L’Azurde reviewing Saudi portfolio; Egypt remains key market: CEO

L’Azurde for Jewelry Co. is reviewing its network of 14 stores in Saudi Arabia to enhance performance, and may look to close or relocate some outlets, chief executive Selim Chidiac told Argaam in an exclusive interview.

Meanwhile, the Tadawul-listed jewelry maker plans to increase its locations in Egypt, where it has a strong return on investment (ROI), Chidiac said.

The full interview is below:

Q: L’Azurde reported a 25 percent year-on-year (YoY) decline in profit for the second quarter of 2018. What are your comments on these results?

A: Despite an increase in revenues, our profits were below last year because of investments in marketing, the additional rental cost of L’Azurde retail expansion in Egypt and one-off expenses related to the commercial, financial and legal due diligence for the Tous franchisee acquisition.

In KSA, we believe that the market is evolving in a way that will result in the leading brands gaining share during this difficult time of change. Also, the government initiatives, employment of women, young population and increased foreign investments will support the industry, consumer confidence and spending.

Q: How much did wholesale and retail revenues amount to in the second quarter?

A: Q2 wholesale revenues amount to SAR 67 million, up 17 percent YoY while the retail revenues reached SAR 28 million, (an increase of) 5 percent YoY. We delivered an outstanding performance in Egypt with our wholesale increasing 87.5 percent YoY, while the retail increased by 123.5 percent. This was driven by a new successful advertising campaign as well as positive overall recovery in the economy and purchasing power.

Q: How many L’Azurde stores exist in Saudi Arabia and Egypt? Is there a plan to increase or decrease the number of branches during the second half of this year?

A: We currently have a total of 46 retail points of sales under our different brands, 24 L’Azurde retail shops, 12 Kenaz Kiosks, 3 Amazing Jewelry stores and 7 L’Azurde Duty Free locations. In addition, we will be adding the 22 TOUS KSA stores bringing our total retail reach to 68 locations. 

We plan to increase the L’Azurde retail locations (now at 10  locations) in Egypt where we have a strong ROI, while we are reviewing our portfolio of 14 L’Azurde stores in KSA to enhance the performance per shop and potentially closing or relocating some.

Q: What is the financial impact of the factory in Egypt, which started operating in February last year?

A: The new factory in Egypt is focused on the export business outside Egypt. It has currently reached a volume representing almost 12 percent of our total volume. We have a vision to consolidate all our factories in Egypt in the latest, most efficient factory. However we need some time to do this in order not to disrupt the operations.

Q: You have signed an agreement for the full acquisition of Izdiad Commercial Company of Arabia. How will this acquisition reflect on the results of the company and when?

A: The acquisition of the Tous franchisee in KSA is a major strategic initiative which positions the company in a much stronger position for growth in the future. Indeed, the TOUS franchise in KSA will allow L’Azurde to complement its brand portfolio in key fast-growing categories, targeting the affordable luxury lifestyle segment, which provides solid margins and profits.

This move is also part of the process to transform the company from a mono-brand wholesaler to a House of Brands retailer.

Izdiad has demonstrated continuous solid growth in revenues and profits since its inception, with its 2017 net income reaching SAR 18.8 million. The results of Izdiad will be consolidated and reflected in L’Azurde’s results once the full control has been transferred to L’Azurde

Q: How did L’Azurde finance the SAR 188 million acquisition?

A: The acquisition is financed through a mix of bank facilities and internal cashflow in-line with the most common practice in similar acquisition cases to optimize the cash resources of the company and secure the best return to our shareholders.