From Franchising to Company-Owned Stores… Why Did Reshio’s

In February 2025, the offering price for shares of Al-Nisbah Al-Mukhtassah Trading Company, “Reshio,” was set at SAR 10. The offering comprised five million shares, representing 25% of the company’s shares, and achieved an 865% subscription coverage ratio before the stock began trading on the Parallel Market, “Nomu,” on March 9, 2025, under ticker 9630.

About 18 months later, the picture looked radically different. On the day the first-half 2026 results were announced, September 1, the stock closed at SAR 2.80, down 13.31%. On September 2, it fell to SAR 2.65, then closed at SAR 2.70 on September 3, giving it a market capitalization of approximately SAR 54 million. The price was therefore about 73% below the SAR 10 offering price.

But reducing the story to a 73% share-price loss overlooks its most important aspect.

The share price is a market outcome reflecting investors’ expectations regarding earnings, risks, and the future; it is not a complete causal diagnosis of what is happening inside the company. The more economically useful question is not simply: Why did the share price fall? It is: What changed in Reshio’s economics that enabled the company to sell more while reducing its ability to convert those sales into profits?

This turns Reshio from a stock story into a case study in a broader concept: quality of growth.

The Offering Did Not Provide New Financing to the Company

Before examining the results, there is an important detail that may change how the period following the listing should be interpreted.

The total offering value was SAR 50 million, with expenses estimated at approximately SAR 2.6 million, leaving expected net proceeds of about SAR 47.4 million. However, the prospectus states that the net proceeds would be distributed to the selling shareholders, and that the company itself would not receive any amount from the net offering proceeds.

This means that, from this perspective, Reshio’s listing was not a capital increase intended to inject tens of millions of riyals into the company’s treasury to finance expansion. Rather, it was an offering of existing shares sold by current shareholders.

This is essential when analyzing what happened later: it is incorrect to assume that the SAR 50 million representing the offering value became liquidity available to the company to finance the opening of new stores.

The 2025 Paradox: Revenue Rose While Profit Fell

The 2025 results provided the first clear indication of a profound change in the business’s economics.

Reshio’s revenue increased from SAR 46.89 million in 2024 to SAR 54.12 million in 2025, an increase of approximately 15.4%. On the surface, this appears to be a positive result for a company in an expansion phase.

However, gross profit moved in the opposite direction, declining from SAR 19.01 million to SAR 16.37 million. Operating profit fell from SAR 11.89 million to SAR 5.04 million, while net profit declined from SAR 12.08 million to SAR 5.11 million, a decrease of 57.7%.

What Do the Margins Tell Us?

Calculations are based on the restated comparative figures in the 2025 annual results announcement.

These margins are at the heart of the story.

Profit margin simply means the amount a company retains from every SAR 100 of sales after a certain level of costs. For example, if the net profit margin is 25%, the company retains approximately SAR 25 as net profit from every SAR 100 of revenue.

In Reshio’s case, every SAR 100 of sales generated approximately SAR 25.8 in net profit based on the restated 2024 figures. In 2025, it generated only about SAR 9.4.

Sales increased, but the economics of each riyal of those sales became significantly less profitable.

More importantly, the decline did not appear only at the net-profit level; it began at the gross-profit level. This makes it insufficient to attribute the entire decline to listing expenses or items below the income statement’s operating line. There is clear pressure within the operating activity itself.

What Changed? From Franchising to Store Ownership

The closest answer begins with a clear shift in the business model.

Reshio announced that the number of stores it owned had increased from 12 in the previous year to 45 at the end of 2025. It said it had opened more than 30 new stores during the year and made investments exceeding SAR 9 million, as part of a gradual shift from a franchise model toward expanding company-owned stores.

To understand the impact on the financial statements, the difference between the two models must first be explained.

Under a Franchise arrangement, the brand owner grants another party the right to operate the business under a specified contract and set of terms. Economically, the franchisee typically bears a significant portion of the store’s investment and operating costs, while the brand owner receives the revenues stipulated in the franchise agreement, which may include fees, a percentage of sales, or product-supply income, depending on the agreement.

