Sheng Siong’s Gross Margin Continues to Climb: 5 Highlights from the Retailer’s Latest Earnings

The Smart Investor2023-05-05

It is hard to miss the bustling crowds in shopping malls and food centres as more people eat out this year.This phenomenon is a sea change compared to the same period last year when COVID-19 community...

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icycrystal
2023-05-05
icycrystal
Thanks for sharing
OO_898
2023-05-05
OO_898
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A mixed set of financialsRevenue for 1Q 2023 dipped by 0.4% year on year to S$356.5 million as demand normalised with the easing of pandemic-related measures.However, gross profit managed to inch up 0.1% year on year to S$102.8 million as gross margin improved from 28.7% in 1Q 2022 to 28.8% in 1Q 2023.Other income fell from S$3.3 million a year ago to S$2.4 million because of lower government grants and the sale of scrap material, offset by higher rental income.Administrative expenses rose 6.5% year on year to S$63.2 million mainly due to two reasons – higher utility costs as Sheng Siong renewed its electricity supply agreement at the end of 2022, and higher staff costs.Although finance income jumped more than sevenfold year on year to S$2.7 million, net profit still fell by 5.2% year on year to S$33.4 million.Despite the lower profit, Sheng Siong continued to maintain a sturdy balance sheet with S$283.1 million of cash and no debt.The supermarket retailer also generated positive free cash flow of S$13.9 million for the quarter, though it was down 31% year on year from the prior year’s S$20.1 million.2. Gross margin continues to climbWhen Sheng Siong released its 2022 earnings, we highlighted how the retailer managed to consistently increase its gross margin.Last year, the group managed to lift its gross margin from 28.7% to 29.4% through a more favourable sales mix of higher-margin items.This trend has continued into 1Q 2023.Gross margin saw a small uptick to 28.8% for the quarter, up 0.1 percentage points, due to a sales mix with products of higher margins.Compared with 1Q 2020, the gross margin had improved by nearly two percentage points from 27%.3. Store expansion gathers paceSheng Siong’s modus operandi is to grow its business through steady store expansion.It has managed to do so even through the pandemic years of 2020 to 2022 when store count jumped from 59 at end-2019 to 67 by the end of 2022.As of 31 March 2023, the supermarket operator owned and operated 68 stores, with one new store opened during 1Q 2023.The total retail area has hit a historical high of 613,100 square feet, more than 50% higher than its store footprint of 400,000 square feet a decade ago.4. Room for further growthInvestors may be wondering if the retailer can continue to grow given that Singapore is a small country.Management plans to open at least three new stores per year and with the pandemic behind it, construction of HDB flats should also resume its normal schedule.The government is ramping up its public housing supply to meet strong demand and clear the backlog accumulated during the pandemic years.National Development Minister Desmond Lee said that there will be 150 concurrent built-to-order (BTO) projects by 2025.This year alone, HDB will launch around 23,000 BTO flats in areas such as Tengah and Jurong West.There will be ample opportunities for Sheng Siong to bid for new sites to open new stores and continue its expansion plan.The group is also due to open its fifth store in Kunming, China.5. A cautious outlookManagement has provided a cautious outlook as events such as the US banking crisis, persistent inflation, and high interest rates dampen consumer spending.The good news is that higher prices may prompt some customers to switch to cheaper alternatives such as Sheng Siong’s numerous house brand products, helping to drive sales in this area.However, higher energy prices and consistent in-store promotions will negatively impact margins and translate to lower net profit even as Sheng Siong grows its top line.There is also the chance that Singapore may enter a technical recession this year which may further crimp consumers’ propensity to spend.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[{"id":9947568919,"gmtCreate":1683299526231,"gmtModify":1683299530343,"author":{"id":"4132300740238052","authorId":"4132300740238052","name":"icycrystal","avatar":"https://community-static.tradeup.com/news/default-avatar.jpg","vip":1,"crmLevel":3,"crmLevelSwitch":0},"htmlText":"Thanks for sharing","listText":"Thanks for sharing","text":"Thanks for sharing","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9947568919","repostId":2333110385,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9947592278,"gmtCreate":1683267269194,"gmtModify":1683267272918,"author":{"id":"3582969710070724","authorId":"3582969710070724","name":"OO_898","avatar":"https://static.tigerbbs.com/9fb3c360d5d7711641a868a144192fc7","vip":1,"crmLevel":4,"crmLevelSwitch":1},"htmlText":"Like&nbsp;","listText":"Like&nbsp;","text":"Like","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9947592278","repostId":2333110385,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":16,"commentSize":0,"repostSize":1,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2333110385"}