Shoppers’ Stop – Retail Challenges Ahead

Financial Performance

For the quarter ended December 08, Shoppers’ Stop has clocked 14% growth in total income from operations to Rs 353.68 crore with the help of other income from operations of Rs 9.69 crore.OPM improved by 120 bps with the cost cutting measures taken by the company, leading Operating profit growth of 48% to Rs 21.21 crore. However, zooming interest cost at Rs 7.39 crore as against Rs 1.35 crore in the corresponding previous quarter and higher depreciation which increased by 52% to Rs 17.18 crore turned PBT red at Rs 3.36 crore. Further, minority interest of Rs 3.72 crore has lifted Net Profit to Rs 0.46 crore (down by 45%).

Other Highlights

• The company has opened 25^th Store at Jaipur and 26^th store at Inorbit Vashi during the quarter.
• Even 4^th Home Stop Store at Inorbit Vashi was also opened during the quarter.
• Six new Cross word Stores were opened and two stores on east Andheri (SiS) and at Ghaziabad closed during the quarter.
• First citizen members’ base increased to 1181000 – (historical highest) an increase of 14% over last year, and their contribution to sales increased to 72%.
• The company has presence in 12 cities with the following stores: Shoppers Stop: 26 stores, Home Stop: 4 stores, Mother Care: 21 stores, Mac & Clinique: 6 stores, Estee Lauder: 1, F & B Outlet: 27, Airport stores: 3, Crossword: 54 stores, Arcelia: 2.
• Total retail area as on quarter ended December’08 is 1.82 million sq ft.
• Sales growth of Shoppers stop department stores is 17% and all formats is 21% for the quarter ended September’08.
• In the quarter, Like to Like (LTL) sales growth for shoppers stop department stores has fallen by 4% and all formats has also observed dip by 3%.
• Sales per Sq.ft. on chargeable area for Shoppers stop department stores decreased to Rs 2262 from Rs 2528 for the quarter under review.
• Sales per Sq.ft. for All formats reported has also observed fall to Rs 2258 as against Rs 2290 in the corresponding previous period. The like to like sales also went down to Rs 322.0 crore as against Rs 330.90 crore in the corresponding previous quarter.
• Customer entries for shoppers stop departmental stores declined by 20% to 5.35 million as against 6.71 million in the corresponding previous quarter. In this case LTL stores have reported de growth of 27%.
• The company has observed the impact of the terrorist attack in Mumbai, on 26 November 08, as many of the shopping malls observed reluctance of customers visiting the malls. Almost 40% of the company’s revenues come from Mumbai. This is one of the main reasons for the fall in customer entries particularly after 15-20 days of the blast, which impacted the foot falls.
• During the quarter, transaction size increased by 9% to Rs 2079 and Average Selling Price was up 7% at Rs 936 on a y-o-y basis. However, the LTL volume growth was down by 11% in the quarter ended December 08.
• Conversion ratio increased to 30% as compared to 25% in the corresponding previous quarter. In this case LTL stores have grown by 20%.
• Private label mix increased to 19% and sales on this front were up by 3%
• Non apparels, particularly cosmetics, sunglasses, leather bags, shoe wear etc has improved and thus the non apparel share has improved by 42% from 41.7% in corresponding previous year. The Ladies division and Children division sales have also improved from 17.2% to 17.5% and 8.2% to 9.2% respectively. Surprisingly, the men’s share fell by 31.2% from 33% in the corresponding previous period. Especially Mother care has performing well in the quarter and boosted the sales of children segment.
• Shrinkage as % of gross retail sales increased from 0.57% to 0.60% in the quarter under review.
• The company took a hit particularly in the furniture segment and men’s apparel segment in the quarter ended December 08.
• Apparels to non-apparels ratio was 58.3%:41.7% as against 58.0%:42% in the corresponding previous quarter.
• Debt on the books as on quarter ended December’08 is around Rs 270 crore. And the average interest cost is around 11.2%. The net worth of the company is around Rs 250 crore.
• In general the company will maintain inventory of around 8 weeks which in value terms comes to around Rs 500 per sq ft.
• Company expects to open 4 shoppers stop stores in the first half of the next fiscal.
• The company is reviewing re-negotiations on rental in the places like Delhi. The company believes there is no much of decrease to coming in the rental in the coming quarters.
• Out of the Rs 165.31 crore raised by the Company through its Initial Public Offerings (IPO) in April 2005, Rs.163.89 crore were utilized towards the objects of the IPO. The unutilized balance of IPO proceeds have been utilized in temporarily reducing exposure to working capital borrowings.
• Right issue of Rs 500 crore (Rs 300 crore equity & Rs 200 crore warrants) has been revised to Rs 300 crore (equity) which was expected to hit the market in the Q4 FY’09 is being postponed by the board for the H1FY10
• During the quarter, Shoppers Stop was awarded “Department Store of the Year” at the Star Retailer Awards held in November 2008.
• Due to the financial melt down, the company has observed a trend on spending on entertainment, cosmetics and books going higher.
• The company foresees that the consumption was not impacted much in the past few quarters after the financial melt down, and the worst is yet to come. The company expects H1FY10 would be a challenging period for the company.
• Gateway Multichannel Retail (India), a joint venture of Shopper’s Stop Ltd and Hypercity Retail (India), with a 51:49 shareholding respectively, shall wind down and discontinue its catalogue retail operations under the Hypercity-Argos brand.