The profits of Al Hokair Company, which is active in the retail trade of garments, textiles, shoes and perfumes, increased to 58 million riyals (net of minority rights) by 24% at the end of the first quarter ended June 2022 , compared to profits of 46.9 million riyals made in the same period from the year 2021.
The company said the reason for the increase in earnings during the current quarter compared to the same quarter of the previous year was due to:
Revenues maintained their level at 1,705.6 million Saudi riyals, compared to 1,700.7 million in the first quarter of fiscal year 2022. The steady performance is set against the backdrop of weak annual revenue growth of the retail sector in the Saudi market , which was offset by the strong improvement in the company’s revenues from international operations (+ 22% YoY) and by a recovery in revenues from the Food and Beverage sector (+ 8% YoY). Considering that the retail sector revenues in the Saudi market decreased by 3.8% annually due to the occurrence of the peak period preceding the month of Ramadan (i.e. the ten days before the start of the holy month) in the fourth quarter of the fiscal year 2022, after having been fully covered the previous year in the first quarter of fiscal year 2022. In case the impact of the sales boom relative to the pre-Ramadan period is excluded, the results show that the revenues of the sector retail in the Saudi market have not changed, and a 3% year-on-year growth in total revenues.
Selling, general and administrative expenses decreased 9.3%, or 13.3 million Saudi riyals to reach 129.5 million Saudi riyals, thanks to the company’s ongoing efforts to rationalize operating costs. As a result, the ratio of selling, general, and administrative expenses to revenue decreased 7.6% in the first quarter of fiscal 2023 from 8.4% in the first quarter of fiscal 2022.
Depreciation decreased by 37.2% to SAR 41 million compared to SAR 65.3 million in the same quarter of last year, due to the rationalization of the number of stores, which saw a net closure of 33 stores, with the ” unification of the life profits of the properties throughout the group, which led to a reduction in the related depreciation costs.
Other net operating profits (losses) increased significantly to SAR 36 million from SAR 3.6 million in the first quarter of fiscal 2022, supported by foreign exchange-related gains of SAR 26 million.
Net financing cost decreased 5.7% year-on-year to SARS 4.1 million to reach SAR 68 million due to unprofitable store closures, which also reduced related financing costs compliance with the International Accounting Standard (IFRS 16) to the payment of the partial debt outstanding, as the total debt was reduced by 4% on an annual basis, equal to SAR 126 million.
It came though:
Zakat and income expenses increased 75.1% to reach 18 million Saudi riyals, linked to the company’s achievement of an improvement in profitability during the first quarter of fiscal year 2023.
– Gross profit decreased to 278.1 million Saudi riyals for the first quarter of fiscal year 2023, compared to 332.6 million Saudi riyals in the first quarter of fiscal 2022, mainly due to the weak performance of revenues and the decline in commercial margins during the period. In particular, the commercial margins of the retail sector in the Saudi market decreased by 3% compared to those disclosed in the first quarter of FY22 due to: 1) the association of the first quarter of FY22 with high sales activity in the period prior to Ramadan, and 2) The change in the presentation period approved by the company as a whole for the first quarter of the fiscal year, presented in 10 days during this quarter compared to the first quarter of the previous year. On the other hand, the International Retail and Food and Beverage segments experienced a slight expansion in trading margins compared to the first quarter of fiscal year 22. This resulted in a gross profit margin of 16.3%, compared to 19, 6% in the first quarter of fiscal year 22.
The company attributed the reason for achieving earnings in the current quarter compared to the previous quarter to::
Revenues increased 23% from SAR 1,386.7 in the fourth quarter of fiscal year 2022 to SAR 1,705.6 million, driven by a sustainable recovery in local and international retail revenues. Notably, retail revenues in the Kingdom of Saudi Arabia increased by 28% on a quarterly basis, against the backdrop of the advent of the holy month of Ramadan and Eid al-Fitr respectively in April and May 2022 and supported by the influx of the growing number of pilgrims to Mecca and Medina, thus recording an increase in demand and sales activity.
Gross profit increased 53.4% to 278.1 million Saudi riyals in the first quarter of fiscal year 2023 from 181.3 million Saudi riyals in the fourth quarter of fiscal 2022, as a result of the improvement in sales activity that leads to higher revenues. This resulted in a gross profit margin of 16.3%, compared to 13.1% in the fourth quarter of fiscal year 2022.
– Reduction in the cost of financing by 15.0% to reach 68 million Saudi riyals due to the closure of unprofitable stores, which reduced financing costs related to compliance with the International Accounting Standard (IFRS 16).
Al Hokair recorded a goodwill impairment loss of 70.5 million Saudi riyals following a decrease in the value of goodwill in 2022, related to the acquisition of the NESK group in 2012.