When the company owns and operates the store itself, it receives the store’s sales directly, but in return bears the costs of raw materials, employees, rent, utilities, maintenance, inventory, and management, as well as the risk of weak site performance.

This comparison does not mean that one model is always better than the other. Each has a different equation involving return, risk, and required capital.

This distinction is particularly important for Reshio because the company explained in its first-half 2026 results that converting some stores from franchises to direct ownership resulted in the full sales of those stores being included in the company’s revenue.

Consequently, revenue comparisons between the two periods require caution.

Some of the revenue increase may genuinely reflect higher activity and demand, as well as the opening of new locations. But some of it also reflects a change in the model through which sales are recorded in the company’s financial statements.

This is a fundamental point in financial analysis: not all growth in the income statement’s top line is economically equal.

Why Can Store Ownership Make a Company Larger and Less Profitable at the Same Time?

This is where the concept of Operating Leverage emerges.

When a company operates more stores itself, the costs that must be paid before reaching the target sales level increase, including rent, salaries, management, fit-out, and pre-opening expenses.

A significant share of these expenses is classified as fixed or semi-fixed costs because they do not immediately decline in the same proportion when a store’s sales are weak in a given month.

This makes profits more sensitive to sales levels.

If a store succeeds and its sales rise after its fixed costs have been covered, profitability may improve rapidly. But if a store takes a long time to reach sufficient sales volume, the company bears the costs while revenue remains below the level needed to achieve an attractive margin.

Thus, shifting to company-owned stores may be profitable in the long term, but it is more capital-intensive and exposes the company directly to the risks of each location.

This is precisely where the published results have not yet provided a definitive answer:

Are the new stores simply not mature yet, or is the unit’s profitability itself lower than what the company needs to justify the scale of investment in it?

Was This Merely a Case of “Non-Recurring Costs”?

When announcing its 2025 results, the company said that the decline in net profit was affected by expenses it described as non-recurring, including professional fees related to the Nomu listing, an expected credit-loss provision of SAR 2.543 million, and capital losses of approximately SAR 398,000 resulting from the closure of certain stores.

Certainly, some of these items, such as expenses related to the listing process, would not ordinarily be expected to recur annually in the same form.

However, treating the expected credit-loss provision as a one-off exceptional item requires greater caution.

The audited 2024 financial statements showed an expected credit-loss provision of approximately SAR 1.509 million, compared with SAR 222,000 in 2023. The reported figure then rose to SAR 2.543 million in 2025, before the company recorded a new provision of SAR 1.827 million during the first six months of 2026.

Expected credit losses refer to the company’s estimate of the portion of amounts due to it that may not be collected in full, with the accounting effect recognized in accordance with the relevant standards.

The recurrence of a provision does not automatically indicate a structural collection problem; the cause requires a detailed review of the nature, sources, and aging of receivables. However, it means that an academic analyst should not completely exclude it from the performance analysis as an event that will not recur unless additional evidence supports that conclusion.

This illustrates the difference between management’s narrative and independent analysis: management has the right to characterize certain items as exceptional, but the analyst’s task is to test that characterization across more than one financial period.

First Half of 2026: The Test Becomes More Difficult

If the pressures in 2025 were merely temporary costs incurred before the stores matured, subsequent periods should gradually provide signs of improving network economics.

But the results for the first six months of 2026 have not yet provided that evidence.

Revenue rose from SAR 26.18 million to SAR 28.20 million, an increase of 7.7%. However, the company moved from a net profit of SAR 6.56 million to a loss of SAR 1.49 million. Reported earnings per share declined from SAR 0.33 to a loss of SAR 0.07 per share.

This means that the bottom-line result deteriorated by more than SAR 8 million between the two periods, despite revenue increasing by approximately SAR 2 million.

The company attributed the shift to a loss mainly to the increased cost base resulting from the expansion of company-owned stores, including materials, salaries, rents, and other operating expenses, in addition to the SAR 1.827 million credit-loss provision.

