Planned Store Expansion May Drive Growth, But Profit Margins Could Decline

Key Takeaways

• Expansion into food and drugstore segments with numerous new locations is poised to drive significant future revenue growth.
  
• Strong e-commerce and omnichannel strategies, particularly in drugstores, are expected to boost transaction volumes and revenue growth.
  
• Significant net income growth is driven by non-repeatable events, while debt and competition could strain future earnings and revenue growth across segments.

Catalysts

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

• Robinsons Retail plans to expand its store count significantly with 130 to 170 new locations in 2025, primarily in the food and drugstore segments, which is expected to drive future revenue growth.
  
• The company is guiding for a blended same-store sales growth of 2% to 4% in 2025, which indicates an expectation of increased consumer spending and operational efficiencies that could positively impact revenue.
  
• Gross margin expansion is targeted at 20 to 36 basis points for 2025, which may lead to stronger net margins by increasing profitability per unit of sales.
  
• Increased vendor support and improvements in category mix in the Specialty and other segments are expected to lead to gross margin expansion, potentially enhancing earnings.
  
• Robinsons Retail’s strong presence in e-commerce through platforms like Growsari and omnichannel retail strategies, notably in the drugstore segment, are likely to drive higher transaction volumes and revenue growth in future periods.

Robinsons Retail Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Robinsons Retail Holdings's revenue will grow by 7.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 4.7% today to 3.4% in 3 years time.
• Analysts expect earnings to reach ₱8.5 billion (and earnings per share of ₱5.83) by about February 2028, down from ₱9.3 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.1x on those 2028 earnings, up from 5.5x today. This future PE is greater than the current PE for the PH Consumer Retailing industry at 7.8x.
• Analysts expect the number of shares outstanding to decline by 1.59% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.81%, as per the Simply Wall St company report.

Robinsons Retail Holdings Future Earnings Per Share Growth

Risks

• The company's significant net income growth is primarily due to one-time events, such as the BPI/Arran merger gain, which may not be repeatable in the future, potentially impacting future net earnings stability.
  
• The DIY segment experienced a decrease in net sales by 1.8%, attributed to an industry-wide slowdown and intensified competition, which could continue to affect revenue.
  
• The Specialty segment has faced several quarters of negative same-store sales growth, reflecting potential vulnerabilities in consumer demand that might adversely impact future revenues and margins.
  
• The corporate net debt position of ₱6.8 billion as of the end of 2024, resulting from share repurchases and mergers, could weigh on future earnings due to potential interest liabilities and cash flow constraints.
  
• Expansion plans for new stores are skewed towards smaller formats, which might generate lower revenue per store compared to larger formats, potentially affecting overall revenue growth.

Valuation

• The analysts have a consensus price target of ₱58.444 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 ₱38.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₱248.5 billion, earnings will come to ₱8.5 billion, and it would be trading on a PE ratio of 13.1x, assuming you use a discount rate of 11.8%.
  
• Given the current share price of ₱35.75, the analyst price target of ₱58.44 is 38.8% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.