Dakhoon National Trading Company announced a 36.6% decline in its net profits during the fiscal year 2023, reaching SAR 10.3 million, compared to profits of SAR 16.3 million in the previous year, 2022. According to the statement published by the company on the Saudi Stock Exchange website “Tadawul”, this decrease is mainly due to its ambitious expansion strategy aimed at strengthening its market position and expanding the reach of its brand throughout the Kingdom.
Investing in growth at the expense of short-term profitability
The company explained that the primary reason behind the decline in profits was a significant increase in operating expenses. This increase resulted directly from the opening of several new branches, which necessitated substantial initial setup and operating costs, including rent, equipment, staff recruitment and training, and initial inventory. These new branches require time to reach operational and financial maturity, with their expenses exceeding their revenues in the early stages. Furthermore, profit margins were temporarily impacted by the intensive promotional campaigns and offers launched by the company to attract new customers, increase its market share in new areas, and solidify the "Dukhoon" brand identity in a highly competitive market.
The competitive context of the perfume and incense market in Saudi Arabia
Dukhoon operates within the Saudi perfume and incense sector, a vibrant market of significant cultural and economic importance. This sector is characterized by strong competition from established local players and major international brands. Furthermore, the Saudi consumer possesses refined tastes and a growing demand for high-quality and authentic products. In this context, geographic expansion and brand presence are crucial for acquiring a substantial market share. The company's strategy reflects a long-term vision, focusing on significant current investment to build a wider branch network and a stronger brand identity, which is expected to yield higher returns in the future.
Alignment with Saudi Vision 2030
This expansionary approach aligns with the overall economic objectives of Saudi Vision 2030, which aims to diversify the economy and empower the private sector, particularly in the retail and local manufacturing sectors. By expanding its operations, Dakhoon is not only contributing to its own business growth but also creating job opportunities and stimulating economic activity in the retail sector. Furthermore, the focus on strengthening a local Saudi brand is consistent with the Vision's goals of supporting national products and industries.
The outlook and its impact on investors
For investors, this financial performance presents a dual perspective. While the decline in net profit may be a short-term concern, the underlying reason—strategic expansion—can be seen as a positive indicator of long-term growth potential. The success of this strategy will depend on the company's ability to efficiently manage its new branches, convert initial investments into sustainable revenue streams, and maintain customer loyalty. The coming financial periods will be crucial in determining whether this investment in growth translates into increased profitability and the desired market leadership.
