Shoppers Stop's Q1FY19 results (Outperformer) - Good quarter on a high base

Q1FY19 result highlights

• Shoppers Stop’s (SHOP) standalone revenues (reported) declined by 12% yoy to Rs8.3bn (est: Rs9bn). EBITDA increased by 38% yoy to Rs415m (est: Rs384m). PAT came in at Rs98m (est: Rs62m) versus loss of Rs37m in base quarter.
• Revenues for Departmental stores increased by 1.2% yoy while LTL sales declined by 1.2% yoy (est: 2% decline), albeit on a high base (20% LTL sales in 1QFY18). LTL volumes declined by 4.5% yoy while ASPs increased by 3.3% yoy.
• Gross margins look optically higher due to GST and IND AS impact on reported revenues. Staff cost & rent expense increased by 4% and 8% yoy respectively. However, other expenses declined by 16% yoy aided by operating efficiencies and flow through of service tax benefit. Resultant EBITDA decreased by 38% yoy with EBITDA margin expansion of 180bp yoy to 5%.
• Depreciation expense increased by 8% yoy. Other income increased by 33% yoy while interest expense declined by 79% yoy due to reduction of debt. Resultant reported PAT came in at Rs98m versus loss of Rs37m in 1QFY18.

Key positive: Sequential improvement in private brand share. Healthy operating performance

Impact on financials: No change in estimates

Valuations and View

SHOP’s departmental stores LTL sales declined largely impacted by a higher base, though decline was lower than our expectations. Moreover on 2 year CAGR basis, 9% LTL growth looks solid given the challenging environment. While FY18 was a challenging year, we are factoring an 11% comparable sales CAGR over FY18-20E as the benefit of its Omni-channel strategy, initiatives on private label, strengthening beauty portfolio and a favourable base start to kick in. Further improved mix, GST led benefits, operating leverage and control over costs will aid margins resulting in a 25% EBITDA CAGR over FY18-20E. Valuations at 14.7x FY20E EBITDA remain attractive; maintain Outperformer.