Fontana’s Net Profit Down Despite Record Breaking Revenue for H1 2024

• Despite a record breaking H1 2023-24 revenue performance, Fontana reported a 2.2% decline in net profit relative to H1 2022-23.
• Revenue grew 9.4% (or $353.84Mn) to $4.13Bn due to stronger sales boosted by the successful launch of its Portmore store just before the busy Christmas season. Growth in key metrics such as transaction counts and average spend per customer also contributed to the higher revenue.
• In line with revenue growth, cost of sales increased by 9.5% (or $222.91Mn) YoY, which translated to a marginal 0.06 percentage points decrease in gross margin. However, Fontana is expected to see eventual improvements in gross margin as it continues to capitalise on economies of scale in its procurement and the efficiencies from its new point of sale system to reduce costs.
• That being said, the overall effect of revenue growth was tempered by a 16.7% (or $159.79Mn) increase in operating expenses to $1.11Bn, driven primarily by administrative expenses, which grew by 20.9% (or $186.35Mn) to $1.08Bn. Expenses related to the opening of its new Portmore location, higher staff costs, increases in security costs, and insurance rates all contributed to the higher admin expenses. However, the impact of these increases on operating expenses was tempered by a 40.4% reduction in selling and promotion expenses.
• Of note, as of January 2024, Fontana has entered into its 6th year of trading on the Jamaica Stock Exchange, which means that it will now be required to pay 50% of the income tax levied on corporations as per JSE rules for junior market companies. This is expected to translate into higher tax expenses going forward.
• Fontana’s stock price has decreased by 1.10% since the start of the calendar year. The stock closed Wednesday’s trading session at $9.90 and at that price trades at a P/E of 19.4x, which is above the Junior Market Distribution Sector Average of 16.6x.

(Sources: Company Financials & NCBCM Research)