Food And Drugstore Expansion Will Build A Promising Future

Key Takeaways

• Expansion of private label and store growth in Food and Drugstore segments will drive revenue and profitability through market presence and margin improvements.
  
• Increased customer engagement through GoTyme and strategic focus on premium banners will enhance earnings via cross-segment synergies and same-store sales growth.
  
• Income volatility, supply chain issues, acquisition debt, and inventory inefficiencies challenge Robinsons Retail, while potential in minority investments remains unrealized till 2026.

Catalysts

Operates as a multi-format retail company in the Philippines.

• The expansion of private label and imported products in the Food segment is driving gross margin improvements, with expectations for further gross margin expansion of 20 to 30 basis points, which could positively impact profitability.
  
• Store expansion plans with the addition of 130 to 170 new stores, primarily focused on the Food and Drugstore segments, are projected to enhance revenue growth through increased market presence.
  
• Increasing customer transactions through GoTyme's rapid growth, with total customers rising from 2.8 million to 6.1 million, is likely to positively impact earnings due to enhanced cross-segment synergies and higher customer engagement.
  
• The scaling of O!Save stores to 800 by the end of 2025 and more than 1,100 by the close of 2026 could drive additional revenue and market share growth, particularly through increased transaction counts.
  
• The strategic focus on premium banners, particularly in the Food segment, signals an opportunity for sustained same-store sales growth, which could lead to higher revenues and stronger financial performance.

Robinsons Retail Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Robinsons Retail Holdings's revenue will grow by 6.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.9% today to 3.5% in 3 years time.
• Analysts expect earnings to reach ₱8.5 billion (and earnings per share of ₱5.03) by about May 2028, up from ₱6.0 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₱6.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.5x on those 2028 earnings, up from 9.4x today. This future PE is greater than the current PE for the PH Consumer Retailing industry at 9.4x.
• Analysts expect the number of shares outstanding to decline by 1.83% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.75%, as per the Simply Wall St company report.

Robinsons Retail Holdings Future Earnings Per Share Growth

Risks

• Net income attributable to the parent company dropped significantly by 85% due to a high base from last year, which could indicate volatility and affect investor confidence in consistent earnings growth.
  
• The DIY segment faced negative same-store sales growth due to supply chain issues and merchandise congestion, which could lead to reduced revenue and increased operating expenses impacting net margins.
  
• There is a net debt position of ₱11.6 billion largely resulting from an acquisition loan, which may affect cash flow and the ability to finance further expansion, potentially impacting future earnings.
  
• The cash conversion cycle increased due to higher inventory days, which could signal inefficiencies in inventory management that might negatively affect cash flow and profitability.
  
• Unrealized potential from minority investments like GoTyme and O!Save, which are still projecting to reach profitability only by 2026, could impact the company's ability to leverage these for near-term earnings growth.

Valuation

• The analysts have a consensus price target of ₱56.5 for Robinsons Retail Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₱83.5, and the most bearish reporting a price target of just ₱35.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₱242.9 billion, earnings will come to ₱8.5 billion, and it would be trading on a PE ratio of 12.5x, assuming you use a discount rate of 11.8%.
• Given the current share price of ₱39.45, the analyst price target of ₱56.5 is 30.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.