Saudi Retailer Looks to World Cup, Online Sales to Counter VAT

(Bloomberg) -- Retailer United Electronics Co., the second-best performing Saudi Arabian stock of 2017, is looking to increased demand for televisions before this year's soccer World Cup, expanded consumer credit and rising online sales to counter any slowdown caused by the start of value-added tax.

The company, known as eXtra, plans to open new stores in 2018 as it seeks to extend a return to profitability into 2018, Chief Executive Officer Mohamed Galal said in an interview. First-quarter sales may be “very soft” after the Jan. 1 introduction of VAT, “but activity should pick up in the second half,” he said.

The company's shares rose as much as 5.3 percent in Riyadh on Monday after the retailer announced a profit of 140.1 million riyals ($37.4 million) last year, compared with a loss in the previous 12 months. Its shares gained 109 percent in 2017, the second-best performance among the 179 members of the benchmark Tadawul index.

Here are Galal's views on some major factors facing the company in 2018:

VAT Impact

Effect of the introduction of new tax on sales will be recognized “in the next few months,” Galal said. Saudi consumers are in a “waiting mode” when it comes to spending, as they assess the impact of price increases on their monthly budgets. Caution prevails, even after the government said it will give handouts to offset blows to households from the new tax and an increase in gasoline and utility prices this year, he said.

Ramadan, World Cup

The second quarter should be better for eXtra, boosted by sales tied to the holy month of Ramadan and the World Cup in Russia. Saudi Arabia will play against the hosts in the opening match on June 14, followed by games against Uruguay and Egypt in the first stage of the tournament. “Everybody will be looking for a bigger TV. Hopefully we won't see a big defeat in the opening,” Galal said.

Online Sales 

The retailer aims to have about a 20 percent share by 2020 of the Saudi online market, which is estimated to grow to 6 billion riyals by then, Galal said. eXtra currently sells its products on its own website and through e-commerce platform Noon, partly funded by Saudi Arabia's Public Investment Fund.

Consumer Finance

The company expects to extend a program that started in 2015 and that was fully implemented last year, in which it finances purchases for clients by charging a two percent monthly interest rate. “It is a very profitable business, it is improving margins for us,” Galal said.

New Stores

The retailer, which was established in 2003 and sells products including Apple Inc. iPhones and iPads, aims to open three new stores in Saudi Arabia this year, adding to 40 shops in the kingdom, two in Oman and one in Bahrain.

To contact the reporter on this story: Filipe Pacheco in Dubai at fpacheco4@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, John Viljoen

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