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Saudi Alhokair sees light at end of pandemic tunnel as other retailers recover
After companies listed on the Saudi Stock Exchange Tadawul reported earnings, Arab News studied the income statements of three food retailers and a fashion chain. Only Alhokair, mainly a clothing chain, increased its profits.
Rising sales of Alhokair boosted annual profits by 75% to SR 1,311 million. A decrease in depreciation was also a factor due to store closings. Financial costs fell by more than 25% as the company continued its policy of closing unprofitable outlets. The group also operates a much smaller food business.
“The pandemic has helped make quick decisions on how to get rid of stores, and in the past seven fiscal quarters around 600 unprofitable stores have been closed. At the same time, 300 new stores have been opened, ”the company’s chief financial officer, Ahmed Belbesy, told Al Arabiya in a recent interview.
He explained that in the first six months of the year, starting in early April, the company opened 11 food branches. On the clothing brand side, the company continued to divest branches that do not generate enough sales.
In contrast, Savola Group, Fawaz Al-Othaim and BinDawood Holding, all predominantly food retailers, saw their net profit in the first nine months of this year fall by more than 35%.
Fawaz Al-Othaim and BinDawood Holding both cited slowing sales after record 2020 figures. Both companies said growing operating costs were a factor in slowing their profits.
This is a turnaround from last year when, at the height of the health crisis, grocery retailers posted robust income statements.
At that time, last year’s growing pandemic was almost a disaster for Alhokair. The company suffered a loss of 1.7 billion rupees, the worst in its history.
The channel’s sales plunged by more than half, from a pre-pandemic level of SR 1.29 billion in the quarter ending December 2019 to SR 565 million in the quarter ending June 2020.
During the same period, large Saudi food retailers saw their revenues increase in the second and even the first quarter of last year, a generally weaker season for sales.
One of these retailers is Savola Group, a holding company with assets in food production and food retailing. It controls 28% of the Saudi retail market through its 98.8% owned grocery chain, Panda Retail, and its 49% owned Herfy Food Services Co. Herfy is a catering, industrial bakery and meat processing company.
Sales of the Savola Group amounted to Rs 6.12 billion in the first quarter of 2020, its highest sales on record in the first quarter. Net profit for the year jumped to SR 1 billion from SR 657 million in 2019.
Sales of Abdullah Al-Othaim Markets Co., a Saudi food wholesale and retail company, hit record levels in each of the first three quarters of 2020, with annual net profit rising by 72% to reach 600 million SR compared to 2019.
Another Saudi retailer that Arab News looked at was the owner of the supermarket and hypermarket chain, BinDawood Holding Company. Its main activity is the sale of food and household items, as well as the operation of bakeries and restaurants.
Sales and profits increased 13% in 2020 compared to 2018 results.
The reason was an increase in food and hygiene products in 2020, due to panic buying by consumers in the face of the pandemic.
In contrast, Alhokair’s food business is a secondary unit, so it did not take advantage of the large profits made by its grocery competitors last year. In the second quarter of 2021, its food and beverage business, primarily cafeterias in the food courts of the company’s stores, accounted for just 10% of the group’s overall revenue, according to company documents.
The value of transactions at the Kingdom’s outlets, a key indicator of the Saudi retail market, showed that food and beverage sales jumped 68% in 2020 to reach SR 62.4 billion, compared to the previous year. In addition, transactions more than doubled, from 388 million to 794 million.
In contrast, the value of transactions in the clothing and footwear segment increased only 9% to SR 30.5 billion, while the transaction volume fell 7% to 138 million.
It is clear that Alhokair’s turnaround has come this year, having survived the ravages of the pandemic, allowing it to increase its profits.