BackShoppers Stop: not much retail therapy
The stand-alone year-on-year revenue growth of 10.6% to `772 crore was insufficient for the company to report better operating performance
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Shoppers Stop Ltd’s June quarter financial performance suggests the Indian consumer isn’t seeking much solace in retail therapy. Consider the lacklustre 5.5% like-to-like sales growth for the company’s department stores.
Govind Shrikhande, managing director of Shoppers Stop, says, “Even the 5.5% like-to-like growth wouldn’t have happened if it weren’t for the preponement of discount sale period by three days."
Like-to-like sales growth is the comparable sales growth of stores that have been operational for over a year.
This was one of the slowest June quarters, pointed out Shrikhande, adding that the biggest impact would have been on account of the lack of marriage muhurat season last quarter. Like-to-like volume growth of 5.7% meant there was no price growth during the quarter.
Thus, stand-alone year-on-year revenue growth of 10.6% to ₹ 772 crore was insufficient for the company to report better operating performance, given that total operating expenses increased at a faster pace of 12%. As a result, operating profit margin fell to a dispiriting 3% compared with 4.3% for last year’s June quarter. Operating profit fell 22% to ₹ 23.7 crore. But higher depreciation on account of new stores and accelerated depreciation as the retailer decided to close two stores, played havoc on pre-tax earnings. Shoppers Stop reported a pre-tax and exceptional item loss of ₹ 22 crore against a profit of ₹ 3.7 crore last year.
But this sad story does not end there. Subsidiary HyperCITY’s performance too has been nothing to write home about. Like-to-like sales growth for HyperCITY stores declined 0.5%. Profit fell at store Ebitda (earnings before interest, taxes, depreciation and amortization) level compared with last year’s June quarter. Four new stores haven’t completed a year and that has taken a toll at store Ebitda level, considering it takes time for stores to break even, explains Shrikhande. HyperCITY’s loss at the company Ebitda level and net profit level has also increased.
After a weak quarter, Shrikhande expects like-to-like sales growth to be better for the year as a whole (8-9% like-to-like growth) and operating profit margin to expand up to 7% for fiscal year 2017 on a stand-alone basis. What offers hope is that the good monsoon may help boost demand. Also, the implementation of the pay commission recommendations should have a positive impact. The festival season, of course, should bring in better sales performance.
The Shoppers Stop stock will take cues from how these factors play out. So far this fiscal year, the share has underperformed benchmark Sensex. That’s entirely understandable.
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