One reason why Future Retail Ltd shares have been in fashion on the bourses is its stunningly consistent 10%-plus same-store sales growth for many quarters in a row. The March quarter (Q4 FY18) performance breaks that trend. Cast your eyes on the chart above. Same-store growth at 6% was the slowest in the last eight quarters.

Same-store sales growth is the comparable sales growth of stores that have been operational for over a year.

Same-store sales growth at Future Retail’s hypermarket format Big Bazaar outlets too dropped to a seven-quarter low. Still, a double-digit growth of 11% is nothing to sneeze at. Slower growth at Easyday and eZone dragged overall same-store sales growth, impacted also by the goods and services tax-led price cuts starting November 2017, point out analysts from Jefferies India Pvt. Ltd.

Easyday stores offer pre-packed vegetables and fruits, packaged consumer goods and daily-use products. eZone is a consumer durables and electronics chain.

Lacklustre same-store performance played a role in the company delivering a rather uninspiring set of financial results for the last quarter. Revenues at Rs4,575 crore lagged estimates. This is despite the fact that revenues worth Rs188 crore pertaining to HyperCity (bought last year) are included for Q4.

Ebitda margin at 4.4% expanded 38 basis points compared to last year’s March quarter but is 17 basis points lower than that in the December quarter. HyperCity’s Ebitda losses to the tune of Rs38 crore have adversely affected margins. Ebitda—earnings before interest, tax, depreciation and amortization—is a measure of operating profitability. A basis point is 0.01%.

In the coming days, margin expansion will not be easy. “Focus to drive share of food business, increasing share of Easyday and integration of HyperCity for full year in FY19 will contain margins," said Jefferies in a report on 21 May.

Investors have no reason to grieve. The stock has gone up a huge 70% in the past year. The shares trade at 25 times estimated earnings for FY19, based on Bloomberg data.

Of course, the stock is available at much cheaper valuations than bigger peer, Avenue Supermarts Ltd (which runs the D-Mart supermarket chain), which trades at a mind-boggling 82 times estimated FY19 earnings.

Needless to say, better same-store growth will help Future Retail bridge the valuation gap. HyperCity’s performance needs to be closely watched, numbers from which were included for four months in FY18. HyperCity stores were under renovation and upgrade in FY18. Future Retail believes HyperCity stores to be Ebitda accretive in the first 12-18 months of operations.

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