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MOSL: SHOPPERS STOP (Neutral)-Pressure from low footfall amidst aggressive store addition

Shoppers Stop: Pressure from low footfall amidst aggressive store addition

(SHOP IN, Mkt Cap USD0.5b, CMP INR409, TP INR425, 4% Upside, Neutral)

 

• SHOP’s third-quarter performance was broadly in line with our expectations. Weak economy and aggressive store expansion led to marginal contraction in the EBITDA margin on a reported basis (non-GAAP).
• We largely maintain our revenue estimates but cut our EBITDA estimate marginally by 3%/8.5% for FY20/21 due to lower margins from new stores. 

Largely in-line revenue/EBITDA

• SHOP’s standalone revenue was flat YoY at INR9.9b, with gross margin expansion of 120bp YoY (+10bp on a reported basis – non-GAAP).
• Pre-Ind-AS 116 EBITDA on a GAAP basis was up 5% YoY at INR1b, with the margin improving 50bp YoY to 10.2% (in-line). On a non-GAAP basis, EBITDA was up 2% YoY at INR1b, with the margin down 10bp YoY.
• However, PBT (pre-Ind-AS 116) declined 10% YoY (in-line) to INR622m due to accelerated depreciation, as indicated by management in the last quarter. On a reported basis (non-GAAP), PBT grew 4.4% YoY to INR715m.
• CFO stood at INR3.3b in 3QFY20 v/s INR2.97b in the year-ago period.
• SSSG stood at 1% in 3QFY20 v/s 9% in 3QFY19 and -2% in 2QFY20, indicating the impact of slowdown in consumer spending.
• SHOP added net 5/6 departmental/beauty stores in 3QFY20 – total store count now stands at 89/135. 

Highlights from management commentary

• SHOP plans to open 23 stores in 4Q, including four department, 11 beauty and eight airport stores. Aggressive expansion will continue next year.
• The company remains debt free and is opening stores from internal accruals. Capex is expected to be INR1.9b for FY20 toward renovation, new stores and IT investments.
• Management expects low-single-digit SSSG in 4QFY20. SSSG for Oct/Nov/Dec was ~15.6%/-12.9%/0%.