Parkson Retail Asia Pte Ltd (SGX: O9E) had reported its fiscal second quarter earnings yesterday evening for the fiscal year ending 30 June 2015 (FY2015) and the results were not pretty. The reporting period was for the quarter ended 31 December 2014.
For a period of time, the Southeast Asia-based departmental store retailer had seemed to be a well-liked retail company amongst Singapore investors.
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I say so because the share had mostly been trading at an elevated price-to-earnings ratio of 20 or more in 2012 and 2013 and it was only in late 2013 when Parkson Retail Asia’s PE ratio well-and-truly fell below 20.
Unfortunately for investors, the company’s falling PE ratio came along with declining earnings and the net-effect of the two is a severe collapse of Parkson Retail Asia’s share price from a peak of around S$1.70 per share in early 2013 to S$0.75 today.
As I mentioned earlier, Parkson Retail Asia’s fiscal second quarter earnings results were not pretty and that is just additional bad news for the company. With that, let’s dig into the firm’s latest set of numbers.
The quarterly earnings
Parkson Retail Asia’s revenue for the quarter had inched up by 0.1% from a year ago to S$117.5 million. But, higher rental expenses and staff costs and a lower share of profit from an associated company had caused Parkson Retail Asia to experience a sharp 24.6% decline in net profit for the quarter.
Despite the slight revenue increase, it’s worth noting that Parkson Retail Asia had experienced negative same store sales growth (SSSG) for the fiscal second quarter in its core markets of Malaysia and Vietnam; the figures were -6.7% and -5.8%, respectively. SSSG’s a measure of revenue growth which strips out new store openings and gives a better picture of a retailer’s underlying organic demand.
In Malaysia, Parkson Retail Asia had to struggle with low consumer confidence sentiment; in Vietnam, intense competition had hampered the firm’s operations.
On a brighter note, the company had experienced strong SSSG of 8.8% and 28.9% for the fiscal second quarter in Indonesia and Myanmar, respectively. In particular, Parkson Retail Asia’s maiden store in Myanmar had “recorded strong ramp-up in sales” after the first year of operations.
There’s another bright spark with Parkson Retail Asia and it is its strong balance sheet. As at 31 December 2014, the company is sitting on S$202 million of cash with no debt. That cash position is in fact, enough to cover all of the firm’s liabilities which are due within a year of 31 December 2014.
Such financial strength gives the firm the resources to weather through the storm, though it must be noted that tough challenges do lie ahead.
Parkson Retail Asia needs to find a way to turnaround its business in Malaysia and Vietnam in order to grow again.
From the looks of the current situation, it seems that weak consumer sentiment in Malaysia might be a temporary setback. The loss of business in Vietnam due to competition might be a tougher challenge for Parkson Retail Asia, however.
The company is currently trading at a trailing PE ratio of 16.1 with a trailing-12-month dividend yield of 16.7%.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.