Earnings Report /
Saudi Arabia

Extra: Q3 22 Results | Highest quarterly net profit, despite earnings miss

  • Extra’s revenue remained flat on yoy basis at SAR1.37bn (-19.2% qoq) and came in-line with our estimates of SAR1.40bn

  • At the end of Q3 22, Extra’s retail store count stood at 53 stores vs 52 stores in Q3 21

  • Opex increased to SAR198mn (+10.9% yoy) in Q3 22 and came higher than our estimates of SAR169mn

SNB Capital
12 October 2022
Published bySNB Capital

Extra reported the highest quarterly net profit, with net income increasing by 5.8% yoy (-25.9% qoq) to SAR94.2mn. However, this is marginally lower than the SNB Capital and consensus estimates of SAR101mn and SAR98mn, respectively. The yoy earnings growth primarily came from higher gross margins, which expanded by 150bps yoy to 21.9% and were higher than our estimates of 21.0%. The positive impact was partially offset by higher operating expenses, which increased by 10.9% yoy to SAR198mn and higher than our estimate of SAR169mn.

  • Extra’s revenue remained flat on yoy basis at SAR1.37bn (-19.2% qoq) and came in-line with our estimates of SAR1.40bn. We believe the qoq decline in revenue is primarily due to the effect of Extra’s Mega Sale event in Q2 22 which led to higher retail and consumer finance revenues.

  • At the end of Q3 22, Extra’s retail store count stood at 53 stores vs 52 stores in Q3 21. Accordingly, LFL stood at -1.9% yoy in Q3 22.

  • Gross margins expanded by 145bps yoy to 21.9% in Q3 22 and were higher than our estimates of 21.0%. We believe the yoy expansion and positive variance in gross margins is driven by increased contribution from Extra’s after sales service and consumer finance divisions.

  • Opex increased to SAR198mn (+10.9% yoy) in Q3 22 and came higher than our estimates of SAR169mn. Subsequently, opex-to-sales stood at 14.4%, vs 13.0% in Q3 21 and our estimates of 12.1%. We believe the yoy increase in opex was led by increased marketing expenses. This offset the impact of higher gross margins.

  • Net non-operating expenses stood at SAR8.3mn vs SAR12.9mn in Q3 21 and our estimate of SAR23.7mn. We believe the variance is mainly driven by higher other income and lower finance expenses.

  • Despite weakness in retail division, the strong growth in the consumer finance division supported earnings. The segment recorded a net income of SAR45.2mn compared to SAR35.3mn in Q3 21. The segment contribution has increased to c48% of the company’s profitability in Q3 22 vs c40% in Q3 21.

Outlook

Based on our latest update published in June 22, we are Overweight on Extra with a PT of SAR104.9. Expansion in margins is the key positive of the results while increased opex is the main concern. We believe the growth in online sales and consumer finance business are the key growth drivers for Extra going forward. The stock is trading at a 2022f P/E and EV/EBITDA of 12.3x and 10.2x, vs global peers average of 14.0x and 20.3x, respectively.