Shoppers Stop Q2: margins up but sales disappoint

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Shoppers Stop Ltd’s impressive 19.8% like-to-like sales growth for the June quarter had moderated expectations for the September quarter. The bricks-and-mortar retailer had advanced its discount sale season by five days in the month of June, substantially boosting sales during the first quarter.

This advancement set the stage for lacklustre sales performance in the September quarter, but a 5.5% like-to-like sales decline was worse than expected. For instance, Edelweiss Securities Ltd was expecting a 4% like-to-like sales growth decline in departmental format (on a base of 2.2% growth in the year-ago quarter). Like-to-like refers to growth at stores in operation for over a year.

Govind Shrikhande, customer care associate and managing director of Shoppers Stop, said, “While September was relatively much better on the like-to-like growth front helped by the festive season, July and August recorded negative growth.” Stock and supply challenges on account of the goods and services tax implementation cast their shadow on the September quarter performance as well.

On the brighter side, the company improved Ebitda margins by 100 basis points to 6%. Decline in input costs and other expenses helped operating margins. Accordingly, Ebitda or earnings before interest, tax, depreciation and amortization increased by 5.7% over the same period last year to Rs50.7 crore. A basis point is 0.01%.

The company’s shares have been on a roll in recent months, after underperforming the S&P BSE 500 index for a good part of the fiscal year. The main reasons have been news flows regarding a 5% stake acquisition by Amazon.com NV Investment Holdings Inc. and sale of its subsidiary, HyperCity Retail (India) Ltd.

Here on, a lot depends on whether Shoppers Stop can deliver on sales growth. Shrikhande expects to report 8-9% like-to-like growth in the second half of fiscal year 2018 (FY18). Investors will keep a close watch on whether it meets that target.

The HyperCity deal is expected to be completed by the end of FY18. Then, the focus will shift to its stand-alone business and sales growth therein. Both transactions will help reduce debt, which Shoppers Stop expects will decline by Rs300 crore from its level of Rs536 crore. While that will lower interest costs, the sharp run-up in the stock suggests that is factored into its price. A revival in sales growth is the new trend investors will want to see.