Shoppers Stop's Q2FY20 results (Outperformer) - Weak performance..
Q2FY20 result highlights
- On reported basis (including impact of IndAS 116 accounting), standalone net sales declined by 2.2% yoy to Rs8.4bn (est: Rs8.7bn), EBITDA increased by 2.5x to Rs1.37bn (est:Rs1.46bn), net loss stood at Rs54mn (vs Rs132m PAT in 2QFY19).
- Comparable gross revenues declined by 0.5% yoy to Rs10.7bn (IDFCe: +4%), with LTL sales decline of 1% yoy (LTL vol declined by 3.5%, ASP was up 2.5%). Customer entry was down 10.7% yoy, however conversions were up 4.4% yoy and transaction size was up 6% yoy.
- Comparable gross margins declined by 80bps yoy to 32.7%, owing to higher promotions to remain competitive in subdued economy
- Staff cost increased by 10% yoy. Adj for IND AS impact, rental costs increased by 5% yoy while other expenses were down 8% yoy. Resultant EBITDA declined by 15% yoy to Rs468m with a margin contraction of 80bps yoy to 5.5%.
- On reported basis, rental costs & other expenses were down by 86%/11% yoy respectively on account of IND AS 116 implementation. Resultant EBITDA increased by 2.5x to Rs1.37bn with a margin of 16.2%. Other income was up 6x yoy, interest cost was up 13% yoy. Depreciation was up 1.8x yoy. PBT declined by 12% yoy to Rs201m. Higher tax outgo resulted in loss of Rs54m for the quarter.
Key negatives: Decline in SSS & weak gross margins.
Impact on financials: Ex Ind AS 116, EBITDA cut by ~5% for FY20/21E.
Valuations & view
Shoppers Stop reported weak set of earnings, impacted by decline in SSS as well as moderation in gross margins. Factoring moderation in SSSG guidance, we are now factoring ~4.5% SSSG for FY20E resulting in 9% revenue CAGR over FY19-21E which coupled with more gradual expansion in margins to drive 11.5% EBITDA CAGR (ex-Ind AS 116 basis) over FY19-20E. While the 1H performance is below expectation, we believe management’s internal initiatives (aggressive store expansion, scaling up beauty format, new brand launches) are step in right direction and should aid recovery in earnings trajectory. Valuations at 11x/10x FY20/21E EV/EBITDA (ex-Ind AS 116 basis) are undemanding. Maintain OP.
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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