Fawaz Alhokair misses profit estimates in Q4 2018/2019, says Al Rajhi Cap

Fawaz Abdulaziz Alhokair reported a net loss of SAR 141 million in Q4 2018/2019, missing Al Rajhi Capital’s estimate of SAR 13 million profit, Al Rajhi Capital said in a report. 

Q4 revenue declined 10 percent year-on-year (YoY), likely due to muted consumer spending which led to a lower LFL growth and closure of non-profitable stores. 

The company continues to follow its cost optimization strategy in a challenging economic environment which has improved its operating margins by reducing the cost of sales, the brokerage added. 

Al Rajhi expected Alhokair’ s top-line to remain under pressure, largely due to weak consumer demand, driven by changing consumption basket from premium to value products and declining customer base. 

“We expect a gradual recovery in international sales and higher demand for value products which could negate the decline in LFL sales in near term,” Al Rajhi noted. 

“Our long term view on the growth remains optimistic boosted by pick-up in consumer sentiments following an overall economic recovery,” it added. 

The stock was downgraded to underweight, and target price remained unchanged at SAR 20.

Downside risks include higher-than-expected rise in employment expenses on the back of Saudization, lower than expected rebates on rent, which can result in higher number of store closures and significant decline in expat population. 

Meanwhile, upside risks include higher-than-expected rise in disposable income driven by Saudization.