Fontana’s Q1 Profits Slip, Despite Strong Revenues

  • Fontana Limited’s (Fontana’s) profits are down 1.5% to $60.50Mn for its first quarter ended September 30, 2024 (Q1 2025) when compared to Q1 2024. The decline occurred as the company’s revenue and operating profit growth were negated by higher finance costs and taxes.
  • Revenues rose by 16.2% to J$2.01Bn, aided by month-on-month growth in transaction counts, average spending per customer, and prescription counts. All locations saw higher revenues, including its newest store in Portmore, which has largely maintained its break-even monthly sales. Other income also grew by 7.7% to $35.7Mn, reflecting the company’s efforts to tap into new revenue streams in the Portmore store.
  • Amid double-digit revenue growth, cost of goods sold (COGS) grew by 9.9%  to $1.29Bn, supporting a 28.4% growth in gross profits to $774.54Mn. As such, gross profit margins improved from 33.9% to 37.5% over the period.
  • Furthermore, operating expenses increased by 28.6%, ending the quarter at J$671.9Mn.This reflects the additional operating costs associated with the Portmore store, which opened in November 2023 and increased staff costs across the network spawning from initiatives to increase staff retention, engagement and benefits. Notwithstanding the surge in operating expenses, operating income grew by 26.9% to $102.61Mn.
  • However, higher finance costs and tax charges tempered its overall performance. Finance costs are 25.3% more than they were in Q1 2024, owing to foreign exchange losses on lease liability and the new Portmore store. Meanwhile, taxation charges totalled J$11.9Mn compared to nil in the corresponding quarter. Fontana’s 5-year tax-free benefit for listing on the Junior Market ended in January 2024. However, it will still benefit from paying taxes at half the normal rate for another five years. 
  • Amid weaker earnings, Fontana is working on improving its efficiency, which could help stimulate profit growth. The company is far advanced in its PIMS integrated point of sale system for the pharmacy department and its new integrated HR software. Management expects these new tools to improve operating efficiency for central ordering and inventory management, create faster processing times and support better data analytics.
  • While it focuses on improving efficiency, management remains cognizant of risks that could threaten profitability. Of note, there are early signs of softening demand for non-essential home items, toys and home décor following Hurricane Beryl’s negative impact on the economy. The company noted that it would continue to monitor these developments and implement the required strategies to manage the potential impact.
  • Fontana’s stock price has declined by 19.3% since the start of the year. The stock closed Tuesday’s trading session at $8.08, with a P/E ratio of 17.2x, below the Junior Market Distribution Sector average of 20.5x.

(Sources: JIS & NCBCM Research)