Wilcon Q2 profit: P770M (down 10% y/y)

Wilcon [WLCON 17.50 ?2.2%; 366% avgVol] [link] reported a Q2 net income of P770 million, down 10% from the P855 million in net income it posted in Q2/23, despite net sales being up 2.9% y/y to P8.9 billion and the opening of two new depots. WLCON noted that comparable sales were down 2% y/y, but said that this was “an improvement” over the 7.3% y/y drop in comparable sales in Q1/24. WLCON framed its disappointing H1 net income (P1.51 billion, down 17%) to “operating expenses outpacing net sales growth.” The operating expenses in question are related to WLCON’s expansion, like depreciation and amortization, outsourced services, trucking, and utilities.

MB BOTTOM-LINE: Expansion is a weird thing. On the one hand, WLCON gets an immediate boost to sales, because regardless of how much time and money it spends to add those two new depots in Q2, anything they sell helps make that quarter’s gross revenue figure look better. On the other hand, for as much name recognition as WLCON’s stores and brands may have, it generally takes years for a new store to “mature” in terms of developing its customer base and going through a few rounds of market fit optimization. Here, WLCON said that its top operational expense was depreciation and amortization which are non-cash expenses, and the second-highest was “outsourced services” (logistics and distribution), which WLCON has said it prefers to pay third parties to do in order to “expand its store network rapidly while lowering its operating costs.” The company is coming off of a “weak” FY23, and it's not doing much better so far in FY24. Annualized, its H1/24 net income is down 13% relative to its FY23 total, and its annualized Q2 net income is down 12%. Long-term WLCON bagholders will tell you to be patient and that the company is playing the long game–that they’re not worried about year-on-year dips or even an extended period of lackluster performance. While I accept that argument, it makes me nervous to see these kinds of results coming out around the same time executives from the company are talking about international expansion. To their credit, they were clear that international expansion is “not yet in the immediate future”, but I’d like to see WLCON perfect its expansionary model here first before it tries to flip the game into hard mode. 
 

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