Rising Costs Erode Revenue Growth, Driving LASD’s Earnings Down

• Lasco Distributors Limited (LASD) posted a 33.3% decline in total comprehensive income to J$408.2Mn for Q2 2025, as rising costs outpaced revenue gains. The earnings dip reflected mounting cost pressures despite broad-based revenue growth across key divisions.
• Total revenue rose 6.5% year over year to J$8.13Bn, reversing the 0.8% contraction in Q1. Growth was supported by improved performance across all major divisions, with the Export Division up 19.5% YoY, buoyed by new distribution partnerships with a leading North American retailer. The Nutrition, Food & Beverage, Home Care, and Healthcare categories also delivered solid growth, underscoring healthy domestic and export demand.
• However, with direct cost (+8.0%) outpacing revenue growth, this led to a 0.9% decline in gross profit to J$1.34Bn. Consequently, the gross profit margin slipped to 16.4% from 17.6% in the prior year. gross profit declined (-0.9%) to J$ 1.34Mn. Management noted that direct costs are expected to moderate in the second half of the year as storage costs normalise and the expanded warehouse becomes fully operational.
• Operating expenses climbed 5.7% YoY, driven by higher sales and promotional activities, staff-related expenses, and technology investments. As a result, operating profit declined 19.0%, pushing the operating margin down to 4.4% from 5.8% a year earlier. Financing costs surged 587.4% to J$9.47Mn, amplifying profit decline. The combined effect of weaker margins and higher financing costs due to additional debt reduced net margins to 3.1% from 4.9%.
• For the six-month period, earnings fell 24.5% YoY, extending the decline from Q1 (–18.8%) and underscoring continued strain on margins.
• While the near-term performance remains pressured, management’s focus on cost containment and improved storage efficiency could support better margins in the latter half of the fiscal year. The company is nearing the completion of certain transformational initiatives covering its infrastructure, systems and portfolio which will improve its operational efficiencies, leveraging the investments made in the first half of the year and positioning the core portfolio for continuous improvement. The diversification strategy is expected to continue to deliver solid results, with exports benefiting from expanded distribution and the pharmaceutical division's enhanced distribution agreement framework providing further growth potential.
• Additionally, LASD is expected to participate meaningfully to the extent that their distributions remain uninterrupted. Demand for consumer staples tends to rise following natural disasters as households replace spoiled or lost goods, communities restock, and relief agencies coordinate centralised purchases.
• At the market close on Tuesday, LASD’s stock price was J$3.52, down 11.7% since the start of the year. At this price, LASD trades at a P/E of 10.4x, which is above 17.9x for the Main Market Distribution & Manufacturing average.

(Sources: LASD, NCBCM Research)