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We are moderately downbeat about the company's 1Q 2008 financial statement, which revealed a marginal decrease in profit margins. For all that, we believe that growth in the company's sales, expected as the company opens new stores, coupled with tougher controls over operating expenses, could provide support to its margins over time.
Retail chain Seventh Continent on Tuesday disclosed its 1Q 2008 financials. On the whole, the financial results appeared to be moderately negative. The press release says revenue shot up 31.7% y-o-y to USD 380.2 mn, as the company opened new retail outlets and scaled up its LFL sales by more than 23.5% in dollar terms, thanks to a rise in the average receipt. However, a rise in hypermarket sales as a share of total sales by the company produced an adverse effect on the retailer's margins in the reporting period.
Table. Seventh Continent: Basic 1Q 2008 financials, USD mn
| Indicator | 1Q2007 | 1Q2008 | Change 1Q2008/1Q2007 |
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| Revenue | 288.6 | 380.2 | 31.7% | | Cost of production | 202.3 | 269.5 | 33.2% | | Gross profit | 86.2 | 110.7 | 28.4% | | Gross margin | 29.9% | 29.1% | | | Operating expenses | 64.9 | 84.8 | 30.7% | | Operating profit | 22.3 | 26.3 | 17.9% | | Gross margin | 7.7% | 6.9% | | | EBITDA | 28.7 | 36.1 | 25.8% | | EBITDA margin | 9.9% | 9.5% | | | Net profit | 15.3 | 15.3 | 0.0% | | Net margin | 5.3% | 4.0% | |
Source: company data, Finam estimates
We are moderately negative on the company's 1Q 2008 financials. We believe that these may exert a negative impact on the company's stock valuations in the short term. However, the company's policy, aimed at expanding its network of retail outlets and toughening controls over its operating expenses, could provide support to its margins in the long run.
According to our estimates, the fair value of Seventh Continent is USD 27.2 per share. Sergey Filchenkov
Other comments of the day
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Seventh Continent
Capitalization: $560 250 000,00
Common shares:
Price: $7,47
Delta week: -13,1%
Delta month: -44,9%
Delta year: -71,8%
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0.569
0.073
