May 20, 2015

Robinsons Retail Holdings Inc (RRHI) grows 1Q15 net income by 39%YoY

In an investors briefing, Robinsons Retail Holdings Inc (RRHI) disclosed that its 1Q15 net income reached P781m, up 39% YoY due to the huge jump in other income which is primarily composed of interest and dividend income. Stripping out this gain, core net earnings would have been up by only 10% to P584m. Net sales grew 13% to P19.7b with gross profit growing at a faster pace (+16%) to P4.2b as the company expanded margins on higher scale and support from suppliers.

Operating income, however, grew by only 4.3% to P790m as the newly opened stores have yet to ramp up operations while the company incurred higher freight costs related to the port congestion. RRHI registered a blended same-store sales growth (SSSG) of 3.4% for 1Q15 ahead of its guidance of 2-3%. The company maintained this target despite the outperformance during the quarter.

Its supermarket business which accounts for roughly half of total sales posted solid results with EBITDA growing 14.4% to P559m on the back of an 11% rise in net sales to P9.7b. The latter was primarily due to new store additions (+7.9%) and strong SSSG of 3.4% given the higher basket size of shoppers.

Robinsons Retail Holdings Inc’s department store business showed modest growth with net sales growing 9.5% to P2.9b and gross profit and EBITDA growing 10% and 7.6% to P774m and P171m, respectively. The department store segment likewise registered strong SSSG of 4.8%, +370bps YoY, also due to the higher basket size of shoppers.

Its drugstore segment registered a 12% hike in net sales and 11% increase in EBITDA. Sales were driven primarily by the contributions of new stores (+24.5% to 330 from 265 in 1Q14). SSSG, however, turned negative at -0.09% vs the 6.2% growth in 1Q14.

The DIY business grew its sales by 21% to P2.2b and gross profit by 20% to P692m. EBITDA also rose 12.5% to P212m. The DIY segment showed a contraction in margins as its new business A.M. Builders Depot typically has margins which are 400-500bps lower than the True Value and Handyman brands. SSSG of the DIY business likewise decelerated to 4.8% from 7.6% in 1Q14 as its two flagship True Value stores were under renovation.

The convenience store business still continued its weakness with EBITDA declining 15.1% to P59m from P70m in 1Q14. Ministop registered a decline in EBITDA despite an 18.6% increase in net sales to P1.8b as EBITDA margins contracted 180bps. SSSG, however, turned positive posting a 5% growth, a turnaround from the -7.6% SSSG in 1Q14 as the high base of cigarettes in 2013 was now gone coupled with supply chain improvements.

RRHI's specialty stores segment remains as one of the bright spots as it registered a 72% increase in EBITDA on a 20% sales growth%. The latter continued to be driven by the strong performance of Toys “R” Us and Daiso Japan which led the segment’s turn around in SSSG for the quarter to 3.1% from -0.4% in 1Q14. Gross profit margins also improved by 200bps as Daiso Japan benefited from the weakness of the Japanese Yen and store rationalization initiatives

Our take: RRHI’s results continued to deliver mixed results. This is especially evident in management’s decision to keep its guidance of 2-3% on SSSG despite the 3.4% registered in 1Q15 implies management's expectations of a slowdown in the succeeding quarters. The 1Q15 results account for 18% of full-year consensus estimates. – WealthSec