Shane Ingram, Contributor
Hayden Singh, Courts (Jamaica) Limited managing director. - WINSTON SILL/FREELANCE PHOTOGRAPHER
LIKE OTHER local retailers, Courts Jamaica felt the pinch of shrinking local consumer income during the three months ended March 2006. At the end of March 2006, sales at Courts Jamaica were booked at $1.43 billion, down one per cent in value from comparable results of 2005 due to a one per cent decline in sales volumes.
The slowdown in activity was also reflected in the fact the income from Courts' credit business recorded only a modest increase of 1.5 per cent in the quarter. This comes against rising sales at the nine-month interval arising from successful advertising and promotional activities, aggressive pricing, and improved customer shopping experience through store upgrades and expansion in its product range.
OPERATING COSTS STABLE
However, gross margin strengthened from 37 per cent to 40 per cent as direct costs were contained five per cent below that reported at the same interval last year. As such, gross profits grew eight per cent to $573.8 million. Similarly, operating margins moved ahead two percentage points to 22 per cent as operating costs remained fairly stable in the period.
Marketing expenditure increased two per cent to $87.4 million but this was offset by the two per cent reduction in administrative expenses to $178 million. Interestingly, operating margins have been quite volatile in recent years due to a degree of inconsistency in restraining business costs while growing sales volumes. However, margins now appear to have stabilised due to greater diversification into higher margin products, such as electronics.
Finance costs fell from $33.6 million in Q4 05 to $19.1 million in Q4 06 and from $122.5 million to $35.7 million for the corresponding years. Courts generated some $393.8 million in cash resources during the year, which financed a $383 million reduction in the firm's bank overdraft and short-term loans from the prior year.
The reduction in finance costs helped to push pre-tax profits to $293.3 million for the quarter or 12 per cent above last year's outturn. However, the company booked $103.3 million in taxes for the final quarter, which pulled net profits to $190 million (EPS = 8 cents) or 31 per cent below the comparable outturn a year earlier. The quarterly performance brought the year's profit to $895.1 million (EPS = 37.6 cents) or four per cent ahead of the $856.9 million (EPS = 36 cents) for the year ended March 2005.
Courts offers a powerful value proposition of the 'lowest price, most affordable credit, widest range of brands and highest level of customer service', which has allowed the company to boast close to 51 per cent of local sales of furniture and appliances. Notwithstanding, it will be difficult for it to withstand the impact of the tight local economic environment. But even amid this backdrop, investors seem to be deliberating because of favourable expectations surrounding the sale of the Caribbean entities. According to JSE rules, the buyer would be mandated to make an offer to existing shareholders of Courts Jamaica. While the offer may (or may not) be above market price, the timetable for completion of these negotiations is uncertain and could be protracted.
Bearish conditions in the summer?
Summer usually brings a lot of heat outside but somewhat colder conditions in the equities market. Over the years, observers have noticed a definite slowdown in activity during the summer months as investors traditionally pull funds to finance vacation and travelling plans. World Cup 2006 is also expected to distract some investors as they focus on what many describe as 'the greatest show on earth'. Investors will likely be unnerved by the fact that heat of the summer has brought increased hurricane activity over the last two years. Of course, summer usually presents buying opportunities that redound to the benefit of those investors willing to take the risk of investing in a depressed market.
RECOMMENDATIONS
We hold favourable long-term outlook for BNSJ, NCBJ, First Jamaica Investment, Carreras, and DB&G. For further information on these and other stocks, contact us at 1-888-CALL DBG or visit www.mydbg.com and click our stockbrokerage division for detailed analyses.
Disclaimer: All information contained in this article has been obtained from sources that DB&G believes to be accurate and reliable. All opinions and estimates constitute the Author's judgement as of the date of the article. No warranty as to the accuracy, timeliness or completeness of this article and as to the opinions based thereon is given or made by DB&G. DB&G and/or its employees or directors and/or any associated person may have an interest in, or interest in the acquisition or disposal of, the securities or class of securities mentioned herein. Call 1-888- CALL DBG if in doubt about the content of this article. Decisions based on information contained in this article are your sole responsibility.
