Shoppers Stop’s investors await faster recovery after sluggish Q2FY211 min read . Updated: 22 Oct 2020, 09:28 PM IST
The December quarter may bring some respite for the company, even as it faces more challenges in retail than peers
Shoppers Stop Ltd’s shares have declined by a massive 57% from their pre-covid highs in January. Given the pressure on discretionary spending in a post covid-19 world, the performance of the stock is understandable.
Moreover, improvement in the September quarter was slow. During the June quarter, standalone revenues had declined by a whopping 93.5% year-on-year (y-o-y), reflecting the significant impact of the stringent lockdown. As the lockdown eased and shopping malls started reopening, the September quarter revenue drop was contained to 65%. Local lockdowns and 20% lower operating days y-o-y hurt the quarter’s performance.
Loss in earnings before interest, tax, depreciation and amortization (Ebitda) fell to ₹34.7 crore in the September quarter from ₹102.4 crore in the June quarter.
Cost savings in the half year ending September (H1FY21) stood at ₹314 crore and that’s commendable. Significant savings on rentals helped. Rentals for the December and March quarters are being re-negotiated. Overall, for FY21, Shoppers Stop is planning cost savings of ₹450 crore.
After a washout H1FY21, the December quarter may bring some respite thanks to the festivals. Even so, Shoppers Stop faces more challenges in the retail sector compared to peers. Motilal Oswal Financial Services Ltd analysts said in a 20 October report: “The contribution of private products to revenue is still extremely low. Furthermore, competitors, such as Pantaloons, Max, Reliance Trends, FBB, Westside and Zudio, are better placed to attract customers within this price range."
Besides, it’s not as if Shoppers Stop’s revenue growth was striking even before covid-19 struck.
“The planned rights issue should ease liquidity concerns to a certain extent and address the negative net worth," Emkay Global Financial Services Ltd said in a 20 October report. “Recovery remains slow due to higher exposure to malls and western region which are yet to fully recover."
There are hopes that the appointment of Venugopal G. Nair as the new chief executive officer, effective 6 November, will help revive the fortunes of the company.
For now, the meaningful correction in Shoppers Stop’s shares this year suggests that investors are factoring in the pessimism to a good extent.