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QSRs to report rapid recovery in June quarter, apparel retailers may lag

QSRs are likely to clock the highest recovery as they have evolved their model towards delivery and convenience channel, Edelweiss Securities said.Premium
QSRs are likely to clock the highest recovery as they have evolved their model towards delivery and convenience channel, Edelweiss Securities said.

  • Retailers reported significant recovery in business in the March quarter in the absence of serious restrictions along with an uptick in consumer demand, but a severe second wave led to the temporary closure of non-essential retail through April and May, stalling recovery again

New Delhi: Consumers resumed purchase of jewellery as lockdown restrictions eased, and continued ordering food in the June quarter, but stayed away from buying apparel, brokerages said in their June quarter earnings preview.

“By segment, QSRs are likely to clock highest recovery as it has evolved its model towards delivery and convenience channel. Apparel retail will again see lowest recovery with inventory levels and discounting being key monitorables," brokerage Edelweiss Securities said in its Q1FY22 earnings preview for the retail sector on 8 July.

To be sure, in January, companies such as Jubilant Foodworks that runs Domino's Pizza chain in India reported a 107% sales recovery, while Burger King India was at 85%. In April, system sales recovery for Domino's stood at 94.4%, while in May it was 87.7%, the company said in its March quarter earnings presentation. This was led by its delivery business. The promoters of HT Media Ltd, which publishes Mint, and Jubilant FoodWorks are closely related. There are, however, no promoter cross-holdings.

In the first quarter of the fiscal, retailers are expected to report a 53% year-on-year growth in sales, albeit on a lower base, but revenues are seen down 37% as the second wave nipped the recovery seen in Q4FY21, it said.

Retailers reported significant recovery in business in the March quarter in the absence of serious restrictions along with an uptick in consumer demand that helped lift sales for products across categories such as apparel, restaurants, consumer electronics etc.

A report by brokerage Anand Rathi on the March quarter earnings of top retailers said that as consumer demand moved toward normalcy, revenue growth for categories such as inner-wear, apparel, footwear, and department-store averaged at 72%, 0.4%, 35%, and 12% year-on-year respectively.

However, a severe second wave, that led to the temporary closure of non-essential retail through April and May, stalled recovery again. Anand Rathi report said that covid19-triggered restrictions and regional lockdowns halted the recovery towards the end of the fourth quarter. “Most companies expect gradual recovery from Q2FY22 with pent-up demand, the festival season and easing of restrictions," it said.

Apparel retailers are expected to see the highest impact across discretionary categories.

“Unlike QSRs, e-commerce still remains an evolving channel and also with restrictions on delivery of non-essentials, this channel would see limited growth. Overall, we expect apparel retailers to clock 33% recovery (versus Q1FY20) with Trent again expected to clock highest recovery based on past trends and traction in Zudio," Edelweiss said.

In April, overall retail sales were down 49% compared to April’19, industry body Retailers’ Association of India or RAI said in a note after surveying over 60 retailers pan-India across categories.

In May, as the second wave turned more severe and lockdowns intensified, retail sales dropped further, down 79% compared to May 2019. Retailers across restaurants, consumer electronics, footwear, apparel and clothing reported a drop in business in May with beauty and wellness retailers reporting the sharpest decline in the month.

RAI compared 2020 data with 2019—as India was under a strict lockdown in April and part of May last year.

As markets reopened, several retailers reported better demand compared to that seen during the unlocking of the economy in the previous year.

“From the first few weeks of the opening up (in the second wave) what we are finding is that the current consumer confidence and the level of spend has been better than after the first wave. It could be that there is a bit of pent-up demand that is coming through," Venugopal Nair, managing director and CEO at Shoppers Stop Ltd., said in an earlier interview with Mint.

While, Nair said that the retailer had witnessed “some impact" because of the closure of stores during the quarter, the chain was better prepared compared to the year-ago period.

Meanwhile, jewellery has been a clear “outperformer" across discretionary categories, Edelweiss said in its report, as demand got bunched up in H2FY21, especially in the wedding category.

In its quarterly update earlier this month Titan Company Ltd., which runs the Tanishq jewellery stores recorded revenue growth of 117% (excluding bullion sales) in Q122, with revenue contribution of approximately 50%, 10% and 40% coming from April, May and June months respectively. This is on a low base of the corresponding year.

"The sales were hit only to a small extent until third week of April, from the rapidly rising second wave of pandemic, primarily due to the temporary store closures in some important states. Thereafter, most stores were shut within a short span of time and could re-open gradually in June only, with several restrictions on operating hours and days of the week," it said in a filing to the exchanges.

Despite the lower number of store operational days in June, sales for the month is marginally ahead from a year ago, it said.

Edelweiss expects Titan to report a 60% recovery in overall business compared to the year-ago period.

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