Jarir Marketing Co.’s net profit of SAR 305 million for Q3 2019 missed Al Rajhi Capital and the market consensus’ estimates of SAR 311 million and SAR 306 million respectively, the research firm said in an earnings report.
“The earnings miss was mainly due to lower than expected gross margins and higher operating expenses,” the report said.
Going forward, the growing e-commerce, higher consumer spending and structural shift to organized retail should increase Jarir’s market share, Al Rajhi Capital said.
Jarir is expanding into the electronics and smartphones segment to meet customer preferences. This is expected to tighten company margins as smartphones and electronics have lower margins compared to other product categories.
Key catalysts include better than expected LFL growth and successful roll out of new stores that will drive operating leverage. The e-commerce platform is also likely to spur growth in online sales.
Downside risks include rising competition from pure play e-commerce companies (e.g. Souq.com, Noon.com), as well as lower than expected consumer spending and selling margins.
Al Rajhi Capital maintained a “Neutral” rating on the stock and revised the target price to SAR 171 per share.
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