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Shopper's Shop: Return of the shopper
Jul 30, 2010

Shopper's Stop Ltd. has announced its 1QFY11 results. The company has reported an 11.3% YoY and 297% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Standalone top line grew by 24% YoY on the back of strong same store growth.
  • Operating (EBITDA) margins expand by 1.8% aided by lower costs of goods sold, lower lease rent and hire charges and lower other operating and administration expense (all as a percentage of sales). The margin expansion could have been higher but for higher staff costs and higher selling and distribution expense (both as a percentage of sales).
  • Net profit of the company grew by 297% YoY on the back of higher operating income and lower interest costs partly offset by higher effective tax rate.


Standalone financial snapshot
(Rs m) 1QFY10 1QFY11 % change
Net Sales 2,766 3,435 24.2%
Expenditure 2,614 3,185 21.8%
Operating profit (EBDITA) 152 250 65.3%
EBDITA margin (%) 5.5% 7.3%
Interest 55 33 -39.5%
Depreciation 61 64 4.5%
Profit before tax 36 153 330.6%
Exceptional items - 1
Tax 10 54 417.3%
Profit after tax/(loss) 25 100 297.0%
Net profit margin (%) 0.9% 2.9%
No. of shares (m) 34.9 34.9  
Diluted earnings per share (Rs)*   12.4  
Price to earnings ratio (x)*   50.4  

What has driven performance in 1QFY11?
  • Shopper's Stop's sales grew by 24% YoY during 1QFY11. Economic revival led to improvement in consumer sentiment. This resulted in a rebound in shopping. As a result the company benefitted from higher volumes and transaction size.

  • The departmental stores reported 26% YoY growth in sales during the period under consideration, while all formats grew at the rate of 25% YoY. The growth has been supported by increase in transaction size (up 13% YoY) and average selling price (up 5% YoY). Conversely, revenue per sq ft has increased by 13% YoY. During the quarter, sales from same-stores grew by 21% YoY. The stores that are older than five years have grown by a robust 37% YoY, while stores less than five years reported a growth of 14% YoY.

  • Apart from robust sales, profitability has been supported by a change in product mix. The company's increased focus on consignment merchandise (lower bought out merchandise means lower mark downs) enabled it to report higher margins. The revenue contribution of consignment merchandise improved to 44% from 35% in 1QFY10. The share of private labels decreased from 18% in 1QFY10 to 16% in 1QFY11. The company consciously changed its merchandise mix to lower the cost of inventory, which in turn led to higher profitability.

  • As regards revenue mix, the share of apparel and non-apparel remained the same. While apparels contributed 58% of sales, non-apparels contributed 42% of sales. Within apparels, the sales mix saw some change. While the contribution of men's apparels to total apparels remained flat at around 31%, contribution of women’s apparels improved to 19%. Contribution from kids’ apparels on the other hand fell to 8.1%.

  • The company reported a 65% YoY growth in operating profits. This was on the back of costs growing at a slower pace as compared to growth in revenues.

  • The company reported profit growth of 297% YoY. This was because of higher operating income, lower interest costs and lower depreciation costs partly offset by higher effective tax rate.

What to expect?
At the current price of Rs 626, the stock is trading at 50.4 times its trailing 12-months earnings. The company during the quarter increased its stake in Hypercity from 19% to 51% making it a subsidiary. Shopper’s Stop also opened 4 new ‘Clinique’ stores during the quarter. The company's focus lies on high end and luxury retail markets. Considering India's demographic profile, the opportunities for retail stores are immense. However, the sector is in a massive investment phase. While the management of the company it taking steps to achieve profitable expansion, it remains to be seen whether the same is possible and sustainable.

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