Net Income: SAR26.5mn, -45% Y-o-Y, +164% Q-o-Q, -13% vs. EFGe
Revenue: SAR1233mn, -9% Y-o-Y, -3% Q-o-Q,  -4% vs. EFGe
Gross Profit: SAR276.6mn, -13% Y-o-Y, +11% Q-o-Q, -6% vs. EFGe
Operating Profit: SAR85.2mn, -17% Y-o-Y, +31% Q-o-Q, +14% vs. EFGe
 
Fawaz Al Hokair reported its KPIs for 3Q18/19 (ending 31 Dec 2018) with headline net income decreasing 45% Y-o-Y on a lack of top-line growth and continued margin pressure. Earnings came in 13% below our estimate mainly on below-EBIT items. 
 
Top-line continued to decline falling for the 10th consecutive quarter, down 9% Y-o-Y (-4% vs. EFGe) on negative LFLs and net store closures. 
 
Gross margin contraction accelerated versus the prior quarter, trimming c120bps Y-o-Y to 22.4% (EFGe: 23.0%) with gross profit falling c13% (-6% vs. EFGe). 
 
Headline EBIT (including associate and other income) declined 17% Y-o-Y (+14% vs. EFGe) with EBIT margin adding 70bps to 6.9% (EFGe: 5.8%) with SG&A costs (including depreciation) fell c12% Y-o-Y (-13% selling & marketing costs, -5% G&A expenses). The company had previously noted that it would cut costs partly through focusing on more targeted marketing (social media, loyalty cards, etc.)
 
Another weak results set, especially the sustained decline in its top line. We have a Neutral rating on Al Hokair on top-line pressures due to falling LFLs (weak market dynamics), increased promotions and balance sheet risks (high leverage and inventory levels). (Company, Hatem Alaa, CFA, Nada S. Amin)
 
Al Hokair: SAR21.60 as of 11 Feb. 2019, Rating: Neutral, TP: SAR23.00/share, MCap: USD1,210mn, ALHOKAIR AB/4240.SE