Shoppers Stop's Q2FY19 results (Outperformer) - Muted quarter… growth to improve in 2H
Q2FY19 result highlights
- Shoppers Stop’s (SHOP) standalone revenues (reported) increased by 3% yoy to Rs8.6bn (est: Rs8.7bn). EBITDA increased by 7% yoy to Rs540m (est: Rs557m). PBT(bei) increased by 17% yoy to Rs229m (est: Rs269m).Reported PAT came in at Rs132m (est: Rs162m) versus loss of Rs218m in base quarter.
- Comparable revenues (adj for IND AS & GST) increased by 7.4% yoy and LTL sales grew by 3.6% yoy (est:5%) impacted by shift in festive season this year. However management has indicated to healthy start to festive season (strong growth of 18-20% in east during Durga Pooja)
- Gross margins look optically higher due to GST and IND AS impact on reported revenues. Staff cost & rent expense increased by 5% and 4% yoy respectively. Other expenses increased by 10% yoy. Resultant EBITDA increased by 7% yoy with EBITDA margin expansion of 30bp yoy to 6.3%.
- Depreciation expense increased by 17% yoy. Other income decreased by 58% yoy while interest expense declined by 75% yoy due to reduction of debt.
Key positive: Healthy commentary on festive season performance
Key negative: SSS growth & margin expansion below estimate
Impact on financials: Factoring weak SSSG, we have cut our FY19/20E earnings estimates by 9% each.
Valuations and View
SHOP’s 1HFY19 performance has been below par as SSSG’s have been weak on account of a high base, weakness in private label mix and shift in festive season. However, given the healthy start to the festive season & realignment of private label portfolio, SSSG trajectory is expected to improve in 2HFY19. We are factoring an 5%/7% SSSG for FY19/20E as the benefit of the company’s Omni-channel strategy & initiatives on private label fructify. Which coupled with strengthening beauty portfolio should aid overall revenue growth. Further improved mix, operating leverage and control over costs will aid margins resulting in a 21% EBITDA CAGR over FY18-20E. Valuations at 13x FY20E EBITDA remain attractive; 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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