Management Speak: Shoppers' Stop (Outperformer) - A revised strategy to achieve a similar goal

We present key takeaways from our interaction with Shoppers Stop’s (SHOP) new Managing Director (MD), Mr Rajiv Suri (appointed as CEO in January 2018). Mr Suri cited 5 key strategic focus areas that would help drive growth for SHOP 1) increase private label share, 2) strengthen the beauty segment, 3) focus on customer service, 4) drive in-store experience and 5) ramp up omni-channel presence. The company has maintained FY19 guidance of mid to high single digit same store sales growth (SSSG), 5-6 new stores and 100bp EBITDA margin expansion. We believe the new management’s initiatives, especially to increase private label will bear fruits towards the latter half of FY19 and into FY20. With the new management’s revised strategy to tackle a challenging environment now in place, we believe focus will shift to execution, which if successful, will drive a re-rating in the stock, which currently trades at 14x FY20E EV/EBITDA. We maintain our Outperformer rating on the stock with a target price of Rs643.

5 focus areas to drive growth: Mr Suri revealed 5 focus areas that would improve SHOP’s SSSG, customer entry and profitability - 1) increase private label share, 2) strengthen the beauty segment, 3) focus on customer service, 4) drive in-store experience and 5) ramp up omni-channel presence. The company believes the full benefit of a few of these initiatives, especially a significant turnaround in private label, will be more visible in FY20E.

FY19 guidance maintained: Management has maintained guidance of mid-to-high single digit like-to-like growth, 5-6 new store addition and 100bp EBITDA margin expansion. The like-to-like growth will be weaker in Q1, owing to the high base (pre-GST sale) of 19.8%; however, growth is expected to catch up in the balance part of the year, when the base would be far lower.

Experimenting by lowering discounting period: Management will be experimenting with a new price strategy, which would involve reducing the discounting period from 8 weeks currently to 6 weeks this season. The idea behind this is that if the timing of the sale can be perfected, lowering of discounting period can be achieved. We believe while the change would boost business profitability, its remains a risk in the current environment of excess discounting.