Saudi retailer aims to stitch up expansion

What's Up: Saudi fashion retailer, Alhokair, reports strong fourth quarter results as it expands aggressively abroad.

When a company outgrows a market, it is often difficult to know where it will find additional revenue and value for investors.

But analysts are still fairly upbeat on Fawaz Abdulaziz Alhokair & Company, a major Saudi fashion retailer that is spreading its wings in Central Asia.

The biggest mid-range retailer in the kingdom is planning a 400-store expansion that is expected to include nascent markets such as Kazakhstan, Azerbaijan, Armenia, Belarus and Georgia.

"Moving abroad makes sense. At the moment, they have 900 stores in Saudi and they are the market leader in mid-range fashion," said Farouk Miah, an analyst at NCB Capital. "But there are some concerns about why they are not focusing on the rest of the GCC, where there are similar cultures, languages and easier transport."

Other Middle Eastern retailers and mall operators are also entering Central Asia as the market in the Gulf matures.

Paris Gallery, a luxury retailer, and Majid Al Futtaim, the operator of Mall of the Emirates in Dubai and Carrefour stores in the Middle East, are both looking at Central Asia.

Alhokair boasts a strong track record with sales and profit continuing to grow in the kingdom. The company more than doubled net profit to 74.7 million Saudi riyals in the final quarter of last yearover the same period in 2010.

Although that was 61 per cent lower than the previous quarter, Alhokair put that down to the seasonality of sales, which spike during Ramadan. The shares edged up as a result of the company's announcement of its fourth-quarter results.

Growth last year was attributed to an increase in the number of stores performing well, and new brands added to the portfolio.

Alhokair has about 75 franchises, including Marks & Spencer, Zara, Gap and Promod in Saudi Arabia.

Having been positive on the stock for a while, Mr Miah is now more neutral, given the expansion plans and political and foreign exchange risks.

"For the next stage of growth, the company is going into uncertain territory," he said. "I will want to see evidence the international expansion is working."