adminBusiness Reporter
FINANCIAL analysts say retailer OK Zimbabwe’s full year revenue might decline 4 percent while margins may further soften as deflationary pressures maintain grip on the business.
One of the country’s biggest retailers saw revenue fall 8 percent to $213 million the half-year period to September 2015.
The analysts, attributed 7,9 percent fall for OK Zimbabwe’s half-year revenue from $232,05 million in 2014 to a highly competitive environment characterised by new players and a growing informal sector.
Reviewing the giant retailer’s half year financial results, IH Securities also said the conversion of 19 conventional OK stores contributed to easing of gross profit margins to 17,6 from 18,8 percent.
“We forecast revenue to ease 4 percent year on year to $444 million and anticipate margins will continue to soften due to deflationary pressures, margin-volume trade-off of Value stores as well as the use of promotions to trigger consumer demand,” IH said.
Analysts expect earnings before interest tax depreciation and amortisation (EBITDA) margins to ease to 2,4 percent to $10,66 million in 2016 3,8 percent in 2015, down 39,3 percent year on year. Management said work has already started on a new store at Houghton Park and are working on opening more stores in other centres.
The capital expenditure in the period will result in higher depreciation charges (forecast +13,4 percent y/y) resulting in profit after tax of $2,21 million, down 70,6 percent from the prior period.
However, the analysts believe that the pay-offs of the conversion of the giant retailer’s conventional stores into value stores are yet to play out into the full year, as more consumers continue to down trade.
As such, financial analysts anticipate a slight increase in the group’s sales volume to result in a marginally better second half for OK.
The decline in profitability at OK was exacerbated by the introduction and upward review of duties and surtax, as well as new requirements for import permits and licences for some high volume imported goods such as cooking oil and milk, despite both foreign and local suppliers reducing their prices to stimulate demand.
In view of the myriad of challenges besetting the domestic economy, most retailers have come up with initiatives to contain costs, expand revenue streams as well as to stimulate demand for products.
Among the measures to stimulate demand, which like many other retailers OK Zimbabwe has done, has been reduction of prices in a market battling liquidity crisis and constraints of low disposable incomes.
Online Reporter