Retail: a mixed shopping cart in Q4
An improvement in consumer sentiment and better like-to-like sales growth would go a long way in keeping retail stocks in vogue
Avenue Supermarts Ltd, which runs the D-Mart supermarket chain, had a phenomenal listing on the bourses. The stock has already more than doubled from its issue price. But how were its first set of results since listing? A bit underwhelming, to say the least. Sure, revenue and operating profit increased 41% each during the March quarter on a year-on-year basis, but that was below expectations. The company added 14 stores during the quarter, which pushed operating expenses up to some extent, affecting profitability. The sharp run-up in the stock means valuations are pricey, but analysts maintain that a lack of similar performing companies should support the scrip.
Shoppers Stop Ltd disappointed as well. The like-to-like sales growth for its department stores was in negative territory, declining 1.1%, clocking the worst performance in eight quarters at least. Note that the measure had increased 6.4% in the December quarter, which was adversely impacted on account of demonetisation. The March quarter’s like-to-like performance was affected owing to the decline in discount sale period by about 10 days, compared with the same quarter last year. Further, there was disruption in operations at four major stores due to external factors.
Like-to-like sales growth is the comparable sales growth of stores that have been operational for at least a year.
Meanwhile, Titan Co. Ltd performed well. The jewellery business, which contributes a big proportion of Titan’s revenue and profit, had performed well in the December quarter despite demonetisation. The segment clocked an even better performance in the March quarter. Jewellery revenue rose 55% year-on-year and accounted for 82% of total revenue. Jewellery revenue had increased 15% in the December quarter. Volume, or grammage, increased 37% in the March quarter, far better than the 4% rise in the December quarter. A favourable base for this year’s March quarter helped Titan.
Bata India Ltd’s 8.7% year-on-year revenue growth in the March quarter, while not impressive in itself, looks good compared with the 0.8% revenue growth for the nine-month period to December. Muted consumer sentiment and demonetisation adversely affected Bata India’s performance for the nine-month period to December. According to the shoe maker, the March quarter saw the introduction of a new range in men’s and women’s footwear, along with a colourful range for teenagers. However, a faster rate of growth in raw material costs meant a lower operating profit margin and gross margin.
In general, an improvement in consumer sentiment and better like-to-like sales growth would go a long way in keeping retail stocks in vogue.