Fawaz Abdulaziz Alhokair Co. returns to profitability in FY22

Saudi-based Fawaz Abdulaziz Alhokair Co. announced its results for the full year ended 31 March 2022 (FY22), reporting revenues of SAR 1,387 million for the final quarter, a 22% growth year-on-year (y-o-y), with annual revenues of SAR 5,915 million recording a 40% increase from the previous year.

The strong top-line performance was predominantly driven by the recovery in both domestic and international retail markets with a strong improvement in consumer sentiment translating into higher in-store foot traffic, despite the marginal impact of the Omicron variant in December. F&B revenues continued to grow but were hampered by capacity and other Covid-19 related restrictions which persisted throughout the year. Overall, the gompany reported a net profit of SAR 38 million for FY22, compared to a net loss of SAR 1,109 million in FY21, with the increase driven by the growth in revenues, expansion in trading margins, absence of one-off inventory provisions recorded in FY21, partially offset by a one-off, non-cash impairment charge of SAR 71 million related to the goodwill arising from the acquisition of NESK Group in 2012. Adjusted net profit, excluding the impairment charge, is SAR 109 million.

“Alhokair has successfully navigated a challenging year to generate topline growth of 40% and a strong underlying profitability. The robust results are supported by the trading activity returning to pre-pandemic levels, the successful execution on the operational upgrade strategy and the strength of our teams across the business. We entered the new year on a strong footing, ready to sustain our path to recovery and build on our industry-leading position,” said Mohamad Mourad, Interim Chief Executive Officer at Alhokair.

“The optimisation of our brand portfolio is paying off, and we were pleased to successfully launch and onboard great brands this year, whilst the rationalisation of our store network is approaching normalisation. Our investments in key international operations have done well with the CIS countries, Egypt and Jordan being key contributors to the performance,” he added.

Revenue analysis

Alhokair recorded revenues of SAR 1,387 million in Q4-FY22, up by 22% from SAR 1,132 million booked in Q4-FY21. Meanwhile, full-year revenue increased 40% y-o-y to SAR 5,915 million, in line with guidance. The strong growth in the top-line was primarily driven by Alhokair’s ongoing focus on portfolio optimization and increasing revenue per SQM, supported by the market’s return to normalcy as pandemic-related restrictions continued to be lifted across the globe, in addition to a general improvement in business activity and sentiment. This translated into enhanced performances across the board, with a marked growth in Saudi and international retail revenues, as well as F&B.

• Saudi retail revenues exceeded SAR 1 billion in Q4-FY22, increasing 17% y-o-y. For FY22, revenues amounted to SAR 4,419 million, increasing 32% y-o-y. This was primarily driven by a significant improvement in consumer sentiment, which resulted in a pickup in sales activity, thus reinforcing the growth in revenues. The Company ended the year with 1,042 stores and 63 brands in Saudi Arabia, with net store closure of 78 stores since FY21, the vast majority of which materialized in the first half of the year. Net closures normalized in the second half of the year as the Company approached the end of its store rationalization program.
• International retail operations generated revenues of SAR 221 million in Q4-FY22, up 44% y-o-y, which was essentially the result of sustained revenue growth from CIS countries, Egypt, and Jordan. Alhokair ended the year with 308 stores and 38 brands overseas, with net store closure of 10 stores since FY21. International revenues almost doubled during the year to nearly SAR 1 billion in FY22, in line with Alhokair’s ongoing initiatives to expand its omnichannel footprint in selected growth markets, with a continued onboarding of leading global brands.
• F&B segment reported remarkable results, with revenues increasing 35% y-o-y to SAR 130 million in Q4-FY22 from SAR 96 million in Q4-FY21, in line with Alhokair’s strategic plans to further expand the contribution of this segment, through increasing the number of outlets, growing the brand portfolio, and enhancing F&B digital platforms. The recent signing of the master franchise agreement with US fast-food group Subway is expected to boost Alhokair’s F&B segmental performance in FY23 and beyond. With net openings of 17 stores, the Company reported a 46% y-o-y rise in full-year revenue to SAR 498 million in FY22 from SAR 340 million a year earlier. Alhokair remains well-positioned to further capitalize on the promising growth potential of the dynamic F&B segment, through a strategic focus on portfolio diversification, digitalization, and expansion of home-grown concepts.
• Online sales in Q4-FY22 came in at SAR 48 million, up by 24% y-o-y as Alhokair has continued to expand its online monobrand platform and multi-brand capabilities, which was also supported by the acquisition of Vogacloset last year. FY22 sales stood at SAR 219 million, in line with FY21, as the e-commerce market normalized after the rapid pandemic-driven spike at the beginning of last year. Online revenue contribution to total revenue (excluding F&B) reached 4.0% in FY22 compared to 5.6% in FY21. Nevertheless, the currently low e-commerce market penetration rates in the Kingdom, in addition to a rise in population and discretionary spending, as well as a shift in consumer preferences, should act as key growth drivers for our online business going forward. In line with its sustained efforts to accelerate its digital drive and further cement its positioning in the domestic market, Alhokair, through FAS Labs launched FAS Finance through entering into a strategic partnership with valU, that will be targeted mainly at Saudi customers, providing them with a variety of customizable digital consumer finance solutions across the entire purchase journey.
• Ramadan trading activity: Alhokair started the new fiscal year on a strong footing as the Holy Month of Ramadan, considered one of the best sales seasons, started on April 2^nd. Overall, revenues increased by 5.2% y-o-y for the Ramadan trading period, defined as the 30 days of Ramadan plus the 7 days around Eid Al-Fitr. Saudi retail sales during the period remained buoyant showing healthy growth of 4.2% compared to the 2021 Ramadan season. Meanwhile, the impact of the Ramadan season was especially pronounced for the F&B segment, whereby revenue growth exceeded 25.3% y-o-y, driven by lower pandemic-related restrictions, and a large pickup in activity resulting from enhanced consumer sentiment.
• Consolidated like-for-like (LFL) revenue growth largely improved in Q4-FY22, recording 16.3% y-o-y, a positive reading for the fourth quarter in a row, despite partial Covid-related restrictions in Saudi Arabia in February. Consolidated LFL growth reached 37% in FY22.
  • Saudi retail revenues were up 12.2% y-o-y in LFL terms for Q4-FY22, and 30.6% y-o-y in FY22. Management continues to target a return to LFL growth in the low single digits over the near term.
  • International retail sales increased 39.3% in LFL terms for Q4-FY22, and a solid 4% y-o-y in FY22, due to the positive momentum from CIS counties, Egypt, and Jordan.
  • F&B sales LFL growth reached 18.6% for Q4-FY22, and 46.0% in FY22 despite ongoing Covid related restrictions during the year.