Savola Group reported a net loss of SAR 84.3 million, missing NCB Capital (NCBC) and consensus estimates of a profit SAR 26.4 million and SAR 48.4 million, respectively.
"Despite sales and gross profit being broadly in line, we believe the variance came from higher than expected Opex and financing charges," the brokerage firm said in an earnings review on Thursday.
Sales declined 12.1 percent year-on-year (YoY) to SAR 5.1 billion but were broadly in line with NCBC's estimates of SAR 5.4 billion.
"We believe the decline in sales was mainly due to the weakness in retail sales, which is attributed to weak LFL and a decline in basket size," the report said.
The food segment sales were impacted by increasing competition and imposing duties in the Iranian market to reduce 'ghee' consumption.
"Moreover, we believe the introduction of VAT and other fees in 2018 negatively impacted spending levels," the report added.
Savola reported gross margins of 18.4 percent, which were in-line with the estimates of 17.5 percent, due to higher margins in the retail sector.
Opex declined marginally by 1.4 percent YoY to SAR 888 million, coming higher than NCBC's estimates of SAR 817 million.
Meanwhile, the brokerage downgraded its rating to "Neutral", setting a target price of SAR 43.3 per share.
"We believe weak LFL and weak store expansions at Panda are key risks," NCBC noted.
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