BackPantaloon: growth back, but will it sustain?
Investors should track sustainability of same-store sales growth momentum and reduction in debt
Premium(Ramesh Pathania/Mint)
The financial results of Shoppers Stop Ltd and Titan Industries Ltd for the December quarter that included the festival season proved that consumer sentiment has improved in that three months. The latest to confirm that trend is Pantaloon Retail (India) Ltd, which announced December quarter results after market hours on Monday.
The company had maintained in its September quarter investors’ update that in 2012 the full impact of the festive season sales will be captured in the December quarter. Pantaloon’s core retail business sales numbers reflect the positive seasonality impact. Here’s the icing on the cake: the company’s same-store sales (SSS) growth for its lifestyle retail segment increased by 12.7%, the strongest SSS growth in the last six quarters.
SSS compares the sales of stores that have been open for at least one year. This variable becomes important because investors are aware that retail companies have been battling weak SSS growth for a while now.
In the December quarter, Titan saw an improvement in its jewellery business volumes and even Shoppers Stop saw an increase in its like-to-like sales volumes. Even as the home segment SSS growth continues to languish, what’s heartening in Pantaloon’s case is that the value retail segment performed well. SSS value growth increased by 5.1%, again the best in the last six quarters.
While that gives confidence, it remains to be seen whether the good cheer has continued beyond the festive season. That’s why the current quarter becomes all the more significant to judge whether the improvement in consumer sentiment is a sustained one.
Overall, Pantaloon’s core business revenue increased by about 10% on a year-on-year basis to ₹ 3,171 crore. In comparison, September quarter revenue growth stood at 5%. However, annual profitability remained weak. For instance, profit before tax fell to ₹ 7 crore from ₹ 19 crore from the same period last year. Of course, sequentially, the company performed well, but then, the December quarter had the positive impact of the festival season. Additionally, interest costs were sequentially lower and flat annually, boosting overall profitability.
Unfortunately, investors did not give brownie points to Pantaloon’s December quarter performance. The stock fell by 3.96% on Tuesday to ₹ 200.15. Despite the improvement in consumer sentiment, Pantaloon’s earnings missed analysts’ expectations.
It makes sense for shareholders to track the sustainability of the SSS growth momentum. The reduction in debt would also be important to follow. But, over the longer time frame, shareholders haven’t really lost. In the last one year, the Pantaloon stock has outperformed the S&P BSE-200 index, mainly because of the foreign direct investment news flow.
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