What's down: Schools deal

A boost in back-to-school sales was not enough to lift margins for the Saudi retailer Jarir Marketing. The company, which sells books, office supplies and electronics, increased revenue by 23 per cent to 735 million Saudi riyals for the third quarter compared with the same period last year, with net income up 13 per cent for the quarter to 102m riyals. However, gross margins fell by 295 basis points to 17.3 per cent compared with the third quarter last year, with net margins dropping 134 basis points to 13.9 per cent, both below analysts' expectations.

"We believe this was mainly due to an increasing percentage of sales coming from [information technology] and electronics where margins are lower as compared to books, office and school supplies," said Farouk Miah, an analyst at NCB Capital in Saudi Arabia. Mr Miah has a "neutral" rating on the stock, with a target price of 170 riyals a share. It closed yesterday down 0.3 per cent at 160 riyals. Sales were up 23 per cent compared with the third quarter last year, to 735m riyals.

The company enjoyed its highest sales in seven quarters as a result of an increased store count in the third quarter, up to 28 stores from 26 in the same period last year. It also benefited from the important back-to-school season falling in the third quarter this year. Most schools started closer to the fourth quarter last year because of Ramadan. "This will lead to year-on-year growth for the fourth-quarter sales being lower than usual as it will not contain Ramadan, as compared to the fourth quarter last year," Mr Miah said. "Therefore, despite the positive surprise on this quarter's sales, given the negative seasonality impact expected in fourth quarter, coupled with the ongoing margin contraction, we remain cautious on the stock."

Jarir accounts for almost 50 per cent of the Saudi consumer electronics market. According to a recent study by CB Richard Ellis, overall retail sales in the kingdom should climb sharply to US$125 billion this year, from $75bn last year. halsayegh@thenational.ae