| Shira Ahiez, IBI Retail Analyst Investment House
The supermarket chain Victory (TASE 🙂 released on Tuesday from expectations, with a decline in revenue, stability in the gross margin and significant erosion in the operating margin.
Revenue was down about 9% in the fourth quarter (below expectations) in light of strong corona-sponsored comparative data that led to a 9.4% drop in SSS. In addition, the closure of two branches (Haifa and Ramla) over the past year has clouded growth.
On the other hand, the opening of the branch in Ashdod in the previous quarter offset, in our estimation, part of the decline.
This is a decrease in the SSS parameter similar to the one presented by competitors Tiv Ta’am, Shufersal (TASE 🙂 and Yochananoff, and higher than this figure at the Rami Levy chain, which published the results this morning.
Meanwhile, we note that according to IBI’s processing of Sterncast data, there was a decrease of 4.5% in the consumer goods market in Israel in the fourth quarter (compared to the corresponding period).
While the gross margin remained at 25.4% (expected), the erosion in SSS data led to a sharp decline in the operating margin, which amounted to about 3% (below expectations, compared with 4.3% at the same time and 4.1% in the first three quarters of the year).
Although we estimated a decrease in operating profitability to a level of 3.9%, the decrease recorded is significantly deeper, especially in light of the higher-than-expected decline in our SSS data.
It will be recalled that in the corresponding quarter, two HDP items were recorded: a provision for legal claims amounting to NIS 1.6 million recorded under administrative and general expenses and another expense of NIS 1 million due to a capital loss due to equipment sales and improvements in the branch closed in Haifa during the quarter.
In total, Victory posted a net profit of NIS 8.4 million for the quarter (compared with NIS 15.1 million at the same time).
| Highlights:
Main results Victory
| What is expected next?
Looking ahead, this is a less favorable business environment, with continued strong comparative data, along with our assessment of an increase in the level of competition, consumer sensitivity to price increases, a change in tone on the part of the Competition Authority and an increase in inputs (e.g. property taxes, electricity and so on).
In the coming year we estimate that Victory will return to the chain expansion moves, with our assessment of opening 2 more branches alongside the opening of 8 “Victory CITY” branches this year, which will also support terms of trade with suppliers and gross margin.
In our estimation, congestion in the retail space of the food marketing chains in the city centers, along with a shortage of workers in the sector, will moderate the pace of opening “Victory CITY” branches, along with the initial phase of the plan.
We also estimate an erosion in the operating margin in 2022 in light of the increase in such inputs along with costs due to the opening of new branches.
After updating the results for the fourth quarter of the year, our valuation model cuts a target price of NIS 66 per share, continuing to recommend a market return recommendation.
The author is a retail analyst at IBI Investment House and has no personal interest in the review. This review is not a substitute for investment marketing that takes into account the data and special needs of each person