Robinson Department Store
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Disappointing 3Q14 profit HOLD
Robinson Department Store Plc (ROBINS)
13% below estimate
ROBINS reported 3Q14 earnings of Bt353m, down by 17% YoY and 20% QoQ. The figure was 13% below our estimate and 19% short of the consensus, due to lower-than-expected department store sales and margin.
Results highlights
Sales declined 2% YoY to Bt5.7bn, while same-store sales slipped 6.8% in 3Q14, deeper than our estimate of a 5% contraction. Weak consumption spending, cannibalization within the group and renovations of top-seller stores were behind the weak same-store sales number.
Gross margin slimmed by 31 bps YoY to 23.5%, as ROBINS launched a hard promotion campaigns in late September to facilitate spending. Note that ROBINS’ previous policy was to reduce price promotions, but it eventually decided to launch more promotions, as spending has been weaker than company had expected.
The effect of the weaker department store operation was mitigated by increased rental income and equity income from SuperSports. Rental income jumped 32% YoY to Bt434m on a 26% YoY increase in rental space.
Equity income from Power Buy slipped 5% YoY to Bt34m, while profit-sharing from SuperSports grew 12% YoY to Bt61m. However, we are becoming concerned about slowing sales growth at SuperSports (growth was 39% YoY in 2Q14). Weak consumption spending now seems to be manifesting among mid- to high-income demographics.
Outlook
Weak same-store sales will persist into 4Q14, as the weak spending environment and cannibalization effects will prevail into the quarter, while the renovations of best-seller stores won’t be completed till November. Management said sales in October didn’t pick up MoM and a recovery may take some time to build momentum.
What’s changed?
We factored in the weaker consumption outlook, so have cut our FY14-15 earnings forecasts by 8% and 22%, respectively. Hence, our YE15 target price dives to Bt55 from Bt74.
Recommendation
A recovery is unlikely within the next six months, so we think it is too soon to play ROBINS on the recovery theme. We have downgraded our rating from BUY to HOLD.
