Shoppers Stop offers a glimmer of hope
Better consumer sentiment, economic growth and improvement in HyperCity financials, can put shares back in favour
Investors don’t seem to be finding the Shoppers Stop Ltd stock fashionable anymore. So far in 2014, the stock has declined 8%. In comparison, the S&P BSE 500 index has increased by as much as 26%. Not without reason. Concerns on muted like-to-like sales growth and subsidiary HyperCity’s performance have not inspired confidence for a while.
But for investors, the company’s June quarter financial results offer a glimmer of hope. There is an improvement in HyperCity’s financials. Losses at the Ebitda level have declined to ₹ 2.27 crore in the June quarter from ₹ 9.31 crore in the same period last year. Ebitda stands for earnings before interest, tax, depreciation and amortization.
“This is the first quarter from where investors can see an improvement in HyperCity’s performance," said Govind Shrikhande, customer care associate and managing director, Shoppers Stop, adding that the aim is to be Ebitda positive for the current fiscal year. Investors will do well to follow the progress on that front closely in the remaining quarters.
Meanwhile, on a stand-alone basis, the company’s 3.7% like-to-like growth in department stores hardly appears exciting and is much slower than the 8.4% growth in the March quarter. However, last quarter’s performance was on a relatively higher base. In the June 2013 quarter, Shoppers Stop’s like-to-like growth was 12% and, in any case, analysts were expecting single digit like-to-like growth last quarter. Therefore, this shouldn’t come as a surprise for investors.
Moreover, the company has managed to improve operating profit margin to 4.5% in the June quarter from 3.9% in the same three months last year. Operating profit increased by 32% year-on-year to ₹ 30.8 crore. Unfortunately, this could not translate into commensurate gains at the net profit level.
Shoppers Stop’s net profit last quarter stood at ₹ 75 lakh against ₹ 1.64 crore in year-ago quarter. Net profit performance was primarily affected on account of sharp rise in depreciation costs and higher interest expenses. Certain changes in the companies law led to substantial increase in depreciation costs, said Shoppers Stop.
The company is looking at 7-8% like-to-like growth in this fiscal year. Better consumer sentiment and increase in economic growth rates should boost sales. That, along with a consistent improvement in HyperCity’s financials, could well make the stock fashionable again.
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