Home / Markets / Mark To Market /  Shoppers Stop’s Dec quarter shows that recovery won’t be an easy task

The path to normalcy following the covid lockdown has been comparatively tougher for Shoppers Stop Ltd. A key pain point for the retailer has been its higher presence in shopping malls. Out of its 84 department stores, 73 are mall stores. The malls are recovering gradually and this in turn affects Shoppers Stop. While all of its stores are fully operational now, revenues are catching up at a slower pace.

Standalone revenues for the December quarter declined by 29% over the same period last year to 707.6 crore. Sure, this is an improvement from the June and September quarters when revenues had declined by 93.5% and 65.4% year-on-year, respectively. But the sequential improvement isn’t surprising given the easing of the lockdown. “Footfalls still remain low (about 50% of pre-covid levels) due to partial opening of multiplex/food courts, leading to a slower recovery (about 70% of pre-covid sales in Q3FY21)," said analysts from Emkay Global Financial Services Ltd.

Shoppers Stop's revenue performance in Q3FY21 expectedly improved on a sequential basis, but pace of recovery is gradual
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Shoppers Stop's revenue performance in Q3FY21 expectedly improved on a sequential basis, but pace of recovery is gradual

The company’s cost-reduction efforts are on track. So far in this financial year, Shoppers Stop has managed cost savings to the tune of about 390 crore. For FY21, it intends to save 450 crore and out of this, 200 crore worth cost savings are expected to be sustainable in FY22.

Meanwhile, analysts view the appointment of a new chief executive officer with a strong track record, positively. “New CEO Venu Nair (ex-Westside/M&S/ABFRL) suggested no major deviation from the earlier strategy of focusing on private labels, omnichannel, beauty and personal shoppers. However, he indicated focus on (1) filling the category gaps within private labels to garner value-focused consumers, (2) new monthly launches to drive consumer interest in beauty and (3) improving order fulfilment capabilities for omnichannel, leading to an increase in omnichannel mix (about 25% by FY24E versus 6%/1.5% in Q3FY21/FY20)," said Emkay’s analysts in a report on 18 January.

In Q3, private brands and beauty contributed around 13% and 16% of overall sales, respectively.

Going ahead, sales recovery needs to be watched closely. To be sure, it’s not as if Shoppers Stop was having a great run before covid. For perspective: revenues in the September 2019 and the December 2019 quarters had declined 2.2% and 0.5% y-o-y, respectively. The management told analysts it expects normal business recovery by the September or December quarter of FY22.

Motilal Oswal Financial Services Ltd has cut its FY21 estimated revenue/Ebitda estimate by 12%/92% due to the prolonged impact of the covid-19 pandemic.

The bright spot is that Shoppers Stop shares have underperformed broader markets sharply in the past one year and this has rendered valuations appealing. However, until there are indications of a meaningful sales revival, the scope for valuations to improve remains limited.

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