MOSL: SHOPPERS STOP (Neutral)-Growth trend lackluster but cost efforts appreciable
SHOPPERS STOP: Growth trend lackluster but cost efforts appreciable
(SHOP IN, Mkt Cap USD0.6b, CMP INR467, TP INR520, 11% Upside, Neutral)
- Cost efforts drive earnings in an otherwise muted quarter: Standalone revenue declined 7% YoY to INR7.9b (5% miss), with the impact of the GST and the new accounting standard on revenue recognition (Ind-AS 115) coming into play. However, adjusted for the aforesaid factors, revenue was up 4.7% YoY. EBITDA grew strongly by 15% YoY to INR591m (19% beat), driven by lower employee and SG&A cost. Consequently, the margin expanded 140bp YoY to 7.5% (our estimate: 5.9%). Despite this, PAT declined 45% YoY to INR115m (25% miss) due to the steep 68% YoY increase in depreciation cost (due to a change in the estimated useful life of assets) and the normalization of taxes relative to the same period last year. For FY19, revenue fell 3%, while adj. PAT was up 31%.
- Concall highlights: For FY20, SHOP expects (1) mid- to high-single-digit LTL growth, (2) low-double-digit revenue growth and (3) 40-50bp/80-100bp gross/EBITDA margin expansion.
- Modest store adds a reflection of pain points in growth; margin prospects appear good though: Slower pace of mall openings and geographical/economical limitations for a large-scale branded apparel store restricted SHOP’s ability to add new stores (as evident in FY19), impacting its revenue growth. Nevertheless, we expect some pick-up in the pace of new store adds over the coming years – 4/15 new store adds for Shoppers Stop/Beauty format in FY20/21 (v/s net adds of 0/12 in FY19). This, coupled with 6% SSSG for Shopper's Stop stores, is likely to drive 10% consol. revenue CAGR over FY19-21. Despite modest revenue growth, the increasing thrust on private labels and cost-efficiency measures should drive margins expansion of 100bp over FY19-21.
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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