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Shopper's Shop: Shopping back in vogue - Views on News from Equitymaster
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Shopper's Shop: Shopping back in vogue
Nov 2, 2010

Shopper's Stop Ltd. has announced its 2QFY11 results. The company has reported a 22.6% YoY and 44.1% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Standalone top line grew by 22.6% YoY on the back of strong same store growth.
  • Operating (EBITDA) margins expand by 1.4% to stand at 8.4% aided by lower lease rent and hire charges and lower other operating costs (both as a percentage of sales).
  • Net profit of the company grew by 41% YoY on the back of higher operating income and lower interest costs partly offset by higher effective tax rate.
  • For 1HFY11, net profits grew by 88% YoY while net profit margins improved by 1.1% to stand at 3.4%. This performance comes on the back of higher operating income, fall in interest costs and, lower depreciation partly offset by higher effective tax rate.

Standalone financial snapshot
(Rs m) 2QFY10 2QFY11 % change 1HFY10 1HFY11 % change
Net Sales 3,706 4,545 22.6% 6,472 7,980 23.3%
Expenditure 3,448 4,163 20.7% 6,062 7,348 21.2%
Operating profit (EBDITA) 258 382 48.1% 409 632 54.5%
EBDITA margin (%) 7.0% 8.4% 6.3% 7.9%
Interest 54 40 -26.5% 109 73 -33.1%
Depreciation 62 73 16.8% 123 137 10.7%
Profit before tax 141 269 90.9% 177 422 139.2%
Exceptional items 9 - 9 1
Tax 29 95 226.1% 40 149 276.2%
Profit after tax/(loss) 121 174 44.1% 146 274 87.8%
Net profit margin (%) 3.3% 3.8% 2.3% 3.4%
No. of shares (m) 34.9 35.0   34.9 35.0  
Diluted earnings per share (Rs)*         13.9  
Price to earnings ratio (x)*            
* On a 12-month trailing basis

What has driven performance in 2QFY11?
  • Shopper's Stop's revenues grew by 22.6% YoY during 2QFY11. Economic revival led to improvement in consumer sentiment. This resulted in a rebound in shopping. As a result, the company benefitted from higher volumes, conversion ratio and transaction size.

  • The departmental stores reported 23% YoY growth in sales during the period under consideration, while all formats grew at the rate of 22% YoY. The growth has been supported by increase in transaction size (up 6% YoY) and average selling price (up 3.5% YoY). Conversely, revenue per sq ft has increased by 2.4% YoY. During the year, like to like stores reported a 13% YoY growth. The stores that are older than five years have grown by 8% YoY, while stores less than five years reported a growth of 25% YoY.

  • Apart from robust sales, profitability has been supported by 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 45% from 38% in 2QFY10. The share of private labels decreased from 21.5% to 19.8% in 2QFY11. 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 fell by 0.6% to 60.9% while share of non-apparel increased by 0.6% to stand at 39.1%. Within apparels, the contribution of men's apparel to total apparels fell by 1% to 31.8% while contribution of women’s apparel improved by 0.1% to 19.8%. Contribution to apparel sales from kid’s apparel improved by 0.2% to 9.3%.

  • The company reported a 48.1% YoY growth in operating profits. This has been on the back of costs growing at a slower pace as compared to growth in revenues.

  • At the net level, the company reported profit growth of 44% YoY. This has been because of higher operating income and lower interest costs partly offset by higher effective tax rate. Effective tax rate increased from 21% in 2QFY10 to 35% in 2QFY11.

What to expect?
At the price of Rs 704, the stock is trading at 50.4 times its trailing 12 months earnings. The company during the quarter concluded its QIP and promoters warrant issue and received a sum of Rs 2.2 bn. Shopper’s Stop also opened 3 new Shopper’s Stop Department stores, 1 new MAC store and 1 new Crossword store 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, India’s retail sector is in the growth phase and therefore the investment phase. While the management of the company is taking steps to achieve profitable expansions. It remains to be seen whether the same is possible and sustainable.

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