Padini Holdings has faced a challenging fiscal year, with FY24 results falling short of expectations. Despite a 5% increase in revenue, the company's net profit declined by 34% year-on-year, primarily due to rising operational costs. The revenue boost, which was driven by strong sales in the third quarter thanks to festive and school holiday shopping, was not enough to offset the impact of increased expenses, particularly in advertising and promotions.

Analysts have responded with a positive outlook. Kenanga Research has downgraded its target price for Padini Holdings from RM3.63 to RM3.24, maintaining a MARKET PERFORM rating. This adjustment reflects the company's underperformance against forecasts and the challenges it faces with higher operational costs and weak consumer sentiment. Another analyst maintains a BUY rating with an unchanged target price of RM4.30, citing a positive long-term outlook based on Padini's value-for-money offerings and expected benefits from a progressive pay rise for civil servants.

For FY24, Padini's core PATANCI reached RM153.4 million, missing the analysts' forecasts by 12% and falling short of the consensus estimate. The company's gross profit margins weakened to 36.2%, down from 39.4% the previous year, as it struggled with higher input costs. Additionally, the fourth quarter saw a significant 21% drop in revenue compared to the previous quarter, primarily due to the lack of major festive sales events.

Looking ahead, Padini's near-term prospects are tempered by continued challenges in the retail sector. Weak consumer spending, high inflation, and uncertainties regarding subsidy rationalisation are likely to impact sales. However, the anticipated salary increase for civil servants in December 2024 may provide some relief to the retail sector by boosting consumer spending power.

Source: Kenanga, MIDF
Title: Higher Costs Bite into Profits, Weaker Results Impacted by Seasonal Factors