Shoppers Stop Limited — Q1 FY25 earnings call

Call held 19 Jul 2024

Management summary

Shoppers Stop reported muted sales growth and a decline in EBITDA margin for Q1 FY25, primarily attributed to subdued demand influenced by fewer wedding dates, a prolonged election season, and a strong heat wave. Despite these challenges, the company saw strong performance in its Premium Brands, Beauty, and INTUNE segments, and continued its strategic expansion with 11 new store openings. Management expressed optimism for a demand recovery in H2, driven by the festive season and increased weddings, and reiterated its focus on premiumization, cost rationalization, and accelerated INTUNE expansion.

Highlights

  • Q1 sales stood at ₹1,260 crores, reflecting a 2% year-on-year growth.

  • The Premium Brands product portfolio grew by 10% on a like-for-like basis and 14% overall.

  • The Beauty and INTUNE verticals remained EBITDA positive during the quarter.

  • 11 new stores were opened in Q1, comprising 2 Departmental stores and 9 INTUNE stores.

  • The First Citizen loyal member base reached a significant milestone of 10 million.

  • Private Brand inventory was reduced by ₹65 crores compared to the same period last year.

  • Gross margins remained largely flat versus FY24, while EBITDA margin declined due to new store gestation costs.

  • Departmental stores reported a like-for-like decline of -6% for the quarter.

Concerns

  • Subdued consumer demand

Key financials

  1. Revenue ₹1,260 Cr +2%YoY
  2. Gross Margins — 0%YoY
  3. EBITDA —
  4. Departmental LFL Growth -6%
  5. Private Brand Inventory Reduction ₹65 Cr

What they filed

Q1 FY27: revenue up 8.3%, net profit up 5.6% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,068 1,311 1,022 1,094 1,175 +10%1,321 +1%1,117 +9%1,185 +8%
EBITDA147 240 169 166 164 +12%210 −12%178 +5%180 +8%
Net profit-22 49 2 -18 -23 −5%13 −73%-18 −1000%-17 +6%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Premium Brands Product Portfolio
    14% Overall Growth10% Like-for-Like Growth
  • Beauty (Fragrance)
    19% Growth
  • Global SS Beauty (Subsidiary)
    ₹39 Cr Sales2.5× Growth
  • INTUNE
    ₹11,000 Sales per Square Feet33% Customer Conversion3.8 units Items per Bill (IPT)80% Full Price Sell Thru
  • HomeStop (Shop-in-shop)
    — Like-for-Like Growth

Guidance & targets

Store Expansion

  • INTUNE Stores Store Expansion · FY25 · High confidence 75+

    Previously 60+ → 75+

    Originally, we had planned to open close to around 60-plus stores in the current year, but we'll be increasing that guidance to 75-plus stores this fiscal.

    — Kavindra Mishra, Managing Director and CEO

  • INTUNE Stores Store Expansion · Q2 FY25 · High confidence 20+
    During the quarter, subject to regulatory approval, we should open 20-plus stores.

    — Kavindra Mishra, Managing Director and CEO

  • Departmental Stores Store Expansion · FY25 · Medium confidence 11

    Previously 15 → 11

    We had earlier said that we would open 15 departmental stores. Due to issues in certain markets and regulatory delays and financial issues of local builders at Tier 2 cities we expect delays in some of the departmental stores. At this point, I would say this may impact 3 to 4 stores and we should be able to open 11 departmental stores this year.

    — Kavindra Mishra, Managing Director and CEO

Capex

  • Total Capex Capex · FY25 · High confidence ₹225-250 crores
    Overall, we expect to spend INR225 crores to INR250 crores in capex including shifting to a new warehouse in Bhiwandi.

    — Kavindra Mishra, Managing Director and CEO

Profitability

  • EBITDA Margin Profitability · FY25 · Medium confidence mid-single digit
    Yes, but with what has happened in quarter 1, we expect mid-single digit for the full year.

    — Karunakaran Mohanasundaram, Chief Financial Officer

Sales

  • Beauty Sales Sales · FY25 · High confidence ₹230 crores
    With the upcoming launches and festive season, we should be able to achieve INR230 crores of sales during this fiscal.

    — Kavindra Mishra, Managing Director and CEO

Growth

  • Beauty Growth Growth · FY25 · High confidence 12-15%
    I think for Beauty, we are looking at a 12% to 15% growth as a base for this year.

    — Kavindra Mishra, Managing Director and CEO

Contribution

  • HomeStop Private Brands Contribution Contribution · future · Medium confidence 30%

    From 27% today

    Our way forward would be to focus on private Brands and aim to increase the contribution from 27% to 30%.

    — Kavindra Mishra, Managing Director and CEO

Store Rationalization

  • Unviable Departmental Stores Store Rationalization · current sense · High confidence 5-6
    So we are looking at 5 to 6 stores to rationalize, that's the present sense I have got.

    — Kavindra Mishra, Managing Director and CEO

Store Renovation

  • Malad Flagship Store Opening Store Renovation · FY25 · High confidence before Diwali
    We should be able to open the Malad store before Diwali.

    — Kavindra Mishra, Managing Director and CEO

Staffing

  • Personal Shoppers Staffing · future · High confidence 500

    Previously 400 → 500

    So the idea is that from the 300, which we had, we have moved to around 400 odd in Q1 and take this up to 500.

