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Shoppers Stop: a forgettable quarter

LiveMint logoLiveMint 09-05-2017 Pallavi Pengonda

The Shoppers Stop Ltd stock shed 4.6% on Monday in reaction to the retailer’s disappointing fourth quarter financial results.

The biggest letdown came from like-to-like sales growth for the company’s department stores, which was in negative territory. Like-to-like growth declined 1.1% during the March quarter, clocking the worst performance in the past eight quarters at least. The measure increased 6.4% in the December quarter, which was adversely impacted on account of demonetisation. Like-to-like sales growth is the comparable sales growth of stores that have been operational for over a year.

The March quarter’s like-to-like performance was affected on account of two things, according to Govind Shrikhande, managing director of Shoppers Stop. First, the retailer brought down the discount sale period to 55 days from 65 days in the March 2016 quarter. Second, operations at four major stores were disrupted due to external factors such as Metro rail work in Mumbai or mall shutdown for about 45 days in Bengaluru and so on. For perspective, analysts at Edelweiss Securities Ltd were expecting 0.5% like-to-like sales growth for the March quarter.

Accordingly, stand-alone revenue growth was a measly 3%. Operating profit margin remained flat. A decline in depreciation and interest costs meant that profit before tax and exceptional item rose 18% to Rs20 crore. The company reported a net loss thanks to an exceptional item.

Shrikhande aims to clock 6-7% like-to-like sales growth for fiscal year 2018 (FY18). That may not be an ambitious target, especially considering like-to-like sales growth was 3.1% in FY17.

Meanwhile, its hypermarket chain HyperCity Retail India Ltd posted 5.8% like-to-like sales growth for the March quarter, which is not bad. However, it continues to post losses weighing on Shoppers Stop’s consolidated numbers. For FY17, HyperCity’s Ebitda loss at the company level stood at Rs14 crore, lower than Rs22 crore in FY16. Ebitda stands for earnings before interest, tax, depreciation and amortization.

“We expect HyperCity to be Ebitda positive at the company level this financial year,” said Shrikhande. Further, HyperCity being PAT positive will depend on equity structure. “We have been looking to bring investment into HyperCity, which will bring down its debt by half from Rs291 crore and thus help reduce interest costs,” he added.

The Shoppers Stop share will take cues from news flow on that front apart from better like-to-like growth numbers. This calendar year, the stock has performed well, helped to some extent by the spectacular listing of Avenue Supermarts Ltd, which led to a rerating of other retail sector stocks.

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