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Shoppers Stop - Beneficiary of faster than expected recovery - ICICI Securities

Posted On: 2021-10-24 15:34:30 (Time Zone: IST)

Shoppers Stop's (SHOP) Q2FY22 standalone revenues (Ind-AS) increased 1.2x YoY on a low base to Rs6.3bn with EBITDA of Rs706mn - both above our / consensus estimates. SHOP aims to add 10 department stores and 10 home & beauty stores (net) in H2FY22 and FY23 each (targeting ~16% area addition over the next 18 months). Omni-channel sales doubled YoY and contributed 8% of total sales (flat YoY) in Q2FY22. Net debt reduced to Rs620mn against Rs1.9bn YoY and SHOP is expected to turn debt free by Q3FY22E. As highlighted in our recent note Margins to surprise as demand bounces back, we believe earnings of apparel brands and retail companies may surprise positively led by faster-than-expected demand recovery and expect consensus to turn more constructive with Q2FY22 management commentary. Factoring in faster-than-expected demand recovery, we increase our FY23E-FY24E EBITDA by ~8% and PAT by 21-24%. We maintain ADD with a revised DCF-based target price of Rs360/sh (earlier: Rs290). Key risks: lower discretionary spends, and increasing online competition.

  • Revenue (Ind-AS) stood at Rs6.3bn, up 1.2x YoY and 2.1x QoQ on the back of strong recovery in demand across formats. SHOP witnessed progressive growth in Aug'21 and Sep'21 with sales growing 140% and 66%, respectively. With all the stores fully operational, festive sales are now at pre-covid levels aided by recovery of >100% in East, followed by North. Overall, the store operations days and the average ticket price stood at 87% and ~Rs4,000 respectively, for Q2FY22.
  • Revenue (non-GAAP) stood at Rs7.9bn, up 1.1x YoY and 2.2x QoQ. Non-GAAP gross margins expanded by 385bps YoY with EBITDA at Rs10mn against an EBITDA loss of Rs830mn in Q2FY21 owing to strong volumes and cost savings. SHOP saved Rs620mn in Q2FY22 vs Q2FY20 owing to savings in rent, employee cost and electricity expenses. On a like to like basis, the management targets to save Rs2bn p.a vs. FY20. Rental expenses stood at Rs900mn-950mn in Q2FY22 and is likely to cross Rs1bn from subsequent quarters.
  • SHOP aims to add 10 department stores and 10 home & beauty stores (net) in H2FY22 and FY23 each. As of Sep'21, it has 80 department stores (closed 3 stores QoQ), 11 Home shops, 127 Beauty stores, 23 Airport Doors (closed 3 stores QoQ) taking the total store count to 241 spread across 4.2mn-sqft and 44 cities.
  • Improvement in key strategic pillars: 'First Citizen' (FC) customers contributed 75% to sales and added 110k customers in Q2FY22 taking the total count to 7.9mn as at Sep'21-end. 'Personal Shoppers' contributed 13% of sales with average ticket size up 2.8x YoY. 'Private labels' grew 90% YoY (14% of sales) owing to 59% volume growth while the beauty portfolio contributed 17% to sales (up 170bps YoY). Omni-channel sales doubled YoY and contributed 8% of total revenues with an average ticket price of Rs2,410 in Q2FY22.
  • SHOP invested Rs200mn in Q2FY22 for building its digital capabilities and is likely to invest another Rs200mn in H2FY22 taking the total investment in building the omni channel to Rs400mn in FY22E. It incurred Rs350mn as capex and opex for building new stores and refurbishing the existing ones in Q2FY22.
  • Arun Sirdeshmukh and Christine Kasoulis join the Board. Arun is presently leading the EV 2-wheeler business, as SVP & global business head, Ola Electric and CEO, Ola Cars in India. Christine Kasoulis was the Director of Fashion in John Lewis. Before running the fashion business, she was managing Home as a category and was also the Brand Director for a period of four years there.
  • Stake sale in Crosswords: Board of directors had accorded their approval for sale of 100% equity shares in four tranches, held by SHOP in Crossword Bookstores Ltd (Crossword) at a business value of Rs416mn. On 11th Oct'21, the company completed the first tranche of the stake sale of 51%.

Shares of Shoppers Stop Limited was last trading in BSE at Rs. 320.85 as compared to the previous close of Rs. 336.65. The total number of shares traded during the day was 129477 in over 6158 trades.

The stock hit an intraday high of Rs. 345.60 and intraday low of 315.00. The net turnover during the day was Rs. 42757317.00.

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