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Shopper’s Stop: Back to reporting profits - Views on News from Equitymaster
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Shopper’s Stop: Back to reporting profits
Jul 29, 2009

Performance summary
  • Standalone topline grows marginally by 0.3% YoY. This flat growth is the result of lower sales per sq. ft.
  • Operating margins expand by 5.3% on account of lower cost of operation.
  • The company reports net profit of Rs 25 m as against a loss of Rs 153 m during the same period last year. The same is on account of a strong show at the operating level and lower depreciation charges.
  • On a consolidated basis, topline grows by 1.5% YoY. At the net level, the company reports a profit of Rs 10 m during the quarter as against a loss of Rs 214 m in 1QFY09.


Financial performance snapshot
Rs (m) 1QFY09 1QFY10 Change
Net sales 2,758 2,766 0.3%
Expenditure 2,753 2,614 -5.1%
Operating profit (EBDITA) 5 152 2876.6%
EBDITA margin (%) 0.2% 5.5%  
Interest 36 55 53.9%
Depreciation 136 61 -55.0%
Profit before tax (166) 36  
Tax (13) 10
Exceptional Items - -  
Net profit (153) 25  
Net profit margin (%) -5.6% 0.9%  
No. of shares (m) 34.9 34.9  
Diluted earnings per share (Rs)*   (21.9)  
Price to earnings ratio (x)   -  
* 12 month trailing earnings

What has driven performance in 1QFY10?
  • Shopper’s Stop reported marginal growth of 0.3% YoY in revenues during 1QFY10. The flat growth was the result of lower sales per sq ft. The sales per sq ft on chargeable area were lower by nearly 11% YoY as the slowing economic growth impacted discretionary spending. The number of customers entering the stores dropped by 6% YoY. Apart from this, lower like to like sales restricted growth. Since like to like sales volumes were lower by 9.7% YoY, this resulted in a 6.3% YoY fall in like to like sales. The stores that were operational during both the quarters and are older than five years caused the major damage as they reported de-growth of 12% YoY, while stores less than five years reported growth of 4% YoY.

  • The company has increased its focus on consignment merchandise (lower bought out merchandise means lower mark downs) to sustain margins. The revenue contribution of consignment merchandise improved to 35% from 27% in 1QFY09. The share of private labels that fetch high margins decreased by 2.5% YoY to 17.9% in 1QFY10 as private labels sales decreased by 12% YoY. As regards revenue mix, the share of non-apparel segment is increasing. The apparel segment share declined from 60.2% in 1QFY09 to 57.9% in 1QFY10. As regards divisional sales in the apparel category, the contribution of men’s apparel to total apparels declined to 30.7% in 1QFY10 from 33.2% in 1QFY09. The contribution of women’s apparel has also come down to 18.6% from 19.2% during the same period under consideration. On the other hand, the kids apparel contribution increased to 8.5% from 7.8%.

  • While the company reported a 0.6% YoY contraction in gross margins, operating margins expanded by 5.3% during the quarter. While the cost of sourcing increased during the quarter as compared to the same period last year, the company was able to bring down other operational expenses. Lease rentals were up by 7.7% YoY. Last quarter the company had spent huge amount on brand campaigns and logo change that resulted in an increase in expenses, apart from the inflationary pressures witnessed during that quarter.

  • Strong show at the operating level coupled with lower depreciation costs resulted in the company reporting profit of Rs 25 m at the net level as against a loss of Rs 153 m during the same period last year. The company had re-estimated of useful life of assets and accordingly revised depreciation rates from 1 April, 2009. This resulted in lower depreciation cost o the tune of Rs 82 which further boosted the bottomline.

What to expect?
The company has filed a draft prospectus with SEBI for the rights issue, which has been delayed for a long time owing to liquidity issues. The company is cautiously moving ahead with its expansion plans and for the same has leveraged its balance sheet.

The company holds 19% stake in Hypercity and can increase it to 51% by the end of June 2010 (period extended from December 2008). Post the acquisition of this stake, Shopper's Stop and Hypercity would make up for majority 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).

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, longer than expected economic revival will have an adverse impact on the company.

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