Jarir Marketing Co.'s Q1 net income of SAR 219.1 million matched NCB Capital and consensus' estimate of SAR 224.2 million and SAR 229.3 million, respectively, the brokerage firm said in an earnings review on Thursday.
"Despite sales declining 6.2 percent year-on-year (YoY) and coming below our estimates, we believe the strong gross margin expansion of 67 basis points YoY and Opex efficiencies supported the overall earnings performance," the report said.
Jarir's sales of SAR 1.6 billion missed NCB Capital’s expectation of SAR 1.82 billion, as electronic sales were negatively impacted by pre-VAT purchases and high-ticket purchases made in Q4 2017 than Q1 2018.
The sales were also hit by the school second term shifting to Q4 2017 this year instead of Q1 2017 last year.
Gross margins expanded 67 bps YoY to 15.2 percent in Q1, coming in-line with the NCB Capital's estimates of 15 percent, supported by effective inventory management and higher rebates.
Opex declined five percent YoY to SAR32.7 million, but missed the brokerage's estimate of SAR 59.3 million. This was despite the opening of five new stores, taking the total tally to 52.
"We believe the higher costs associated with the store openings were negated by lower selling and distributing expenses," the report noted.
EBIT declined marginally by 1.4 percent YoY to SAR 210 million but came in-line with NCB Capital's estimates of SAR 214.4 million.
"We believe the reinstated and new allowances will negate the impact of lower subsidies and new regulations such as VAT and expat levy. We believe this will continue to support the margin expansion, although weak LFL remains a key concern," the research firm said.
NCB Capital recommended an "overweight" rating on the stock, setting the target price of SAR 168.3.
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