Reported Earnings: SAR52.4mn, +9% Y-o-Y, -10% Q-o-Q,  +17% vs. EFGe
Revenue: SAR325.2mn, +9% Y-o-Y, -1% Q-o-Q,  +15% vs. EFGe
EBITDA: SAR86.2mn, +23% Y-o-Y, +18% Q-o-Q, +11% vs. EFGe
 
Herfy’s reported 4Q18 results with earnings up 9% Y-o-Y mostly on improved top-line momentum and opex controls. Earnings were c17% ahead of our forecast mainly on lower-than-expected SG&A growth.  
 
Revenue rose for the fifth quarter in a row (+8.8% Y-o-Y), coming significantly ahead of our estimate (+15% vs. EFGe), driven by new restaurant openings (restaurant revenue grew 8% Y-o-Y in 4Q18). The company added four new restaurants this quarter (25 in 2018). Yields notably took a positive turn with revenue per store growing c3% Y-o-Y after declining for nearly five years.  
 
Gross margin contracted c2pp Y-o-Y to 27.9% (EFGe: 32.5%) likely on higher depreciation (+13% Y-o-Y) as well as other cost pressures (labor, input) and promotions; accordingly, gross profit was almost flat (+1 Y-o-Y, -1% vs. EFGe). EBITDA margin, however, widened c3pp Y-o-Y to 26.5% (EFGe 27.4%), as SG&A costs fell 6% Y-o-Y and higher other income. Accordingly, EBITDA (including other income) rose 23% Y-o-Y and was in 11% ahead of our forecast.  
 
We are mostly positive on the yield turnaround, a key improvement that confirms that earnings have bottomed out. While the gross margin pressure is somewhat concerning, the company has been able to offset that via cost controls. We have a Buy rating on the stock. (Nada S. Amin, Hatem Alaa, CFA, company)        
 
Herfy: SAR48.60 as of 27 Feb. 2019, Rating: Buy, TP: SAR59.00/share, MCap: USD839mn, HERFY AB/6002.SE