The Good And The Bad: What Investors Should Know About Sheng Siong Group Ltd’s Latest First Quarter Earnings

Sheng Siong Group Ltd (SGX: OV8) is one of the largest supermarket chains in Singapore with a network of 43 stores that are primarily located in the heartlands of the island.

Last week, Sheng Siong released its 2017 first quarter earnings. There are both positive and negative takeaways from the company’s latest earnings that investors may want to learn about. Let’s take a look, starting with an overview of the numbers.

1. The overall numbers

The following’s a table showing some important items from Sheng Siong’s income statement for the first quarters of both 2017 and 2016:

Source: Sheng Siong first quarter 2017 earnings release

It’s obvious that Sheng Siong’s results have improved compared to the same period last year – its revenue, gross profit margin, and net profit all came in higher.

2. The positives

Firstly, its gross margin expanded by 0.5 percentage points mainly because of higher rebates from suppliers for bulk handling and promotions.

Secondly, Sheng Siong continues to have a strong balance sheet with zero debt and S$68.3 million in cash. With a strong balance sheet, Sheng Siong is in a good position to further expand its stores if needed.

3. The negatives

Firstly, the company’s revenue growth was mainly driven by new store openings. In fact, same store openings contributed 6.2% to Sheng Siong’s revenue growth in the quarter, which is higher than the company’s revenue growth of 4.1%. Meanwhile, same store sales growth was flat. These may be a sign that Sheng Siong was in a very competitive environment.

Secondly, the company warned that that supermarket industry “is expected to remain competitive” and that its gross margin “would be affected if input cost is increased because of food inflation which could be caused by disruption to the supply chain or changes to prices caused by nations adopting protectionist measures.” These could have a negative impact on both its top- and bottom-line.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.