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Shopper's Stop: Hurt by ambitious plans - Views on News from Equitymaster
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Shopper's Stop: Hurt by ambitious plans
May 8, 2009

Performance summary
  • Standalone topline grows by 16% YoY. The growth slows down on account of lower growth of same store sales, lower footfalls and sales per sq. feet.
  • Operating costs continue to scale higher resulting into 2% contraction in EBITDA margins.
  • The company reports net loss of Rs 637 m on account of lower operating profits, higher interest cost and depreciation charges and extraordinary expenses.
  • On a consolidated basis, topline grows by 18% YoY.


Financial performance snapshot
Rs (m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net sales 2,945 3,149 6.9% 10,930 12,651 15.7%
Expenditure 2,782 3,013 8.3% 10,343 12,217 18.1%
Operating profit (EBDITA) 163 136 -17.1% 587 434 -26.0%
EBDITA margin (%) 5.5% 4.3%   5.4% 3.4%  
Interest 20 60 204.0% 49 198 304.6%
Depreciation 106 217 104.7% 393 631 60.7%
Profit before tax 38 (142)   145 (395)  
Tax 18 28 53.1% 76 (6)  
Exceptional Items - -   - 248  
Net profit 19 (169)   70 (637)  
Net profit margin (%) 0.7% -5.4%   0.6% -5.0%  
No. of shares (m)       35 35  
Diluted earnings per share (Rs)*         (18.3)  
Price to earnings ratio (x)   -     -  
* 12 month trailing earnings

What has driven performance in FY09?
  • Shopper's Stop reported 16% YoY growth in revenues during FY09. The growth has slowed down as shoppers' spent less on discretionary items, as slowing economic growth has impacted their purchasing power. Apart from declining customer entry, lower sales per sq. feet (down by 10% YoY) restricted the growth. Also, like to like sales growth slowed down to 2% YoY. The same could be attributed to cannibalization of stores in major cities.

  • The company has reported 26% YoY fall in operating profits as costs continue to outpace topline growth. The high cost of operation could be attributed to the ambitious expansion plans outlined by the company that boosted inventory and lease rentals cost. However, the companyís ability to improve conversion ratio, ticket size and average selling price restricted the fall in margins.

  • To sustain margins, the company has also been increasing focus on consignment merchandise (lower bought out merchandise means lower mark downs) and private labels that fetch higher margins. While, the revenue contribution of consignment merchandise improved to 30% in FY09 from 27% in FY08, private label mix decreased to 19.9% in FY09 as against 20.2% in FY08.

  • The company's apparels to non-apparels ratio stood at 59.1:40.9. As regards divisional sales in the apparel category, the contribution of menís apparel to total apparels declined to 31% in FY09 from 33.7% in FY08, while in case of kids apparel, divisional sales improved by 1.1% to 10.8% during the same period. The contribution of womenís apparel decreased by 0.6% to 17.3% in FY09.

  • At the net level, the company reports loss of Rs 637 m. Apart from lower growth at the operating level, higher interest and depreciation costs, the loss at the net level was aggravated by extraordinary expenses that include provision for impairment of investments in Gateway Multichannel. The huge expansion plans lined up by the company boosted its corporate costs such as finance charges and asset replacement costs. During 4QFY09, the company closed down its Food and Beverages (F&B) stores creating a charge of an amount equal to Rs 62 m. The same is being including in depreciation costs.

What to expect?
The company holds 19% stake in Hypercity and can increase it to 51% by the end of June 2009 (period extended from December 2008). Post the acquisition of this stake, Shoppers' Stop and Hypercity would make up for 90% of the consolidated revenues and the remaining would be contributed by the other initiatives taken by the company such as airport retailing (Nuance group) and Time Zone entertainment (interactive entertainment, games).

On account of liquidity issues, the company has deferred its plans to raise funds through equity markets. The company is cautiously moving ahead with its expansion plans and for the same has leveraged its balance sheet. The management's focus on setting up new stores and looking at other related retail initiatives are expected to augur well from a long-term perspective. However, amidst the economic slowdown the earlier planned ambitious expansion plans are only likely to aggravate pressure on the already strained earnings.

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