Fontana’s Q1 Profits Flatline Despite Strong Sales Dose

  • Fontana Limited (FTNA) opened its new financial year reporting weaker earnings as net profit declined 26.2% to $44.60Mn for its first quarter ended September 30, 2025 (Q1 FY25/26). Strong sales performance was overshadowed by rising direct costs, higher operating expenses, and increased finance charges, all of which squeezed margins and eroded bottom-line growth.
  • Revenues remained the bright spot on the chart, rising 20.6% to J$2.49Bn, a record first-quarter dosage of sales growth. The continued integration of the Monarch Pharmacy chain and the strong consumer response to the high-concept Ora Beauty stores provided the right prescription for foot traffic and transaction volumes.
  • However, the side effects showed up quickly. COGS increased by 21.6% to $1.57Bn, outpacing revenue and causing Fontana’s gross margin to fall to 37.0% in Q1 FY25/26 from 37.5% in the prior year. The Monarch integration and the ramp-up of the Ora Fairview location also carried non-recurring onboarding expenses, which pushed operating expenses up 22.3% to J$821.65Mn. As a result, operating margin weakened to 4.0%, compared to 5.0% in Q1 FY 24/25. Management expects the expense ratios to normalise once the newer locations reach their steady-state run rate over the coming quarters.
  • Finance costs also contributed to the pressure, climbing 30.2% to $85.88Mn, reflecting the interest obligations tied to the $633.75Mn fixed- and variable-rate unsecured senior corporate bond raised in 2025 to fund the acquisition of Monarch Pharmacy.
  • Operationally, Fontana is still ailing from the impact of Hurricane Melissa, which has led to shorter operating hours and softer demand at its St. James and Westmoreland branches. Although its other locations show no symptoms supported by healthy demand, the company is likely to see softer revenue and earnings performance next quarter as medication for the West may take some time to take effect.
  • FTNA’s stock price has declined by 5.4% since the start of the year. The stock closed Monday’s trading session at $7.67, with a P/E ratio of 16.7x, below the Junior Market Distribution Sector average of 25.5x.

(Sources: JSE & NCBCM Research)