August 19, 2014

RRHI posts 46% YoY rise in 2Q14 net income

In a press statement, Robinsons Retail Holdings Inc (RRHI) announced 2Q14 net income to common of P807m, up 46% YoY on the back of a 20% growth in net sales, higher interest income and equitized net earnings. This brings the 1H14 net income to P1.37b, up 26% YoY. Excluding interest income, equitized earnings from its 40% stake in Robinson’s bank and unrealized FX gains/losses, core earnings grew 20% to P766m in 2Q14.

The consolidated net sales growth can be traced to the contributions of additional new stores as well as robust same store sales growth (SSSG). RRHI posted SSSG of 3.8% primarily due to the strong performance of its Specialty stores group which had an SSSG of 10.5%. In particular, Daiso Japan posted an SSSG of 26%; Toys “R” Us, 22%; and,Robinsons Appliances, 11%. These compensated for the negative SSSG of its international fashion apparel brands. The convenience store business likewise continued to register weak SSSG in 2Q14 at -1.9%.

The other businesses on the other hand posted respectable SSSG numbers with Robinsons Supermarkets enjoying a 3.8% SSSG; Robinsons Department Stores, 3.3%; DIY, 5.0%; and, drugstores, 4.5%.

Blended gross margins expanded by 30bps to 21.6% in 2Q14 and by 40bps to 21.3% in 1H14 as the group benefitted from increased scale, additional supplier discounts and additional value-added services. As of end-1H14, RRHI operated 1,180 stores up from the 940 stores in end-2013. The company said it is on track to meet its year-end target of approximately 1,400 stores.

Our take: RRHI sustained its strong performance in 1Q14 as it posted strong sales growth while managing to keep consolidated SSSG numbers and margins healthy despite intensifying competition. We believe this can be attributed to the company’s diversified portfolio of stores which this enabled certain formats to compensate for the less attractive performance by the other segments (particularly in the supermarket format where we believe competition is currently fiercest).

The opening of new stores which is expected to grow by 40% to about 1,400 by end-2014 should give RRHI more room to grow sales and expand margins as it gets achieves additional scale and leverage to get additional supplier discounts. – WealthSec