Earnings Report /
Saudi Arabia

Jarir: Q3 22 results – Strong sales impact diluted by weak margins

  • Revenues increased by 13.2% yoy (+25.2% qoq) to SAR2.52bn and were higher than our estimates of SAR2.38n

  • During the quarter, Jarir opened one showroom in Manama city in Bahrain

  • net operating expense increased by 57.2% yoy (+42.6% qoq) to SAR81mn in Q3 22 .

SNB Capital
18 October 2022
Published bySNB Capital

Jarir reported weaker than expected set of Q3 22 results, with a net income of SAR274mn (flat yoy). This compares to the SNB Capital and consensus estimates of SAR301mn and SAR276mn, respectively. Revenues increased by 13.2% yoy (+25.2% qoq) to SAR2.52bn and were higher than our estimates of SAR2.38bn. The earnings weakness and negative variance is mainly driven by lower gross margins, which we believe is a key negative of the results. Gross margins, contracted by 68bps yoy to 14.8%, were significantly lower than our estimate of 16.5%. Opex to sales stood at 3.2% in Q3 22 and was in-line with our estimates.

  • Revenues increased by 13.2% yoy (+25.2% qoq) to SAR2.52bn and were higher than our estimates of SAR2.38n. The increase was mainly driven by higher sale of smartphones and school supplies. The former was impacted by the launch of Iphone 14, while the latter was positively impacted by back to school season.

  • During the quarter, Jarir opened one showroom in Manama city in Bahrain, increasing its total store count to 68 in Q322 vs 67 in Q2 22 and 66 in Q3 21. Accordingly, LFL stood at +9.8% in Q3 22.

  • Gross margins contracted by 68bps yoy to 14.8% and came lower than our estimates of 16.5%. It is worth mentioning that these are the lowest Q3 margins on record and compares to the Last 5-years (2017-2021) Q3 average gross margins of 16.9%. Weakness in the gross margins is a key negative of the results. We believe the company has given higher discount to promote sales and enhance its market share.

  • In absolute terms, net operating expense increased by 57.2% yoy (+42.6% qoq) to SAR81mn in Q3 22 and marginally higher than our estimates of SAR73mn. The yoy increase is mainly due to the absence of one-off gain of SAR11mn recorded last year. Opex-to-sales ratio stood at 3.2%, in-line with our estimates of 3.1% and higher than Q3 21 levels of 2.3%. Subsequently, EBIT remain flat yoy (+51.9% qoq) to SAR291mn and lower than our estimates of SAR319mn. EBIT margins dropped by 158bps to 11.6% and was lower than our estimates of 13.4%.

  • Net other expenses decreased 12.3% yoy to reach SAR18mn and were in-line with our estimate.

Outlook

Based on our last update, we are Neutral on Jarir with a PT of SAR200.8. Contraction in margins are the key concerns of the results. In the long term, we believe the normalization of stationery business, store expansion and attractive dividend yield will drive the stock. The stock is currently trading at 2023f P/E and a dividend yield of 17.1x and 5.6% respectively.