Matahari Department Store: Results First Take: Disappointing Lebaran sales adversely affected 1H24 earnings
- 1H24 earnings fell by 8% y/y to Rp626bn due to weak sales and a lower gross margin, slightly below our estimate
- Negative SSSG of 2.8% in 1H24 was driven by disappointing Lebaran sales, attributed to subdued consumer sentiment and a shift in consumer spending away from clothing and footwear
- Management now projects FY24F EBITDA of Rp1.2tn (compared to Rp1.4tn in FY23 and Rp988bn in 1H24)
- We remain cautious as the 2H24 outlook remains challenging given persistent macro challenges and store closures; we currently have a HOLD call with a TP of Rp1,900
What’s new?
1H24 earnings declined by 8% y/y due to weak sales during the Lebaran season, slightly below our estimate. LPPF reported a 2Q24 net profit of Rp300bn (-48% y/y; -8% q/q), bringing 1H24 earnings to Rp626bn (-8% y/y). This is slightly below our estimate but within the consensus expectations, forming 79%/83% of the respective FY24 estimates. In 2022-2023, 1H represented an average of 84% of the company’s full-year earnings. The earnings drop in 2Q24 was driven by lower net revenue (-26% y/y; -10% q/q) due to the early shift in the Lebaran trading season to 1Q24 (2Q24 had 11 fewer Lebaran trading days compared to 2Q23) and less operating leverage, which offset the improvement in gross profit margin (as a percentage of net revenue) to 68.3% in 2Q24 (vs. 67.6% in 2Q23 and 65.4% in 1Q24). That said, 1H24 net revenue also fell by 3% y/y due to weak sales during the full Lebaran festive season and persistent softness in consumer spending, particularly for apparel and footwear. Lower net revenue, a decline in gross profit margin (as a percentage of net revenue) to 66.8% in 1H24 (vs. 67.4% in 1H23) amid aggressive stock clearance activity, especially in 1Q24, and less operating leverage led to an 8% y/y decline in 1H24 earnings.
Our views
We remain cautious as the 2H24 outlook remains challenging; we currently have a HOLD call with a TP of Rp1,900. We remain cautious as we foresee the 2H24 outlook remaining challenging, given persistent macro challenges, including ongoing inflationary pressures, particularly on food, which will continue to affect the purchasing power of lower- to middle-income consumers. Management indicated that 2H24 performance is likely to remain weak post-presidential election and Lebaran season. Additionally, management is delaying new store openings in 2H24 but will continue major renovations for A-grade stores. The closure of 10 stores, with 7 completed in 1H24, might also lead to aggressive discounting activities impacting earnings in 2H24. Based on 1H24 results, management projects FY24F EBITDA of Rp1.2tn (compared to Rp1.4tn in FY23 and Rp988bn in 1H24). Despite the near-term challenges, management is continuing with its strategic initiatives, including expanding the space and product range of major consignment brands, relaunching several private label brands, expanding the new private label, SUKO, to more stores and categories, increasing brand awareness through digital marketing (influencers and social media), as well as improving digital capabilities and omnichannel experience. Nevertheless, we anticipate that the full impact of these initiatives on sales performance will take some time to materialise if successfully implemented. We currently have a HOLD call with a TP of Rp1,900.
Segmental performance
Negative SSSG of 2.8% in 1H24 due to disappointing Lebaran sales. LPPF posted 2Q24 net revenue of Rp1.8tn (-26% y/y; -10% q/q), bringing 1H24 net revenue to Rp3.8tn (-3% y/y). This is slightly below our and the consensus' expectations, forming 56% of both our and the consensus FY24 forecasts. In 2022-2023, 1H represented an average of 59% of the company’s full-year net revenue. In addition, LPPF reported SSSG of -25% in 2Q24 (vs. 34.3% in 1Q24), bringing 1H24 SSSG to -2.8% amid weak SSSG during the Lebaran season of -2.4%. Notably, the SSSG for the DP segment stood at -3.4%, while the consignment (CV) business experienced SSSG of -2.5%. Weak 2024 Lebaran sales performance was attributed to subdued consumption among lower- to middle-income consumers caused by high inflation and shifting consumer spending to travel and food consumption away from clothing and footwear.
Total gross sales in 1H24 dropped by 2.2% y/y to Rp7.2tn (based on management calculations) due to a 0.2% increase in units sold but a slight decline in Average Unit Retail (AUR) of 2.4%. In terms of categories, children's and ladies' divisions emerged as the best performers, while footwear faced challenges due to changes in import regulations affecting incoming stocks for CV suppliers. Regionally, Kalimantan and Java emerged as the top-performing regions, while Jakarta underperformed.
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