward looking estimates, which resulted in target price to SAR 171 per share. The brokerage remained “Neutral” on Jarir.

Key catalysts include better than expected LFL growth and successful roll out of new stores that will drive operating leverage. Further, e-commerce platform is likely to spur growth in online sales.

Downside risks include rising competition from pure play e-commerce companies (e.g. Souq.com, Noon.com) and lower than expected consumer spending, the note said.