There is also a need to correct a figure circulating in discussions about the company: the reported loss per share in the first half of 2026 is SAR 0.07, not SAR 0.14.

Someone might arrive at SAR 0.14 by doubling the six-month loss and assuming the same rate continued in the second half. But that is merely a mathematical “annualization,” not an actual reported result or a forecast attributable to the company.

Therefore, this study does not use SAR 0.14 as 2026 earnings per share.

Cash Flows Add Another Part to the Picture

Accounting profit is not the only factor determining a company’s ability to finance growth. It is therefore useful to turn to cash flows—the money that actually entered and left the business during the period.

According to Saudi Exchange data, Reshio generated approximately SAR 5.59 million in net operating cash flow in 2025, compared with cash outflows from investing activities of approximately SAR 10.90 million. Cash and cash equivalents declined from approximately SAR 12.94 million at the beginning of the year to SAR 5.63 million at year-end.

These figures offer two important interpretations.

The first is relatively positive: operating cash flow in 2025 was slightly higher than net profit of SAR 5.11 million. The data therefore do not support the simplistic claim that the year’s profits were not backed by operating cash.

The second, however, is that the cash generated by operating activities was insufficient to cover total investing cash outflows during the year.

This is consistent with a company transitioning to a more capital-intensive model, particularly given its announcement that it invested more than SAR 9 million and opened more than 30 stores during 2025. However, total investing cash outflows cannot be equated with store costs alone, because the aggregate disclosure does not support that conclusion.

The detail concerning the offering again comes to the fore: the company did not receive the net offering proceeds, so the listing cannot be viewed as the direct source that financed this investment.

From Store Growth to “Unit Economics”

To understand whether Reshio’s strategy will succeed, it is not enough to know the number of stores.

The more useful concept here is Unit Economics.

The basic unit in the café business is the store. The question is not only: How much does the store sell? It is also: How much remains from those sales after paying for materials, labor, rent, and operating expenses? How much did it initially cost to open? And how long does it need to recover the investment made in it?

Two stores may generate the same sales, but one creates value while the other consumes it if their rents, salaries, fit-out costs, waste, or demand intensity differ.

That is why average store revenue becomes less useful unless accompanied by the store’s margin, initial investment, and operating age.

In the case under study, the publicly available disclosures do not yet provide sufficient detail on the profitability of company-owned stores by age, like-for-like sales of existing stores, average investment cost per location, or the capital payback period.

This lack of data does not mean that store economics are poor. It means that the published data are not yet sufficient to prove that they are good.

This is an important distinction in academic research between “absence of evidence of success” and “evidence of failure.”

Growth Does Not Create Value Simply by Being Growth

From a corporate-finance perspective, there is a deeper criterion for assessing expansion.

In his materials at New York University, finance professor Aswath Damodaran links value creation to return on invested capital relative to the cost of capital. Growth generated by reinvesting funds creates value when the expected return on new capital exceeds the cost borne by investors and financiers for providing that capital. Reinvesting more funds at a return below their cost can increase the company’s size without increasing its economic value.

This is the distinction between accounting growth and value-creating growth.

A company can double its number of stores and its revenue, but if each additional riyal of profit requires an excessively large capital investment, the economic return may be weak.

Conversely, a temporary decline in profits may be acceptable if the capital invested today is building stores that will generate high and sustainable returns once mature.

For this reason, it may be tempting to calculate Reshio’s return on invested capital directly, but doing so could create false precision. The major change in the business model, the restatement of certain figures, and the lack of separate data on capital and operating profit for new and mature stores make the marginal return on new stores more important than a simplified overall ROIC ratio that might obscure what is happening within the network.

Declining to calculate a ratio that the data do not allow one to calculate properly is not a weakness in the analysis; it is part of analytical discipline.

Two Hypotheses Remain Possible

The current evidence permits two main interpretations and is not yet sufficient to definitively rule either one out.

