Retail stocks have been in vogue recently. The retail sector has seen a rerating lately thanks to the success of the initial share sale by Avenue Supermarts Ltd, which runs D-Mart stores.
The Shoppers Stop Ltd stock wasn’t immune to the wave. In fact, after closing at an annual low of Rs273.55 at December-end, the scrip has appreciated 31% since.
Nevertheless, the outlook for the current quarter isn’t bright. IIFL Institutional Equities’ survey of store managers points to sharp demand moderation across categories in the key Shoppers Stop format after the end-of-season sale.
In keeping with that, the brokerage firm has cut its earnings forecast. IIFL expects 3.5% same-store sales growth in the March quarter (half the earlier estimate of 7%) and 16% earnings per share decline (higher discounting in private labels drives 28 basis points decline in the Ebitda margin).
Like-to-like or same-store sales growth is the comparable sales growth of stores that have been operational for more than a year. Ebitda is short for earnings before interest, tax, depreciation and amortization.
This is after the December quarter financials were hit by the adverse effects of demonetization. Like-to-like sales growth for Shoppers Stop department stores came in at 6.4% last quarter, which included the robust festival season.
The company is confident that things will get better. In an interview to ET Now earlier this month, Govind Shrikhande, managing director of Shoppers Stop, said he is targeting 8%-plus like-to-like sales growth for fiscal year 2018. Demand uncertainty poses a threat to that goal.
In general, competition from online firms has been a major problem for bricks-and-mortar retailers. But there could be some respite on that front in future. Analysts from Edelweiss Securities Ltd point out that the changing regulatory landscape, drying up of easy funding from investors seeking bang for the buck and plummeting valuations have forced e-tailers to shift focus from growth to profitability.
“Ergo, established physical retailers are likely to benefit as irrational discounting will come off,” said Edelweiss analysts in a report on 20 March.
The brokerage firm anticipates e-tailers will revamp their business models, which will lead to lower revenue growth momentum.
Meanwhile, despite the recent outperformance, the Shoppers Stop stock has been an underperformer in the last one year. Better consumer demand and improvement in subsidiary HyperCity’s financial health will go a long way to altering that trend.