It came though:
– Selling, general and administrative expenses increased by 54.0% from 84.1 million Saudi riyals in the fourth quarter of fiscal year 2022 to 129.5 million Saudi riyals (equivalent to 45.4 million Saudi riyals ), following the increase in salaries and other employee benefits costs. Therefore, the ratio of selling, general and administrative expenses to revenue increased 7.6% in the first quarter of fiscal 2023, compared to 6.1% in the fourth quarter of fiscal 2022.
Depreciation and amortization expenses increased 7.9% to reach 41 million Saudi riyals, compared to 38 million Saudi riyals in the previous quarter, with the company having a net opening of 8 stores during the quarter.
Other net operating profits (losses) decreased 19.8% to SAR 34 million from SAR 42.3 million in the fourth quarter of fiscal 2022, following higher provisions related to planned store closings.
Zakat and income expenses increased by 35.2% to reach 18 million Saudi riyals, after 13.3 million Saudi riyals in the fourth quarter of fiscal 2022, with a strong return to profitability.
The company also stated that shareholders’ equity (net of minority interests) at the end of the period amounted to 676.4 million riyals, compared to 609.4 million riyals at the end of the same period last year.
Some data from the previous period have been reclassified to bring them into line with the presentation of the current period.
Al Hokair’s net profit increased 26% annually to reach SAR 57.7 million despite stable revenue. This primarily stems from lower selling, general and administrative expenses in the wake of the company’s ongoing cost optimization initiatives, along with higher (other) net operating income, supported by foreign currency-related earnings during the period. Total revenue remained broadly unchanged, at SAR 1,705.6 million, as the international retail segment improved, which saw revenue growth of 22% year-on-year and food and beverage revenue rising 8% on an annual basis.
While retail revenues in Saudi Arabia amounted to 1,322.3 million Saudi riyals in the first quarter of fiscal year 2023, an annual decline of 3.8%, after having been 1,374.6 million Saudi riyals in first quarter of fiscal year 2022, due to the peak Ramadan sales season outside the period of this financial quarter. Adjusting to account for this effect will not result in any change in revenue in the first quarter of fiscal 2023.
On the other hand, international retail revenues recorded a strong increase of 22% annually to reach SAR 267.1 million in the first quarter of fiscal year 2023, after SAR 219.0 million in the first quarter of the year. fiscal year 2022, and this positive momentum pushed both the independent states and Jordan, while sales in Egypt showed some weakness (-39% yoy) due to central bank restrictions imposed in February and March 2022, including the Import Documentary Credit System, which prevented retailers from importing necessary goods.
The food and beverage sector reported revenues of 115.6 million Saudi riyals in the first quarter of fiscal year 2023, compared to 107.1 million Saudi riyals in the first quarter of fiscal 2022, with an annual growth rate. 8%, supported by the strong foundations of the Kingdom during the post-pandemic period. On a quarterly basis, food and beverage industry revenues fell 11% due to the nature of the season, as demand for fast food declines during Ramadan.
– Online sales reached 83.8 million Saudi riyals in the first quarter of fiscal year 2023, representing a 36.1% improvement year-on-year, and supported by the company’s continued efforts to enhance its digital capabilities and deliver unique multi-channel experiences for customers, which is a fundamental pillar of the operational strategy developed by Al Hokair. As a result, the contribution of online sales to total revenue (excluding food and beverages) increased from 3.9% in the first quarter of fiscal 2022 to 5.3% in the first quarter of the current fiscal year.
– While like-for-like consolidated revenues decreased 2.7% annually in the first quarter of the fiscal year, due to the decline in the performance of the retail sector in Saudi Arabia and the food and beverage sector, by 6.2% and 4.5% per annum, respectively. Meanwhile, like-for-like revenues for the international retail segment increased by 20.6% in the period on an annual basis.
– EBITDA for the first quarter of fiscal year 2023 (before IFRS 16, i.e. net of amortization of right-of-use assets and the cost of financing lease obligations) decreased by 3.3% reaching SAR 146.2 million from SAR 151.3 million in Q1 FY22 This was mainly due to the modest revenue trend, which together with the decline in trading margins, far outweighed the improvement in sales, general and administrative. The EBITDA margin stood at 8.6%.
Inventory balances amounted to SAR 1,410.9 million for the first quarter of fiscal 2023, which represents a decrease of 17% from SAR 1,700.5 million in the fourth quarter of fiscal 2022, as the company continued to focus on improving inventories. Additionally, the fourth quarter of fiscal year 2022 included an increase in inventory, in anticipation of the high season during Ramadan, which began in April, and Eid al-Adha, which began on July 8, 2022.
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