Cenomi Retail, Saudi Arabia’s pioneering retail brand partner, has seen its year-to-date (YTD) revenues slide 5.5% to SR4.22 billion ($1.13 billion) on consumer spending slowdown in the third quarter. 

 

Cenomi reported an EBITDA of SR346.7 million, which is an increase of 7.7%, and a net loss of SR89.1 million. During the quarter, the company reported revenues of SR1.19 billion, a reduction of 13.6% y-o-y, an EBITDA loss of SR39.2 million and a net loss of SR202.9 million. 

 

Net debt at quarter-end was SR2.47 billion compared to SR2.7 billion at the end of 2022, a decrease of 10% as the company works to deleverage. 

 

Challenging Saudi market

The quarter’s results reflect a challenging Saudi market as the typical summer seasonality was compounded by lunar calendar effects. 

 

As reported by SAMA, these issues contributed to a 7.4% drop in retail spending across the kingdom on fashion categories in the third quarter. More broadly the results were severely impacted by the increase in the interest rates year over year with SR139.7 million incremental finance charges in the period offsetting improvements in underlying operating profit that grew 5.7% to SR217.3 million. 

 

As the company accelerates its deleveraging efforts in the coming quarters, it is expected the improving operating fundamentals will translate into enhanced profitability.

 

The company’s turnaround strategy continues to deliver solid progress. The company closed 319 stores in the last 12 months, representing 19.2% of the global footprint and leading to a mere 5.5% (9m y-o-y) drop in revenue, a testament to the benefits of the targeted store rationalisation programme. Moreover, the focus on Champion Brands is yielding strong results with Zara and Inditex delivering 6% and 4% like-for-like (LFL) growth respectively despite the macro issues affecting the wider market.

 

Key milestones

Furthermore, Cenomi Retail made good on previous commitments and achieved key milestones in its transformation during the quarter. 

 

As part of its brand rationalisation strategy, a Letter of Intent (LOI) to divest 22 brands was signed with Abdullah Al Othaim Fashion Company, with due diligence completion and Sales and Purchase Agreement (SPA) signature expected in the fourth quarter. The deal is targeted to close in the first quarter of 2024. 

 

The company also successfully exited the Balkans through the closure of its eight stores. For its US operations, an LOI to sell the business has been signed. The company expects to close the US transaction in the fourth quarter of this year. Efforts to right-size the Egyptian and Moroccan markets are progressing to plan with 18 and 3 stores closed in the third quarter respectively.

 

Deleveraging efforts

Importantly, Cenomi Retail received from its related parties the final settlement of an outstanding amount of SR272 million of which SR217 million were settled during the quarter and the remaining balance will be paid after the closing period. These funds will support the company’s deleveraging efforts. Net debt, at the end of the quarter, stood at SR2.48 billion, a decrease of 10% from December 2022. 

 

In line with efforts to introduce innovative payment solutions and maximise overall share of wallet, Cenomi Retail secured a strategic partnership with Tabby, Mena’s leading Buy-Now-Pay Later (BNPL) shopping and financial services app, during the quarter. Early results for the 10 participating brands through their online channels are encouraging with over 40% penetration and an increase of over 20% in basket size. 

 

Interest rate dynamics

Dr Günther Helm, Chief Executive Officer at Cenomi Retail, commented: "It is clear the market and interest rate dynamics are offsetting our operating and financial improvements. The Saudi fashion market had a tough comparison versus last year with the Eid holidays falling in the second quarter and the seasonal discounts extending for longer. 

 

“Perhaps more important is the increase of SR139.7 million year to date in finance charges, to SR268.2 million, on the back of the steepest rise in interest rates in a generation. This highlights the weakness in our current capital structure and validates our commitment to reducing our levels of debt. To that effect we have settled SR300 million of our outstanding debt in early October, which will have a positive impact going forward. 

 

“Operationally, our year-to-date EBITDA is up 7.7%, demonstrating the improvements we delivered across the business be it staff costs that are lower by SR77 million (-10.8% y-o-y) and rental costs declining by SR40 million (-8.1% y-o-y) to name a few. 

 

Turnaround strategy

“This tough environment only sharpens our focus on delivering the turnaround strategy we put forth, and I’m proud of the progress we achieved in the quarter. During the quarter we continued with our store rationalisation programme. We closed 68 retail stores and F&B outlets and are now at the tail end of the major reset in our store footprint. We signed an LOI with Abdullah Al Othaim Fashion Company to divest 22 non-core brands. We exited the Balkans and signed an LOI to exit the US. Lastly, our related parties have largely settled the outstanding balance of SR272 million. 

 

“We also continue to expand our offering with the introduction of the first Fnac store in the region at Nakheel Mall Dammam, as well as our partnership with Tabby, which we expect will have a tangible impact on customer conversion and total spend. Our Champion Brands continue to deliver despite the macro environment and in fact Zara is outperforming the Saudi Fashion market gaining share and growing 5.2% in the kingdom versus a market up 2.8%. International and Online remain bright spots both growing at 8.2% and 34.8% respectively. 

 

"We are working with a Big Four partner and remain committed to ensuring we implement international best practices to provide reasonable assurance and transparency to all stakeholders. While this was a challenging quarter, I am enthusiastic about Cenomi Retail's future and am confident that as we continue to deliver on our transformation strategy, we will return to consistently achieving enhanced profitability.”--TradeArabia News Service