5 Highlights From Padini’s Latest Earnings

Malaysia is gradually rolling back Covid-19 related curbs as it seeks to strike a balance between sustaining economic growth and reining in daily infections. 

The easing of movement restrictions is certainly a reprieve for the fashion retail sector which reported a 37.9% drop in sales in 2020.    

As a mass market fashion retailer, Padini Holdings Bhd (“Padini”) (KLSE:PADINI) is hopefully of a positive recovery. 

Here are 5 highlights from the group’s latest earnings. 

  1. Rebound in quarterly revenue and profits

Quarterly revenue expanded 20.5% to RM209.84 million in 4Q2021 from RM174.2 million in 4Q2020.

Meanwhile, quarterly net profit surged by 170.3% to RM10.49 million from a quarterly net loss of RM16.84 million a year ago. 

The improved performance is due to the comparative difference in closure periods. 

Padini said its outlets were only closed from June 1 till June 30, 2021 with the implementation of the full movement control order (FMCO) in 4Q2021 compared to their closure from March 18 till May 4, 2020 due to the enforcement of the first MCO in 4Q2020.

  1. Decline in yearly revenue and profits

For the full year ended June 30, Padini’s revenue dropped 24.0% to RM1.03 billion from RM1.35 billion, while net profit retreated 28.1% to RM54.05 million from RM75.17 million.

The decline is mainly due to the adverse impact from Covid-19 pandemic outbreak and the re-imposition of various lockdowns by the government throughout the year under review. 

In addition, the decline in revenue was also a result from the closure of 6 Brand outlet stores, 2 Padini Concept stores and 3 Free Standing stores.  

  1. Improvement in quarterly gross margins 

Quarterly gross margins have improved to 38% in 4Q2021 from 31% in 4Q2020. 

Gross margins could rise further following a gradual recovery in footfalls post-movement control order, albeit with tepid demand from tourist-concentrated city stores (such as Suria KLCC and Fahrenheit 88), offset by positive recovery from suburban malls. 

  1. Healthy cash flow and strong balance sheet

In spite of the challenging business environment, Padini recorded healthy operating cash flow of RM202.4 million and free cash flow of RM196.8 million for the financial year ended 30 June 2021. Nevertheless, management has held back from paying a dividend for the quarter until further business clarity is seen, in order to preserve cash flow. 

Padini has a rock-solid balance sheet as cash and bank balances have improved to RM523.8 million as at 30 June 2021 from RM441.5 million a year ago. In fact, the achievement is even more remarkable as the group has no bank borrowings. 

Investors may be interested to note that the cash and bank balances of RM523.8 million make up slightly more than 26% of its current market capitalisation of RM2.01 billion as at September 17, 2021. 

  1. Commentary on prospects

Management has remained conservative and views near term outlook to be unpredictable as the full impact of the Covid-19 pandemic cannot be ascertained pending the successful implementation of the vaccination programmes. 

Management will continue implementing measures to control costs, optimizing working capital, preserving cash and streamline its operations to minimize the impact. 

In summary

Padini has potential for further recovery as the gradual broader-based reopening of the economy following the inoculation programme will lead to the normalisation of footfalls. 

Furthermore, the fashion retailer’s solid branding and value-for-money product offering will continue to remain competitive against the backdrop of increasingly cautious consumer spending. 

While there has been a shift in presence for online shopping over physical stores, online sales for Padini still make up a small portion of sales at this juncture, pointing to the dependency on the performance of physical stores, which should be further supported following the closure of 11 underperforming stores. 

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