Shoppers Stop - Strengthening balance sheet & inducting new MD - ICICI Securities

Key takeaways from Shoppers Stop's (SHOP) Q2FY21 result: a) standalone revenues (non-GAAP) declined 65% YoY to Rs3.7bn with EBITDA loss of Rs833mn; b) with easing of lockdown and onset of festive season, management expects better footfalls and improved performance in Q3FY21; c) company is on track to achieve cost savings of Rs4.5bn in FY21; d) it plans to raise Rs3bn via rights issue mainly to fund Rs2.6bn negative FCF during H1FY21; and e) Mr. Venugopal Nair (CEO - Westside at Trent since Jan'20) has been appointed MD & CEO for three years w.e.f. 6th Nov'20. While demand recovery is likely to be gradual given the Covid-related impact on discretionary spends and social distancing norms, SHOP's operating performance and cashflows would likely improve hereon. Maintain BUY with a revised DCF-based target price of Rs222/share on Sep'22E.

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- SHOP's standalone revenues (non-GAAP) declined 65% YoY to Rs3.7bn with EBITDA loss of Rs833mn in Q2FY21. North and East regions performed better than West and South. Tiers-2&3 towns continue to outperform metro cities with high-street standalone stores doing better than mall stores. Home, watches and fragrance categories performed better while luggage, formalwear and makeup segments were drags during the quarter. Management expects better footfalls and improved performance in Q3FY21 with easing of lockdown and onset of festive season.

- Sharp focus on digital transformation and strengthening omni-channel strategy via improved user interface on App and website, page download optimisation, advanced analytics to achieve personalization and delivery turnaround time optimisation. This resulted in additional 22k First Citizens (FC) shopping online with e-commerce channel registering strong 50% YoY growth and contributing ~8% of total revenues in Q2FY21.

- On track to achieve cost savings of Rs4.5bn in FY21E (already achieved Rs3.14bn in H1FY21 with Rs1.63bn savings in rentals). Company generated negative FCF of Rs2.6bn post capex of Rs0.5bn resulting in net debt of Rs1.8bn as of Sep'20. Board has approved equity raise of Rs3bn through rights issue to strengthen the balance sheet as net worth (under GAAP) has turned to a negative Rs1.3bn.

- Mr. Venugopal Nair appointed MD & CEO for three years w.e.f. 6th Nov'20 to lead the next phase of growth including digital transformation. Mr. Nair has 27 years of rich and varied experience in the retail & apparel industry across South Asia and Europe and is presently CEO of Westside at Trent Ltd since Jan'20. He was Chief Commercial Officer at Trent from Apr'17 to Dec'19. Prior to Trent, Mr. Nair was the MD of Marks & Spencer Reliance Pvt. Ltd. from 2012 to 2017. In his earlier tenures, he held leadership roles with various corporates such as Marks & Spencer Plc (South Asia), and Madura Garments, and Arvind Mills.

- Improvement in key strategic pillars: 'First Citizen' (FC) customers contributed 83% to sales (+6% YoY) and SHOP has added 130k customers in Q2FY21 taking the total count to 7.4mn as at Sep'20. 'Personal Shoppers' accounted for 14% of sales while private labels' contribution rose 370bps YoY to 15.5% of sales with increased products offerings such as sleepwear, loungewear and innerwear, besides sharpening price points. Beauty portfolio contributed 14.7% to sales with SHOP making additional tie-ups with various brands under fragrances, skincare and feminine hygiene segment during the quarter.

- Gross margin (non-GAAP) reduced by 560bps YoY to 27.2% from 32.6% owing to lower sales as usual inventory provisioning and fixed logistic costs appear high as a percentage of sales, and also due to some impact from higher discounting. Company made an additional impairment provision of Rs100mn for Crossword, which is shown as an exceptional item.

- SHOP added one department store at Lucknow during the quarter taking total department store count to 85, of which 74 are mall stores. It closed two airport stores, one beauty store and two Crossword stores during the quarter. SHOP now has 27 airport stores, 131 beauty stores and 33 Crossword stores.

Shares of SHOPPERS STOP LTD. was last trading in BSE at Rs.174 as compared to the previous close of Rs. 171.45. The total number of shares traded during the day was 2940 in over 140 trades.

The stock hit an intraday high of Rs. 176.4 and intraday low of 171. The net turnover during the day was Rs. 509045.

Source : Equity Bulls

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