Fawaz Alhokair’s earnings beat estimates on higher gross margins: NCBC

Fawaz Abdulaziz Alhokair Co. reported a net profit of SAR 48.7 million for the quarter ending Dec. 31, higher than NCB Capital and consensus estimates of SAR 25.1 million and SAR 32.5 million respectively, NCBC said in earnings note.

The earnings beat was attributed to improvements in cost of sales, which resulted in a gross margin expansion of 183 basis points year-on-year (YoY) to 23.6 percent, as well as lower Opex and other expenses.

The retailer’s net profit for the quarter slipped 1.2 percent YoY.

“We believe the YoY weakness came from a decline in sales,” the research firm said.

Sales fell 5.6 percent YoY to SAR 1.35 billion, coming in line with estimates of SAR 1.4 billion, driven by inventory clearance discounts offered by the company to support sales.

Gross margins expanded by +183 bps YoY to 23.6 percent, versus estimates of 22.5 percent.

“We believe this comes as a result of Alhokair’s management focus on better inventory management, as demand growth remains relatively muted,” the report said.

NCBC is “Neutral” on Al Hokair with a target price of SAR 42.2.

“Expanding gross margins due to limited discounts is a positive catalyst. Moreover, we believe the government’s cost of living allowance and Citizen Account payments may support LFL levels going forward”, the brokerage added.