Saudi Arabia's retailer Alhokair swings to third-quarter profit on higher revenue

Company is 'on-track' for a profitable full year and is 'well-positioned' to achieve a top-line annual target of $1.6bn

Makkah Mall, one of the shopping malls operated by Arabian Centres, owned by Fawaz Alhokair Group, is pictured in Makkah, Saudi Arabia. Reuters

Saudi Arabia's retailer Fawaz Abdulaziz Alhokair swung to a third-quarter profit, helped by higher revenue and an economic recovery across its markets.

Net profit in the three-month period ending December 31 reached 16 million Saudi riyals ($4.3m), compared with a 128m riyals loss in the same quarter a year ago, marking its third consecutive profitable quarter, Alhokair said in a filing to the Tadawul stock exchange. The company said it is on track for a profitable full year.

Revenue increased 9 per cent year-on-year to 1.46 billion riyals, driven by a recovery in consumer spending in domestic and international markets, particularly in October and November, the company said.

“Alhokair has gained momentum with three consecutive quarters of top-line and earnings growth driven by the ongoing recovery across our local and international retail operations despite mild softening in consumer demand during December due to Omicron worries," Marwan Moukarzel, chief executive of Alhokair, said.

The profitable quarter came despite a renewal of pandemic-related restrictions in the kingdom in December after the Saudi Arabian government reinstated social-distancing measures to curb the spread of the Omicron variant.

Alhokair operates 1,684 stores across 100 shopping malls in 11 countries with a workforce of more than 10,500 employees. Its portfolio comprises more than 90 international and local brands in fashion, beauty, sports, multimedia, and food and beverage.

Saudi Arabia, the Arab world’s largest economy, is forecast to grow 4.8 per cent after expanding 2.9 per cent last year, helped by the rally in oil prices, which is continuing this year, according International Monetary Fund estimates.

In terms of its segments, revenue from Saudi retail decreased 2.8 per cent year-on-year to 1.037bn riyals in the third quarter.

"Saudi retail performance was strong in October and November... yet softened during December following the spread of the Omicron variant and the Saudi government reinstating Covid-related restrictions," the company said.

The food and beverages segment grew 9.6 per cent year-on-year to 119m riyals in the third quarter amid continued investments.

International retail operations generated revenue of 299m riyals, up 82.4 per cent year-on-year, and exceeding pre-pandemic levels, with the CIS markets, Egypt and Jordan continuing to drive growth.

Online sales during the third quarter fell 13 per cent to 55m riyals, compared to the same quarter of the previous year which benefitted from higher demand due to stricter pandemic related restrictions, the company said.

Alhokair, whose board in November recommended a capital decrease and a subsequent capital increase through a rights issue to further strengthen its financial position, said the regulatory procedures for this are progressing and the application to the Capital Market Authority was submitted in January 2022.

The rights issue is expected to raise 1bn riyals, which Alhokair plans to use to deleverage its balance sheet, improve liquidity and improve its overall financial agility, it said.

The company's selling, general and administrative expenses rose to 146.6m riyals during the third quarter, up from 116m riyals in the prior-year period, due to several non-recurring expenses. These include a one-off expense of 9m riyals related to prior years’ tax assessments as well as around 4m riyals associated with consultancy fees and the shared service centres.

Looking forward, the Alhokair is bullish about its annual financial results.

"The solid progress made by our teams so far this financial year has set us on track to deliver a profitable full year performance, particularly as we are gearing up for the holy month of Ramadan due to start early April," Mr Moukarzel said.

"We are well positioned to achieve our top-line target of 6bn riyals, despite renewed Covid-19 related restrictions affecting some operations over the past two months.”