Pantaloon Retail (India) Ltd’s stock lost 8% on Friday to 171.4 per share in reaction to its September quarter financial performance, which was below expectations. On the same day, the benchmark Sensex index on BSE was down by about 1 percentage point.

One of the most important metrics—same-store sales (SSS) growth, which indicates sales performance of shops that have been in business for at least a year—has been quite disappointing.

File photo of Kishore Biyani, managing director of Pantaloon Retail at Big Bazaar, one of his retail outlets, in Mumbai. Bloomberg.

However, “SSS growth for value and lifestyle is the lowest in the last 13 quarters", pointed out a result update note from Prabhudas Lilladher Pvt. Ltd. They estimate the same-store volume decline at about 7-8%.

In an investor update, Pantaloon highlights that the “scenario of muted consumer sentiments" along with political and social unrest in Andhra Pradesh affected sales as stores in Hyderabad and other cities were closed for 12 days in the quarter.

True, the retailer saw a 43 basis points (bps) year-on-year improvement in the operating profit margin to 8.7% in its core retail business. But note that operating margin in the June quarter was higher at 9.1%. One basis point is one-hundredth of a percentage point.

Nevertheless, for the September quarter (the first quarter of Pantaloon’s fiscal year), operating profit increased by 18.6% compared with the same period last year. That comes on a revenue growth of 12.7% to 2,910 crore.

However, the improvement in operating performance could not boost the net profitability on account of a sharp rise in interest expenses. Also, depreciation costs increased at a comparatively faster pace. Net profit, thus, fell by 22.8% to 33 crore.

In general, the current quarter is key for all retailers on account of the festival season, although analysts remain a bit sceptical about a material improvement in performance. They maintain that unless Pantaloon improves SSS growth, and at the same time interest burden comes down to an extent, the outlook is bleak. Pantaloon’s consolidated debt stood at a massive 7,850 crore on 30 June.

It’s important that sales growth shows decent improvement; otherwise, higher interest expenses are likely to affect net profitability.

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