Retail stocks: Q3 results exceed expectations
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The demonetisation-led cash crunch meant expectations for the December quarter results of retail firms—Titan Co. Ltd, Shoppers Stop Ltd and Bata India Ltd—were running low. In that backdrop, these companies did better than expected.
Titan’s jewellery business, which contributes the lion’s share of its overall revenue, performed well, reporting a 15.4% year-on-year revenue growth. This looks even better considering that the December 2015 quarter had a high base, thanks to the presence in the initial days of studded jewellery activation. Gold jewellery volume growth for the December 2016 quarter was 4%. Titan’s watch business performed well, too.
Shoppers Stop’s like-to-like sales growth for its department stores came in at 6.4%. Now, by itself that number isn’t impressive considering this is the stronger festive quarter we are talking about. Note that the measure had increased 17.4% a year ago. But the December 2016 quarter like-to-like performance was better than analysts’ estimates. The firm maintains like-to-like growth saw double-digit year-on-year decline in November, compared with double-digit increase in October and December.
Like-to-like sales growth is the comparable sales growth of stores that have been operational for over a year.
Bata India’s revenue rose 2.4%, while its operating profit declined as staff costs, rent and other expenses rose at a faster pace. For the nine-month period to December, revenue increased just 0.8%. This is estimated to improve. ICICI Securities Ltd expects Bata India’s revenue growth to revive from fiscal 2018 onwards on account of an improved product mix and the company following a dual strategy of driving same-store sales growth and opening new stores in untapped locations. “We expect revenue to grow at a compounded annual growth rate of 8.1% year-on-year during FY16-19E,” wrote ICICI Securities in a report last month.
From 8 November (when demonetisation was announced) till 17 March, share prices of Titan and Bata India have appreciated, while those of Shoppers Stop have declined. Analysts at Emkay Global Financial Services Ltd say Shoppers Stop has nudged ahead its Ebitda margin target of 6.5% by one year to FY18E on the back of demand disruption owing to demonetisation. Ebitda is earnings before interest, taxes, depreciation and amortization. The performance of subsidiary HyperCity will be a key thing to follow for the Shoppers Stop stock. In general, improvement in consumer demand translating into better like-to-like growth and eventually higher revenue growth are key factors to watch out for.