The first is the transition hypothesis. Under this scenario, Reshio is currently bearing the cost of building a larger network of company-owned stores. New stores require fit-out, hiring, marketing, and time to acquire customers, while rents, salaries, and other expenses have already begun. If sales at those stores improve as they mature and management costs stabilize across a larger network, margins could recover some of their previous levels.

The second is the unit-economics hypothesis. Under this scenario, the problem is not merely a matter of time; the cost of owning and directly operating stores may be high relative to the profit they generate. If weak margins persist even after the stores mature, expansion will add sales without adding value at the required rate.

Distinguishing between the two hypotheses requires data that remain limited in public disclosures, most importantly like-for-like or same-store sales growth, margins at mature stores, each store’s contribution before head-office expenses, average store-opening costs, the investment payback period, and the marginal return on capital deployed in the expansion.

From this perspective, upcoming results will become an economic test of the strategy rather than merely a quarterly comparison of profits.

What Does the Share-Price Decline Actually Mean?

At an offering price of SAR 10 and 20 million shares, the company’s implied valuation at the offering was approximately SAR 200 million.

At the September 3, 2026 closing price of SAR 2.70, the Saudi Exchange’s daily report showed a market capitalization of approximately SAR 54 million.

The difference is approximately SAR 146 million in market capitalization.

But this does not mean that SAR 146 million left the company’s treasury in cash. Market capitalization is the last share price multiplied by the number of shares, and it changes with the price that buyers and sellers accept in the market.

For an investor who bought at the SAR 10 offering price and still holds the shares at SAR 2.70, the unrealized price loss is 73%. Total investment return requires taking into account any cash dividends, trading costs, and other relevant factors where applicable.

More importantly, the decline in the share price alone does not prove that the direct-operation strategy has failed. It does show that the market now assigns the company a much lower valuation than it did at the offering, meaning that its expectations for the future, its assessment of risk, or both have changed.

There is a significant difference between the two.

The Comparability Problem: Why Did 2024 Profit Change After It Was Published?

The story also adds an important accounting dimension.

When Reshio first announced its 2024 results, reported net profit was approximately SAR 14.55 million, with earnings per share of SAR 0.73.

However, in its 2025 results, the company restated its 2024 figures, making comparative net profit SAR 12.08 million and earnings per share SAR 0.60.

The company explained that it had retrospectively corrected an accounting treatment related to fixed assets acquired during 2024 in exchange for outstanding receivables. Differences in value had previously been recorded under “other income,” but the company subsequently concluded that the appropriate treatment required reversing this effect. The correction reduced other income and 2024 net profit by approximately SAR 2.5 million, and the company said the effect was non-operating and non-cash.

In principle, this is consistent with International Accounting Standard IAS 8, which states that material prior-period errors should be corrected retrospectively by restating comparative figures where practicable.

For this reason, this study uses SAR 12.08 million rather than SAR 14.55 million when comparing 2025 with 2024, because it is the restated comparison later provided by the company.

This also corrects a statement that may sound appealing but is historically inaccurate: “The stock was offered at SAR 10 and earned SAR 0.60 per share.”

The SAR 0.60 earnings figure is the 2024 figure subsequently restated. The 2024 annual result had not been announced in this form when the offering price was set on February 2, 2025. It can therefore be used today in retrospective analysis, but it should not be presented as the information on which the pricing was based at the time.

Another Accounting Correction in 2026… but a Different One

A different accounting adjustment appeared in the first half of 2026 and should not be confused with the previous correction.

Management said it had reassessed an investment representing a 10% ownership stake in another company and concluded that it had significant influence over that company’s financial and operating decisions. The investment was therefore reclassified from fair-value accounting under IFRS 9 to an investment in an associate under IAS 28, using the equity method, with a retrospective adjustment.

Significant influence means the investor’s ability to participate in the investee’s financial and operating decisions without controlling it. IAS 28 requires the equity method to be used when accounting for investments in associates.

Reshio explained that the correction had no material effect on the comparative first-half 2025 profit-and-loss statement because the company’s share of the investee’s results during that period was not material.

