PETALING JAYA: Padini Holdings Bhd is taking a cautious approach in store expansion amid a weaker consumer spending environment.
Instead, the garment retailer is expected to focus on its existing store performance through improved sales and product value.
According to analysts, Padini was looking at organic sales to drive earnings growth in the financial year ending June 30, 2024 (FY24).
In its report, Maybank Investment Bank (Maybank IB) Research said Padini’s key advantage would arise from its appeal to mass market consumers due to its product affordability.
“Padini is in good stead to weather through any potential slowdown in sales volume, given its affordable product offering and expected benefits from consumer down-trading,” it said following an analysts’ meeting with Padini’s management.
“Group earnings growth is expected to be driven largely by organic sales, given Padini’s moderated outlook on potential store expansion in FY24,” it added.
Maybank IB Research said Padini did not plan to ramp up its store expansion in the near term, adding that the group did not share any store opening target for FY24.
It maintained a “buy” call on Padini, with an unchanged target price of RM5.25.
Similarly, AmInvestment Bank (AmInvest) Research recommended “buy” on Padini, with a fair value of RM5.70.
“Padini’s earnings prospects continue to remain favourable, backed by better gross profit margin resulting from reduced material and freight costs, coupled with enhanced operational efficiency,” it said.
AmInvest Research said Padini would open six new outlets, which would contribute to the group’s performance.
“We expect robust FY24 sales to be underpinned by store expansion, which includes six new outlets in our assumption, sustainable demand due to supportive government policies involving cash handouts to the Bottom-40 group as well as stable unemployment rate and resurgence of international tourists,” it said.
According to Kenanga Research, Padini was expecting single-digit revenue growth over the next three to five years, driven by targeted marketing efforts, expansion in value-oriented product offerings and continued strategic store optimisation.
“While Padini has not explicitly provide guidance on its specific targeted revenue growth rate, we believe it will likely fall within the low to mid-single-digit range, in view of the ongoing inflationary pressures that may influence consumer discretionary expenditures,” it said.
It noted that Padini expected the current economic challenges in China to provide the group with the opportunity to fine-tune its supply chain.
“Padini has not articulated any specific target for new store openings in Malaysia but has plans to inaugurate one new outlet in Thailand in FY24,” Kenanga Research said.