Herfy Food Services Co.’s (Herfy Foods) first quarter net profit of SAR 52.7 million missed Al Rajhi Capital’s estimate of SAR 56.4 million due to lower than expected revenue, the brokerage said in an earnings review.
“Operating profit was lower due to slower than estimated revenue; hence net profit at SAR 52.7 million was lower than our estimate of SAR 56.4 million,” Al Rajhi Capital said.
Herfy’s revenue came in at SAR 275 million, down 3 percent year-on-year (YoY), against Al Rajhi Capital’s estimate of SAR 287 million. This was attributed to a higher than estimated decline in like-for-like (LFL) sales and lower than expected roll-out of new stores.
LFL sales fell 10-11 percent YoY on slower consumer spending, particularly over the last two quarters, due to cuts in allowances of public sector employees.
Elsewhere, gross margin came in at 31.6 percent, slightly below the brokerage’s estimate of 32 percent.
However, this still represents a healthy expansion of 180 basis points YoY, likely due to continuing benefits of lower raw material costs, the report said.
Going forward, Al Rajhi Capital expects the pace of store additions to moderate going forward, with 24 store openings estimated for 2017.
Herfy rolled out four stores in Q1 2017, its lowest quarterly addition in the last three years.
The brokerage maintained its “Neutral” rating on the stock, but revised the target price to SAR 84.9 from SAR 83.1 per share.
“Faster than anticipated uptick in consumer spending represents a key upside risk for revenue and earnings estimates,” the report said.
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