The existence of these two adjustments does not in itself indicate a going-concern problem or mean that the financial statements are unreliable: the auditor issued an unmodified opinion on the 2025 annual results, and an unmodified conclusion on the 2026 interim results. However, it underscores the importance of referring to restated figures and the notes rather than copying historical figures from a financial screen and comparing them mechanically.

What Do We Know? What Don’t We Know?

Once facts are separated from interpretations, a more precise conclusion can be reached.

We know that Reshio achieved notable revenue growth. We know that the number of company-owned stores rose from 12 to 45 in 2025. We know that this shift transferred a larger operating-cost base to the company. We know that gross, operating, and net profit margins fell sharply in 2025, and that the company then moved into loss in the first half of 2026 despite continued revenue growth. We also know that the company incurred substantial investing cash outflows and that credit-loss provisions appeared in more than one period.

But based on the public disclosures currently available, we do not know enough to measure the profitability of a mature company-owned store separately, the marginal return on capital invested in new stores, the investment payback period for each store, or the extent of same-store sales growth apart from the effects of adding locations and converting franchises to direct ownership.

Therefore, concluding that “the strategy has failed” is premature.

Likewise, saying that “everything happening is merely a temporary expansion cost that will disappear” goes beyond what the data have demonstrated so far.

The position most consistent with the evidence is that growth quality clearly deteriorated through the first half of 2026, but whether this deterioration is transitional or structural remains an open question.

From Store Count to Return on Every Riyal

Ultimately, economics does not test the success of expansion by the number of new signs on café façades, but by what capital does inside them.

If the company spends SAR 1 million on a new store and that store generates a sustainable economic return exceeding the cost of the funds used to finance it, expansion creates value.

But if revenue growth continually requires investments greater than the returns they produce, the company may become larger without becoming more valuable.

This is the lesson that makes the Reshio case broader than that of a coffee company listed on Nomu.

The company has shifted from a model relying more heavily on franchising to one in which it bears a greater share of the capital, operating responsibilities, and risks itself. Sales have increased, as might be expected from a larger owned network, but profitability has not yet kept pace.

Therefore, the right question for upcoming results is not:

How many new stores did Reshio open?

Nor even:

How much did revenue increase?

Rather:

How much economic return can each new riyal the company invests in stores generate?

If margins begin to recover, cash flows improve as stores mature, items related to closures and credit losses subside, and strong indicators of mature-site profitability emerge, the temporary-transition-cost hypothesis will gain stronger support.

But if revenue growth continues alongside weak margins and an ongoing need for additional capital injections, the question of the economics of the company-owned stores themselves will become more pressing.

For this reason, the Reshio case does not yet present either a complete success story or a complete failure story.

It offers something more useful to an economics student: a live example that growth is not synonymous with value creation, and that reading revenue without understanding margins, capital, and the operating model can make a company appear stronger at the very moment its economics are becoming more challenging.

Key References

1. Saudi Exchange, announcement setting the offering price for Al-Nisbah Al-Mukhtassah Trading Company, February 2, 2025.
2. Saudi Exchange, announcement of the offering results and allocation, with an 865% subscription coverage ratio.
3. Saudi Exchange, announcement of Reshio’s listing and trading on the Parallel Market, March 9, 2025.
4. Capital Market Authority, prospectus of Al-Nisbah Al-Mukhtassah Trading Company, including the use of offering proceeds.
5. Saudi Exchange, Reshio’s 2025 annual financial results and restated comparative figures.
6. Audited 2024 financial statements, including the expected credit-loss provision.
7. Saudi Exchange, preliminary financial results for the first half of 2026.
8. Saudi Exchange, detailed daily report for the Parallel Market on September 3, 2026.
9. IFRS Foundation, IAS 8 on prior-period errors and restatement of comparatives, and IAS 28 on associates and the equity method.
10. Aswath Damodaran, NYU Stern, references on return on capital, reinvestment, and value creation.

Note:
This material is an educational case study prepared for academic purposes and does not constitute a recommendation to buy, sell, or hold the company’s shares.