Shoppers Stop - Focusing on omni-channel growth - ICICI Securities

Key takeaways from Shoppers Stop's (SHOP) Q3FY21 result: a) Standalone revenue (non-GAAP) declined 32% YoY to Rs8.9bn with EBITDA of Rs210mn; b) management remains cautiously optimistic on demand recovery and expects normalcy by Q2FY22; c) SHOP aims to add 10-12 department stores and close 5-7 unprofitable stores in FY22; d) online sales increased 3x YoY and contributed 6% of sales in Q3FY21; expect omni-channel to contribute ~15% of revenue over the next 3-4 years, and e) SHOP has net cash of Rs460mn as of Dec'20, post rights issue of Rs3bn at Rs140/sh. Maintain BUY with a revised DCF-based target price of Rs235/share (earlier: Rs222) on roll over to FY23E (earlier: Sep'22E). Key risks being slower recovery in discretionary spends and increasing online competition.

- Management remains cautiously optimistic on demand recovery and expects normalcy by Q2FY22. Continued lockdown relaxations and festive season restricted footfalls decline to 50% YoY in Q3FY21 vs 81% in Q2FY21. East region performed relatively better than other regions, while Delhi NCR was impacted in Dec'20 due to local unrest. Tier-2&3 towns continued to outperform metro cities as metro stores' revenue declined 39% YoY, while non-metro revenue fell 23% YoY. Conversions increased 700bps YoY. Gross margin (non-GAAP) reduced 120bps YoY to 32.0% owing to Rs30mn inventory provision and higher discounting on private labels.

- On track to achieve cost savings of Rs4.5bn in FY21E (already achieved Rs3.9bn in 9MFY21 and Rs750mn in Q3FY21). Management expects sustainable cost savings of Rs2bn in coming years. SHOP raised Rs3bn via rights issue at Rs140/sh and has net cash of Rs460mn as of Dec'20.

- Improvement in key strategic pillars: 'First Citizen' (FC) customers contributed 83% to sales (+2.2% YoY) and SHOP has added 309k customers in Q3FY21 taking the total count to 7.7mn as of Dec'20. 'Personal Shoppers' accounted 16% (+2.2% YoY) of sales while private labels' share rose 220bps YoY to 13.4% of sales with increased products offerings such as sleepwear, loungewear and innerwear categories. Beauty portfolio contributed 15.7% to sales, while Arcelia private label was launched in 63 stores in Bath & Body category. Online sales grew strong at 3x YoY and contributed ~6% of total revenue in Q3FY21. Management is targeting omni-channel to increase its contribution to ~15% of sales over the next 3-4 years.

- Management expects to open 10-12 department stores (with an average size of 20-30k sq ft) and close 5-7 unprofitable stores in FY22. Besides, SHOP is targeting to open 3-5 Arcelia beauty stores in FY22. SHOP closed (on net basis) one department store during the quarter taking total department store count to 84, of which 73 are mall stores. It closed one airport store, one beauty store and four Crossword stores during the quarter. SHOP now has 26 airport stores, 130 beauty stores and 29 Crossword stores.

Shares of SHOPPERS STOP LTD. was last trading in BSE at Rs.209.8 as compared to the previous close of Rs. 206.2. The total number of shares traded during the day was 7741 in over 350 trades.

The stock hit an intraday high of Rs. 210.95 and intraday low of 205. The net turnover during the day was Rs. 1615978.

Source : Equity Bulls

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