Shoppers Stop's Q4FY18 results (Outperformer) - Weak SSSG impacts 4Q…Positive outlook for FY19
Q4FY18 result highlights
- Shoppers Stop’s (SHOP) standalone revenues declined by 7% yoy to Rs8.5bn (est: Rs8.8bn). EBITDA declined by 2% yoy to Rs516m (est: Rs603m). PBT (bei) increased by 11% yoy to Rs227m (est: Rs258m). PAT (bei) increased by 77% yoy to Rs 208m (est: Rs149m).
- Departmental stores LTL sales declined by 4.1% yoy as LTL volumes declined by 8.7% yoy while ASPs increased by 4.6% yoy. For FY18, LTL sales increased by 2.1% yoy.
- Gross margins improved 220bps yoy but look optically higher due to GST impact on reported revenues. Share of private & Exclusive brands declined by 320bps yoy to 11.9% for the quarter. Staff cost & rent expense increased by 15% and 5% yoy respectively. However, other expenses declined by 13% yoy aided by operating efficiencies and flow through of service tax benefit. Resultant EBITDA decreased by 2% yoy with EBITDA margin expansion of 30bp to 6.1%.
- Depreciation expense increased by 10% yoy. However, interest expense & tax outgo declined by 78% yoy each. Resultant reported PAT came in at Rs208m versus loss of Rs381m (one-time provision for investment impairment considered for Hypercity (Rs360mn) and NGIPL (Rs118mn)) in 4QFY17.
Key negative: Weakness in LTL sales and private brand mix
Impact on financials: We have cut our FY19/20E EBITDA by 5%/3% respectively.
Valuations and View
FY18 has been a challenging year for SHOP impacted by store renovations, GST transition and business restructuring on the non-departmental store businesses. However achieving balance sheet deleveraging through sale of Hypercity and other smaller formats as well as fund infusion by Amazon NV has been a key positive. SHOP’s next phase of growth to compete with the challenges of e-retailing and strong single brand retailers starts in FY19. We believe a successful implementation of its Omni channel strategy (by leveraging the Amazon tie-up) and getting the private label business on track remain key variables for SHOP’s future success. Further, valuations remain inexpensive at 14.6xFY20E EBITDA. Maintain Outperformer
Shoppers Stop Limited is a holding company. The Company is engaged in the business of retailing a range of household and consumer products through departmental stores. It operates through approximately 80 such departmental stores located in approximately 40 cities. Its products include apparels and non-apparels. Its non-apparel category includes cosmetics, personal accessories and leather goods, home wares, electronics, books and music. The Company, through its Website, Shoppersstop.com, offers international and national brands in men's, women's and kids apparel; gifts and fashion accessories, such as ladies watches, men's watches, artificial jewelry, fine jewelry, handbags, fragrances, men's and women's footwear, home furnishing and decor products. It has over six private brands namely STOP, Kashish, Life, Haute Curry, Velorio Fratini and Elliza Donatein. It offers First Citizen Loyalty Program for customers. Its application is available on Google Play Store and Apple App Store.
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