Retail: a mixed bag
Some pockets of improvement are visible in the June quarter results of retail companies
Consumer demand hasn’t picked up a great deal, but some pockets of improvement are visible in the June quarter results of retail companies.
For instance, shopping became fashionable at Shoppers Stop Ltd, and same store sales growth at Future Retail Ltd’s value store business improved after two quarters of declining growth rates. But, on the other hand, weak demand for gold jewellery took a toll on Titan Co. Ltd, and its volumes declined for the second quarter in succession.
In other words, trends in the sector were mixed, and they are likely to remain that way, given the fragile nature of the recovery in the economy.
As far as company specific details go, Titan’s jewellery volumes declined 10% last quarter, on similar lines with the 11% decline in the March quarter. The upshot: the Ebit (earnings before interest and taxes) margin of the jewellery business fell to 9.2%, the lowest in the previous eight quarters. Volumes in the company’s watch business fell 4% in the last quarter, the third straight quarterly decline. It’s little wonder Titan’s shares have underperformed the benchmark Sensex in the past year and, considering that gold as an asset class is losing sheen currently, it wouldn’t be surprising if the underperformance continues.
In contrast, Shoppers Stop’s like-to-like sales growth increased 12.7%, which is the highest growth in seven quarters.
Sure, a favourable base helped—four stores were under renovation in last year’s June quarter.
Still, the underlying like-to-like growth was healthy, even after excluding the impact of renovated stores, analysts say.
For Future Retail Ltd, some segments performed well, while others did not. Same store sales growth in the value stores business, or primarily the Big Bazaar format, stood at 10.3%. However, same store growth in the home retailing business was lower at 3.8%. “Sales mix during the quarter deteriorated as sales of apparel suffered due to the rising impact of online retail," said a report from Prabhudas Lilladher Pvt. Ltd. Growth in the furniture segment was flat, while electronics sales grew in mid single digits.
Looking forward, the margins of these companies are expected to drop as the September quarter includes the impact of the discount sale period. Weak consumer sentiment has meant shares of Shoppers Stop and Future Retail, too, have underperformed in the last year. In general, investors would do well to watch out for the impact of online competition. For Future Retail, interest costs continue to be a worry. Even though finance costs declined year-on-year, they still accounted for a huge 52% of June quarter operating profit.
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