Higher Expenses Chip Away at Fontana’s H1 2025 Earnings

  • After a tepid first-quarter performance, Fontana Limited’s (Fontana’s) net profits were down 4.3% to $326.58Mn for its second quarter of 2025 when compared to Q2 2024. The falloff occurred despite the company hitting record-high revenues for the period. Revenue and operating profit growth were negated by higher expenses, including taxes.
  • Revenues rose by 15.3% to $2.71Bn, aided by increases across all locations, with the Portmore store improving substantially over its prior year. Other income – which includes interest income, commission and rental income – also grew by 25.6% to $326.58Mn, likely reflecting the company’s efforts to tap into new revenue streams in the Portmore store.
  • Meanwhile, costs of goods sold (COGS) outpaced revenue growth by 17.9% to $1.65Bn, resulting in an 11.5% growth in gross profits to $1.06Bn. As a result, gross profit margins declined marginally from 40.5% to 39.2%.
  • Operating expenses also increased (+16.2%), ending the quarter at $687.87Mn, reflecting the additional operating costs associated with the Portmore store, which opened in November 2023. As such, Q2 2024 did not fully reflect the company’s new cost structure.  Overall, the increased expenses were mainly driven by staffing costs, industrial security guard expenses, retirement provisions for senior staff (2025), and reclassification of its pharmacist salaries to remain competitive with the GOJ. As a result, operating income grew modestly by 3.9% to $375.31Mn.
  • Higher taxation charges amounting to $49.44Mn compared to nil in the corresponding quarter, also eroded Fontana’s bottom line. 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. 
  • Against this background, there was a 4.3% decline in net profits to $326.78Mn for Q2 2025. With the Q2 performance, net profits amounted to $387.05Mn (-3.8%) for H1 2025.
  • With expense growth outpacing revenues, expense control and efficiency measures will be critical to driving bottom-line growth, especially as the company seeks to acquire a new business. While it has succeeded in reducing general insurance and utilities costs, greater expense management will be needed. Fontana is in the due diligence process for its recently announced acquisition of the Monarch chain of pharmacies, which should support revenue growth once fully onboarded. However, cost synergies will be important to continue driving bottom-line growth
  • Fontana’s stock price has declined by 12.9% since the start of the year but is up 17.6% since the Monarch acquisition announcement on January 23, 2025. The stock closed Tuesday’s trading session at $9.16, with a P/E ratio of 19.91x, below the Junior Market Distribution Sector average of 30.07x.

(Sources: JSE & NCBCM Research)