Will Lulu Retail, Spinneys' shares tempt value-seeking investors

13/08/2025 05:59 AST

There were strong sets of financial results on DFM and ADX for the most part, which explains why DFM is the best performing market in the GCC in 2025 after handily beating S&P500 in 2024.

Among the most highlighted comparisons were the 'battle of the hypermarkets': Spinneys vs. Lulu Retail. Whilst the latter is far larger in scale, both have relied on similar strategies in part, with aggressive expansion through new stores in the UAE and the GCC, whilst also relying on ecommerce and private labeling, which are the higher margin products.

That said, Spinneys is more comparable to a Sprouts Farmers Market chain in the US, whereas Lulu Retail would be more comparable to Carrefour in terms of financials. Given the price sensitivity (and the scale) of the latter, there is an inherent susceptibility to cost push pressures, as compared to the intrinsically higher margins that Spinneys would have.

Market share vs. margin erosion
Undoubtedly both operate in extremely competitive segments, where market share acquisition is closely scrutinized against margin erosion, and the price of growth is looked at very differently than in other sectors such as technology, financials or even energy.

In that sense, the markets have responded relatively more favorably to Spinneys, but both stocks have underperformed relative to their respective indices. In the case of both, investors will continue to look for a successful execution of strategy above and beyond the benefits of a growing population base.

Expansion is capital-intensive and so free cash flow comes into focus as well.

Internationally, there has been a divergence in performance between the likes of Carrefour (essentially flat over the last five years) on disappointing top-line growth figures and the absence of a share buyback program. And the likes of Sprouts Farmers Market (stock price doubled over the past year and a half) given its successful pivot to higher margin organic products placement and premium pricing driven by customer loyalty, rather than focusing on expansion of stores.

Aggressive expansion mitigates the ability for both companies to indulge in share buyback programs. But there is little doubt that both companies offer greater value to their shareholders at present, despite the headwinds of tariffs and dollar depreciation.

But it is interesting to note that whilst Spinneys continue to focus on the premium end, both are looking at multiple delivery channels and have reported gross margin expansion indicating steady success in their respective approaches to a highly competitive market space.

GCC expansions will add to stocks' value
In 2025, there has been a steady appreciation in capital values in sectors, from financial services to telecom to real estate. What has been lost in the wind has been the quite strong and steady performers such as Lulu and Spinneys. But given the relative value space, it would be well worth a pivot to these companies, given the limitations to growth in some of the other sectors as 'moderation' becomes the new buzzword in the financial zeitgeist.

Expansion into other GCC markets will take time to bear fruit - and even longer to acquire customer loyalty. But with strong cash generators and a large footprint in their local markets, both companies are poised for a period of accelerated growth, especially as price and product differentiation become key talking points. And with valuations that remain well lower than their competitors in the international space, investors (despite their disappointment in the performance thus far) are well placed to capitalize on current pricing.

In the final analysis, the kitchen becomes the proverbial Jeu de Paume, with its loyal and growing clientele becoming the committee to graduate and gravitate the performance to the next stage of value discovery.