Retail stocks have fared well since mid-September after the government decided to allow 51% foreign direct investment (FDI) in multi-brand retail. Pantaloon Retail (India) Ltd, which is expected be a key beneficiary of this new rule, saw its stock climb 30%, while Shoppers Stop Ltd’s scrip rose 7%.

However, shareholders are unlikely to be enthused by both companies’ September quarter financial performance. Weak consumer demand will take its toll, along with higher wages, increasing rental costs and interest expenses.

Same-store sales are unlikely to improve in the September quarter despite the fact that the quarter had the discount sale season.

For Pantaloon, it will be the continuation of a story that has played out in the last couple of quarters as well. In June, Pantaloon’s same-store sales growth for the value retail segment (including value-for-money goods) stood at the lowest in the past four quarters at 0.4%. Sure, the company’s other two segments showed an improvement from the March quarter, but again it was nothing worth writing home about.

According to a note from IDFC Securities Ltd, “Pantaloon Retail is likely to post a 5% sales growth for the September quarter, as same-store sales growth is likely to remain in low single digits (1-4%)." Yet again, the company’s net profit is expected to decline driven by higher interest expenses.

As far as Shoppers Stop is concerned, its consolidated numbers would again be affected due to the performance of its subsidiary, HyperCity Retail (India) Ltd. In the June quarter, the company had posted a consolidated net loss.

“We expect Shoppers Stop to report 13.8% increase in sales to about 570 crore. However, same-store sales growth would be 1-2%, in our view," wrote analysts from Motilal Oswal Securities Ltd in their results preview.

What’s more disheartening is that the outlook on the operating front, too, is not particularly rosy. Consumer confidence is expected to be weak, and that will tell on demand. For Pantaloon, its high debt and the resultant high interest expenses still remain a concern notwithstanding purported benefits from the announcements on FDI. Those, in any case, are still some time away. On the other hand, investors would do well to track HyperCity’s performance and its impact on Shoppers Stop.