TA Research anticipates Padini’s top line to remain resilient in 4Q24.
PETALING JAYA: Analysts believe Padini Holdings Bhd
is on the right track despite a challenging retail market.
The retailer of shoes, men’s and women’s garments, ancillary products, children’s garments, maternity wear, and accessories aims to maintain its gross profit margin at above 35% in the coming quarters, despite challenges such as rising purchasing costs due to unfavourable foreign exchange movements and the need to clear stock older than four months on the shelves.
The group’s main brands are Padini and Vincci.
The group’s inventory stood at 113 days for the nine months ending June 30, 2024 (9M24), compared with 111 days in 9M23.
“This was within the group’s target of an average of three to four months of inventory days to meet customer demand,” MIDF Research said.
In the third quarter for its financial year ending June 30, 2024 (3Q24), the group grew its topline 15% quarter-on-quarter (q-o-q), resulting in its gross margins dropping 35.3% compared to 38.1% in the previous quarter.
Padini recorded higher same-stores sales growth of 19% in 3Q24 due to resilient sales and a successful promotional campaign during the Chinese New Year period, which boosted the group’s topline, MIDF Research said.
The period in review benefitted from the Chinese New Year festivities, resulting in 15% q-o-q growth in revenue to RM575.3mil.
During the quarter, Padini closed two stores – FSS Vincci in Jusco Cheras Selatan, and one overseas store – bringing the total to 152.
TA Research anticipates Padini’s top line to remain resilient in 4Q24, as the group indicated that the contributions from sales during Hari Raya were minimal in 3Q24, and a more significant impact is expected in its upcoming quarter.
Padini remained cautious about store expansion due to subdued consumer sentiment, as it plans to open fewer than five new stores in 4Q24, bringing new stores opened in FY24 to less than nine, Kenanga Research said.
“It will continue to optimise its underperforming stores that make up less than 10% of its 139 existing stores,” Kenanga Research added.
Some analysts remain optimistic about Padini’s near-term prospects despite challenges in the retail industry.
MIDF Research is upbeat about solid demand for Padini’s competitively priced products, supported by a stable job market and progressive wage hikes for public servants.
“We also favour the group’s strong net cash position of RM722mil, which could mitigate potential downside risks and allow it to seize investment opportunities,” the research house added.
However, Kenanga Research’s views are mixed as Padini’s near-term outlook in the apparel-retailing sector remained challenging due to weakened spending sentiment amid persistently high inflation and consumers’ anxiety over the impending fuel-subsidy rationalisation.
“On a brighter note, the 13% salary increase for civil servants by year-end should at least partially restore consumer spending power,” it added.
MIDF Research maintained its “buy” call on the stock with an unchanged target price of RM4.30 per share.
TA Research also reiterated its “buy” call with a revised target price of RM4.70.
Kenanga Research kept its “market perform” call with an unchanged target price of RM3.63.
