GST sales boost retail firms’ Q1 earnings, but drop likely in Q2
Mumbai: Listed retailers saw a sharp spike in their sales for the quarter ended June 2017 as they advanced their end-of-season sales to the days leading up to the roll-out of the goods and services tax (GST) on 1 July.
Firms including Shoppers Stop, Aditya Birla Fashion and Retail Ltd or ABFRL (which includes India’s largest departmental store network Pantaloons) and Trent Ltd (Westside, Zara and Star Bazaar) saw their sales rise by 14-25% in the quarter gone by, primarily led by a sharp surge in sales during June. This came as retailers hurriedly liquidated stocks before the GST was implemented by enticing customers with advanced end-of-season sales.
Revenues of Shoppers Stop rose 14.6% year-on-year to Rs941.1 crore for the quarter, while like-to-like sales (sales of stores that have been in operation for at least five years) grew 19.8%, nearly double the regular growth the company sees during this time every year, according to managing director Govind Shrikhande.
“The sales period got preponed by 5 days,” Shrikhande said in a phone interview. “The sales usually start on 26 or 27 June, but this quarter it started on 22 June. In the June quarter, we were growing at 10% like to like, but this was extended to 20%. We have never got LTL (like to like) growth like this in the last 5-6 quarters.”
Similarly, ABFRL reported a 25% increase in revenue for the quarter ended June 2017, led by a 27% rise in sales of the apparel retail chain Pantaloons to Rs731 crore with a like-to-like sales growth of 14%, primarily led by the “pre-GST Sale Momentum”, the company said in an analyst presentation.
“So Pantaloons April, May was single-digits and it significantly shot up in June and that’s how we got to the overall 14% like-to-like growth,” Ashish Dikshit, fashion business head at ABFRL, said in an earnings call on 27 July. “And a very strong even higher like-to-like in June,” he said.
Meanwhile, Tata group-owned Trent’s revenues from operations rose nearly 25% to Rs499 crore for the quarter ended June, while the like-to-like sales growth for the period for Westside was 14%, up from the apparel retail chain’s consistent growth of 8-9%.
However, this growth has been a temporary boost for companies’ earnings that are expecting the early sale season to eat into their business for July, and even the quarter ending September. Besides, the increase in rates on apparel under GST, from 5% to 12% on garments priced over Rs1,000 is likely to affect margins for these retailers.
“5 extra days of sales will impact sales in July,” Shrikhande said. “Everybody was expecting supply issues,” he said. “But, with the Pooja festival coming earlier this year (in October rather than November), we should be able to recover sales after 15 August,” Shrikhande added.
Besides, July’s sales took a hit with a drop in supplies to retailers in the days leading up to the implementation of the GST, Shrikhande said.
“The FMCG guys suspended supplies in the last 8-10 days of June,” he said. “It took every supplier some time to set up (the new GST billing system), and trade margin calculations (between suppliers and the company) also came up,” he said.
According to Shrikhande, Shoppers Stop’s like-to-like sales growth is likely to drop to 6-8% in the September quarter and the December quarter will decide “where we are headed this year”.
“This time because of preponement of sales into Q1, we have to see how Q2 will play out (next year),” ABFRL’s Dikshit said in the analyst call mentioned above. “There is a clear advancement of sale from July into June, and therefore to that extent, there will be a drop in sales in the first half of this quarter.”
With prices of garments priced over Rs1,000, parts of these retailers’ businesses could also be hit as they either raise prices or reduce margins with a higher tax burden. ABFRL has reduced prices on some of its apparel, especially in Pantaloons, the “value” retail business, by an average of 2-3%.
However, company chief executive officer Shital Mehta said the company is “evaluating” a price hike in the analyst call mentioned above. This hike could become necessary for its higher end garments, largely sold by the Madura Fashion and Lifestyle segment of the business, which will now be taxed at 12% versus the average rate of 5.5% in the previous tax regime.
Meanwhile, Shoppers Stop is also looking to wait before increasing any prices. “We have all taken a stand to have prices remain at the pre-GST level, and will take a decision later,” Shrikhande said.
- Indian scientists using artificial intelligence to predict early onset of Alzheimer’s
- People need to make preventive measure a habit if India is to become malaria-free by 2027: home insecticides makers
- Bollywood is in love with biopics. But will it last?
- Flipkart wins relief over tax on discounts
- Why homebuyers can’t expect any RERA relief soon