Saudi retailer Fawaz AlHokair swings to Q2 net loss as revenues fall

The retailer, which owns the franchise of Zara in Saudi Arabia says cost of funding also climbed

Tadawul-listed Saudi retailer Fawaz AlHokair Group has swung to a second-quarter net loss. AFP

Fawaz Abdulaziz AlHokair, a Saudi Arabian retailer, swung to a second-quarter loss as expenses and cost of funding climbed and revenues fell on portfolio optimisation.

Net loss for the three-month period ending on September 30, reached 26.7 million Saudi riyals (Dh26.1m), down from an 8.9 million Saudi riyal profit reported a year earlier, the company said in a statement to the Saudi stock exchange, Tadawul, where its shares trade.

AlHokair, which owns the franchise rights for brands such as Zara and Banana Republic in Saudi Arabia, said revenue for the reporting period also declined 3.1 per cent year-on-year to 1.23 billion riyals.

The company’s depreciation and amortisation expense climbed to Dh233.5m riyals at the end of September, more than trebling from 72.4 million riyals a year earlier. Its finance costs also increased to 121.5m riyals, a more than 15 per cent year-on-year rise, it noted.

“Implementation of a portfolio optimisation strategy mandating the termination and closure of non-performing stores and disposal of weak brands” also affected quarterly profits, the company said in the bourse filing.

However, with the store closure programme now coming to a close, there are "encouraging signs" for the business, chief executive Marwan Moukarzel said.
"The rate of revenue decline has eased significantly, while positive like-for-like revenue growth has been maintained for two consecutive quarters. As the rate of nonperforming store closures and new store openings normalizes, we expect further top-line relief to materialise in the near future," he added.

The retailer has managed to reduce its sales and distribution expenses by 41 per cent compared to the same quarter of the previous year.

“The company implemented a targeted marketing strategy relying on the use of social media, successfully reduced the cost of shipping and storage, and fostered economies with respect to back office costs,” the stock market statement noted.

The company first announced the closure of non-performing stores and disposal of weaker brands back in August. It disposed of the Marks & Spencer brand and terminated its franchise agreements with a number of other brands, it said at the time. Its global store network stood at 1,615 stores at the end of September, down from 1,789 a year earlier.

Earlier this year, Fawwaz AlHokair signed an agreement to purchase 100 per cent of Innovative Union Company from Food and Entertainment Company, adding to its portfolio of cafes and restaurants. The deal is expected to contribute to the company's earnings per share from the first year of acquisition, it said in August.

Fawwaz AlHokair Group in May raised 2.47bn riyals when it sold shares in its malls unit, Arabian Centres Company, the biggest Saudi initial public offering since lender National Commercial Bank raised $6bn (Dh22.03bn) in 2014.