Photo: Priyanka Parashar/Mint
Photo: Priyanka Parashar/Mint

Not enough shoppers have been stopping at Shoppers Stop

While revenues don't impress, Shoppers Stop has been able to reduce the debt on its books

Shoppers Stop Ltd’s March quarter results suggest shopping at its department stores is losing its sheen. Sales have been rather slow. Indeed, like-to-like sales at the company’s department stores fell 4% year-on-year last quarter. Moreover, this comes after a lacklustre 1.4% like-to-like sales growth in the parameter in the December quarter.

Like-to-like sales growth is the comparable sales growth of stores that have been operational for over a year.

According to Govind Shrikhande, customer care associate and managing director of Shoppers Stop, the discount sale season started in the December quarter 10 days earlier and there were less days for the sale period during the March quarter. This, along with renovation at some stores, adversely impacted the like-to-like sales performance. Further, change in the goods and services tax rates on certain items in the non-apparel category led to a lower maximum retail price (MRP). Overall, revenues fell nearly 7% last quarter on a year-on-year basis to Rs850 crore. Footfalls declined 9%.

While revenues don’t impress, the company has been able to reduce the debt on its books. At the end of March, loan funds declined to Rs87 crore from Rs237 crore at the end of December. This was helped by the sales proceeds from Timezone Entertainment and funds from NV Investment Holdings Llc for a 5% stake, said Shrikhande, adding that Shoppers Stop should be debt-free by the end of this fiscal year.

This would lead to considerable savings in finance costs and add to earnings eventually. For the March quarter, finance costs dropped to Rs3 crore from Rs9 crore for the December quarter.

Of course, an improvement in revenues at the same time will be helpful. The company aims for 7.5% like-to-like sales growth for fiscal year 2019 (FY19). The measure had improved just 2% for FY18. Owing to challenges from reduced MRP, increased competition, repositioning of private labels and mall renovations, the management was unable to achieve its FY18 like-to-like guidance of 4%, pointed out analysts from Emkay Global Financial Services Ltd.

The silver lining is that the base is favourable for this year’s like-to-like growth. Investors will have to closely follow its trajectory to evaluate the prospects of the Shoppers Stop stock.

Emkay maintains its “Hold" rating on the stock with a price target of Rs555, which translates to 15 times FY20 estimated enterprise value/Ebitda. Ebitda is short for earnings before interest, tax, depreciation and amortization. On Thursday, the stock closed at Rs564, down a bit after its results.

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