Equity Analysis /
Saudi Arabia

Jarir: Q2 results: Store expansion drives earnings growth

    Mohamed Tomalieh
    Mohamed Tomalieh

    Associate, Equity Research Analyst

    SNB Capital
    14 July 2019
    Published by

    Jarir announced an in-line set of Q2 19 results, with net income increasing +4% yoy to SAR169mn. We believe the yoy growth was mainly driven by a +11.8% yoy increase in revenues, supported by store expansions and a positive LFL from the continued consolidation in the sector. Opex efficiencies were a key positive from the results, however it was offset by higher other expenses. Jarir trades at a 2019f PE of 19.4x vs covered peers at 18.2x.

    NCBC view on the results: 

    Jarir announced a Q2 19 earnings of SAR169mn, increasing +4% yoy. This is in-line with the NCBC and consensus estimates of SAR178mn and SAR175mn, respectively. We believe the earnings growth was mainly driven by an +11.8% yoy increase in revenues to SAR1,893mn, supported by store expansions and sector consolidation. A positive from the results is the opex efficiencies, with opex standing at SAR48mn in Q2 19 vs our estimates of SAR62mn. However, this was offset by higher other expenses of SAR22mn vs our estimates of SAR8mn, which we believe is due to higher than expected financing expenses and Zakat.

    Sales increased +11.8% yoy to SAR1.89bn, coming in-line with our estimates. We believe the growth was mainly driven by store expansions and a positive LFL growth of c.+0.3%. The sector consolidation trends upon the implementation of Saudization measures in the retail sector is having a positive impact on Jarir’s top-line. This trend was evident at other retail companies too, as Extra recorded a LFL growth of c.+4.9% in Q2 19. Jarir total stores stood at 59 stores in Q2 19 vs 52 stores in Q2 18.

    Gross margins contracted by -19bps yoy to 12.4% in Q2 19 vs our estimates of 13.0%. We believe the marginal yoy contraction in gross margins is mainly due to a change in the product mix, meanwhile the qoq contraction of 366bps came as a result of seasonality as Q1 19 sales benefited from higher stationary sales due to the return of students to schools on 6th January 2019 after the mid-year break. However, EBIT margins expanded by 36bps to 10.1% vs our estimates of 9.8%, supported by opex efficiencies. 

    We are currently Neutral on Jarir, with at PT of SAR157.8. We believe store expansions and stable LFL growth, driven by consolidation trends in the sector, are key growth drivers for the stock. The stock trades at a 2019f PE of 19.4x vs covered peers at 18.2x.