Relatively higher presence in shopping malls could be one reason that weighed on Shoppers Stop’s revenues heavily
Shoppers Stop may need equity infusion going ahead to address negative net worth, according to an analysis
Retail stores were shut for a good part of the June quarter because of the covid-19 lockdown. Naturally, this led to substantial drying up of revenues of retail firms. Shoppers Stop Ltd is not an exception. It has, in fact, performed worse than its peers Trent Ltd and Aditya Birla Fashion and Retail Ltd (ABFRL) on the revenue front.
For the June quarter, Trent and ABFRL’s revenues declined by 87% and 84%, respectively, year-on-year. Meanwhile, Shoppers Stop’s revenues dropped as much as 94%. A relatively higher presence in shopping malls could be one reason that weighed on Shoppers Stop’s revenues heavily.
Nevertheless, the company did well on managing its costs. The loss at earnings before interest, tax, depreciation and amortization (Ebitda) was Rs102 crore. Employee costs fell by about 10% and other expenditure by 67%. The company accounted rent concessions worth about Rs100 crore in other income. That helped curtail net loss to some extent, which eventually came in at Rs115 crore.
To manage the cash burn, the company expects cost cutting initiatives to reduce costs by about Rs450 crore in financial year 2021.
For Shoppers Stop, the journey ahead is likely to be more arduous. Analysts from Motilal Oswal Financial Services Ltd wrote in a report on 15 August, “Shoppers Stop is likely to witness pronounced impact as it caters to high-ticket sized customers who may downtrade due to the economic impact of covid-19." Further, higher proportion of stores in malls, which are seeing lower footfall, is a hurdle.
Emkay Global Financial Services Ltd analysts said, “While we expect the performance to improve with increasing footfall ahead, the overall profitability outlook remains challenging." Emkay points out, “Shoppers Stop may need equity infusion going ahead to address negative net worth."
As such, investors seem to have taken note of Shoppers Stop’s vulnerable state. After all, shares of Shoppers Stop have declined almost 60% from its pre-covid highs early this year. In comparison, Trent and ABFRL shares have fallen by about 30% and 53% from their respective pre-covid highs.
Overall, recovery for the retail sector is expected to be slow as consumers limit their visits to shopping malls for fear of contracting the virus. Plus, with income levels falling, discretionary spending is expected to be curbed. In general, analysts believe Trent’s robust balance sheet and value product offerings would help it recover faster when normalcy returns. The stock’s stunning recovery from its May lows suggests a good share of this optimism is factored into the price. For Shoppers Stop, as mentioned before, the outlook remains grim.
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