Leading Russian broker-dealer BCS Global Markets has given Russian regional shoe specialist producer and retailer Obuv Rossii the thumbs-up after the company reported strong sales growth in 2017.
Like-for-like sales of Obuv Rossii stood at 10.9% year-on-year in the fourth quarter of 2017. Sales expanded from the 6% seen in the previous quarter.
The firm, which conducted an IPO last year, organised by BCS GM, saw the top line grow by 8.4% y/y in FY17, supported by the recovery of consumer demand, higher trading and significant network expansion.
Online revenue more than doubled y/y in FY17 to RUB0.9bn as the company successfully developed its online franchise capitalising on industry trends. Wholesale revenue grew by 2.7-fold y/y in 2017, driven by franchisee network growth. Cash loan revenue stayed largely flat as the company increased focus on the retail business and tightened cash loan terms for customers.
“Despite aggressive store openings in 4Q17, cash SG&A as a percentage of revenue declined by a sound 208bps y/y, thanks to excellent cost control, reduction of the cost of risk on installment sales and cash loans as well as thanks to improving lease terms with landlords. Inventory turnover significantly improved – having declined by 64 days to 475 days – in line with management guidance and well ahead of our model forecasts,” Marat Ibragimov, a retail analyst with BCS GM, said in a note.
Obuv is a classic Russian retail story. Its offering is priced in the mid-market and focuses on the burgeoning middle class living in the regions. Russia’s footwear market is in recovery mode and has long-term growth potential as Russians own a fraction of the shoes that their western peers do, Anton Titov, the CEO and majority shareholder, told bne IntelliNews at the time of the IPO.
With per capita shoe consumption just above 2.0 pairs compared with 3.7 pairs in 2013, the market has unparalleled growth potential, Ibragimov believes.
“Growing disposable income and improving consumer confidence would be key drivers unlocking market potential. As a clear leader of the mid-price segment with just a 2.5% share, Obuv Rossii is set to become a key beneficiary of the ongoing recovery of the consumer demand and main consolidator of the Russian footwear market, we believe. Having significantly strengthened its balance sheet with IPO money, Obuv Russia is well-positioned to take maximum advantage of the highly favourable commercial real estate market and relative weakness of competitors, which have much more rigid financial constraints,” Ibragimov added.
Obuv Rossii IFRS RUB mn |
||||||||
4Q16 |
3Q17 |
4Q17 |
Q-o-Q |
y-o-y |
2016 |
2017 |
y-o-y |
|
Revenues |
3,343 |
3,088 |
3,573 |
15.70% |
6.90% |
9,965 |
10,802 |
8.40% |
Gross income |
1,830 |
1,416 |
1,959 |
38.30% |
7.00% |
5,859 |
5,853 |
-0.10% |
Gross margin |
54.70% |
45.90% |
54.80% |
Ð |
Ð |
58.80% |
54.20% |
Ð |
SG&A expenses* |
-895 |
791 |
-1,102 |
-239.40% |
23.20% |
-3,332 |
-3,553 |
6.60% |
EBITDA |
988 |
736 |
949 |
28.90% |
-3.90% |
2,540 |
2,737 |
7.80% |
EBITDA margin |
29.60% |
23.80% |
26.60% |
Ð |
Ð |
25.50% |
25.30% |
Ð |
Net income |
566 |
322 |
641 |
99.10% |
13.30% |
1,183 |
1,310 |
10.80% |
Net margin |
16.90% |
10.40% |
17.90% |
Ð |
Ð |
11.90% |
12.10% |
Ð |
OCF |
-788 |
-2,724 |
||||||
Capex |
-510 |
-372 |
||||||
FCF |
-1,297 |
-3,096 |
||||||
* excluding depreciation and the long-term incentive program |
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Source: Company, Sberbank CIB Investment Research |