Earnings Report /
Saudi Arabia

Jarir: Lower than expected margins offset higher sales

  • Revenue grew 9.2% yoy (+10.4% qoq) to SAR2.2bn

  • Jarir’s store count increased to 64 in Q3 21 vs 60 stored in Q3 20

  • Operating expenses stood at SAR51.5mn (-13.5% yoy)

SNB Capital
14 October 2021
Published bySNB Capital

Jarir reported a mix set for Q3 21 results with a net income of SAR273mn, increasing 6.8% yoy (+44.0% qoq). This is in-line with the SNB Capital estimates of SAR268mn and slightly lower than the consensus estimate of SAR287mn. Revenues increased by 9.2% yoy and 10.4% qoq to SAR2.2bn and were higher than our estimates of SAR2.0bn. Despite higher revenues, gross margins contracted by 153bps yoy to 15.5% and was lower than our estimate of 17.0%. Strong top-line growth is a key positive of the results, while the contraction in margins is the main concern.

  • Revenue grew 9.2% yoy (+10.4% qoq) to SAR2.2bn and was higher than our estimates of SAR2.0bn. We believe the yoy increase in revenue is mainly due to 1) higher sales of school and office supplies as a result of the partial back to school season and 2) increased smartphone sales was driven by the launch of the new iPhone model.

  • Jarir’s store count increased to 64 in Q3 21 vs 60 stored in Q3 20. Accordingly, LFL stood at 2.5% in Q3 21.

  • Gross margins contracted by 153bps yoy to 15.5% and came significantly lower than our estimates of 17.0%. We believe the weakness in margins is due to the change in sales mix.

  • Operating expenses stood at SAR51.5mn (-13.5% yoy), lower than our estimates of SAR57.8mn. Opex-to-sales stood at 2.3%, lower than our estimates and Q3 20 levels of 2.9%. We believe operational efficiencies were led by lower promotional and advertising costs.

  • Other expenses increased by 2.0% yoy to SAR20.1mn and were slightly higher than our estimate of SAR18.4mn.

Outlook

Based on our last update, we are Neutral on Jarir with a PT of SAR185.7. Strong revenue growth and operational efficiencies are the key positives of the results while margin contraction is the main concern. In the long term, we expect earnings growth to be driven by store expansion and cost efficiencies. The stock is currently trading at a 2021f P/E and a dividend yield of 24.0x and 3.6% vs the peer group average of 23.6x and 3.3%, respectively.