Earnings Report /
Saudi Arabia

Jarir: Weak Q2 results on lower margins

  • Revenue decreased by 0.2% yoy (-12.1% qoq) to SAR2.01bn, marginally lower than our estimates of SAR2.06bn

  • Gross margins contracted by 64bps yoy to 12.4%, lower than our estimates of 13.3%.

  • Net operating expenses in absolute terms stood at SAR56.8mn (+0.6% yoy) and came in-line with our estimates of SAR57.6mn

SNB Capital
17 July 2022
Published bySNB Capital

Jarir reported a weak set of Q2 22 results with net income declining by 6.4% yoy (-29.5% qoq) to SAR177mn. This compares to the SNB Capital and consensus estimates of SAR209mn and SAR217mn, respectively. Revenue decreased by 0.2% yoy (-12.1% qoq) to SAR2.01bn, marginally lower than our estimates of SAR2.06bn. We believe the negative variance in earnings is mainly driven by lower gross margins and higher non-opex. Gross margins contracted by 64bps yoy to 12.4% vs our estimate of 13.3% due to increased sale of discounted products.

  • Revenue decreased by 0.2% yoy (-12.1% qoq) to SAR2.01bn, marginally lower than our estimates of SAR2.06bn. We believe the qoq decline and variance in revenue is mainly driven by a decline in sale of smartphones, computers, school and office supplies.

  • Jarir closed one showroom located in Jeddah in May 2022, subsequently its store count decreased to 67 in Q2 22 vs 63 stores in Q2 21. Accordingly, LFL sales dropped by 6.6% yoy in Q2 22.

  • Gross margins contracted by 64bps yoy to 12.4%, lower than our estimates of 13.3%. We believe the yoy contraction and variance in margins is mainly due to the increased sale of discounted products during the quarter. We believe margin contraction is a key negative of the results.

  • Net operating expenses in absolute terms stood at SAR56.8mn (+0.6% yoy) and came in-line with our estimates of SAR57.6mn. Opex-to-sales ratio stood at 2.8%, in-line with our estimates and Q2 21 levels of 2.8%. Subsequently, EBIT decreased by 6.7% yoy to SAR192mn while EBIT margins dropped to 9.5%, its lowest level since Q2 17 vs our estimate of 10.5%.

  • Net other expenses decreased by 10.5% yoy to reach SAR14.6mn and were higher than our estimate of SAR5.8mn. Despite the impact of capital gain of SAR10mn on sale of the company’s property, we believe the variance was mainly due to higher finance and zakat expenses.

 

Outlook

Based on our last update, we are Neutral on Jarir with a PT of SAR200.8. The decline in revenue and margin contraction are the key concerns of the results. In the long term, we believe the normalization of stationery business, store expansion and attractive dividend yield should drive the stock. The stock is currently trading at 2022f P/E and a dividend yield of 17.6x and 5.4% respectively.