    — Kavindra Mishra, Managing Director and CEO

Market context

  • Overall Business Growth Growth · next 2 years · Medium confidence double-digit
    I think overall business when you look at Shoppers Stop including the INTUNE business, the beauty business, the beauty distribution and the box itself I think we should be in a double-digit growth over the next two years.

    — Kavindra Mishra, Managing Director and CEO

Risks & concerns

  • Subdued consumer demand

    high

    Demand remains subdued due to fewer wedding dates, long election season, strong heat wave, and high cumulative inflation, impacting sales growth.

    Management acknowledged

  • EBITDA margin compression from new stores

    medium

    EBITDA margin declined as new stores take time to turn into profitability, coupled with largely fixed costs.

    Management acknowledged

  • Delays in departmental store openings

    medium

    Regulatory delays and financial issues of local builders in Tier 2 cities are causing deferrals in opening 3-4 planned departmental stores.

    Management acknowledged

  • Increased operating costs

    medium

    Other expenses, including rent, staff, energy, and tech investments (cybersecurity, cloud migration), have seen a sharp jump, impacting profitability.

    Management acknowledged

  • Impact of elections on B2C business

    low

    Elections, especially those falling on weekends or near stores, led to market shutdowns and disrupted store operations, negatively affecting Q1 performance.

    Management acknowledged

Areas of evasion (2)

  • Detailed breakdown of departmental vs. INTUNE EBITDA margins
  • Specifics on cost rationalization beyond general statements

Q&A highlights

1 direct
Overall business growth target vs. square footage addition Partial
I think overall business when you look at Shoppers Stop including the INTUNE business, the beauty business, the beauty distribution and the box itself I think we should be in a double-digit growth over the next two years. ... I don't think it would be such a high number because one Intune will be 5,000 to 5,500 square feet. And the large departmental stores we are now opening between 25,000 to 30,000 square feet. On the back of the envelope calculation it comes anywhere between 8 to 9 percentage not more than that the space addition.

Analyst questioned if the projected square footage growth (14-15%) should lead to higher than 'double-digit' overall business growth, highlighting a potential disconnect between expansion and revenue targets.

Asked by Rahul Agarwal

INTUNE store performance, SPF decline, and margins Direct
The 6 stores which have seen the third quarter now, their SPF in Q1 of FY '25 was upwards of INR14,000, so we are holding on to the SPF in the bucket from the last 3 quarters to now. ... About 40% of our stores right now are high street stores, which are within the first 3 months of their operations. So there is a gestation period of walk-in growing in our new brand high street stores. ... Our full price sell through is north of 80%. ... Our EBITDA margins are close to double-digit.

Analyst probed the declining sales per square foot (SPF) for INTUNE and sought clarity on profitability and customer acceptance, which management addressed by differentiating between new/high street stores and older, more mature stores.

Asked by Ankit Kedia

Reconciling mid-single digit EBITDA margin guidance with low-margin businesses Partial
All margin improvements primarily in a business like ours should come through -- and for the business as a whole should come through the demand, even rebound in the demand. So I think that's something which we are banking on very strongly. ... So, I think these two, one in terms of growth, in terms of using the festive and the marriage season to drive revenue, I think that's one part of it. And obviously, we can take it offline and have a larger discussion on all of it. And second, we have to work on the cost part of it.

Analyst challenged the feasibility of achieving mid-single digit EBITDA margins given the increasing contribution from lower-margin businesses like Beauty distribution and INTUNE, prompting management to emphasize demand recovery and cost control without fully detailing the reconciliation.

Asked by Jay Gandhi

3 min read 7 chapters

Detailed narrative

Q1 FY25 Performance Overview

Shoppers Stop reported Q1 FY25 sales of ₹1,260 crores, marking a 2% year-on-year growth. The quarter experienced muted sales growth, with April declining by 1% and May by 2%, though June saw a 7% growth partly due to an early EOSS. The company's EBITDA margin declined, primarily attributed to the gestation period of new stores. Gross margins remained largely flat compared to FY24, while like-for-like growth for departmental stores was -6%.

Strategic Pillars: Premiumization & Private Brands

The premiumization drive continues to be a key focus, with the Premium Brands product portfolio growing by 10% like-for-like and 14% overall. The company is launching its Autumn/Winter '24 season in August, aiming for 70% full fresh stocks. Private Brand inventory was successfully reduced by ₹65 crores year-on-year, and a new merchandise planning system, Goldratt, is being implemented to improve inventory turnover and customer availability. Trading margins for Private Brands increased by one percentage point, though this was offset by the overall mix.

INTUNE Business Expansion & Performance

The INTUNE business demonstrated strong performance, with 9 new stores opened in Q1, bringing the total to 31. The sales per square foot for INTUNE stood at ₹11,000, and customer conversion was 33%. The full-price sell-through reached over 80% within a year, indicating strong brand acceptance. Due to its success, the company is accelerating its INTUNE expansion guidance from 60+ to 75+ stores for FY25, with plans to open 20+ stores in Q2.

Beauty Vertical Growth & Distribution

The Beauty vertical remained EBITDA positive, with Fragrance outperforming with 19% growth year-on-year. The 100% subsidiary, Global SS Beauty, achieved ₹39 crores in sales, growing 2.5 times. The beauty distribution network expanded to 27 brands and 444 points of sale. The company targets ₹230 crores in Beauty sales for FY25, with an expected growth rate of 12-15% for the year, and plans to add three marquee brands in Q2.

Store Expansion & Capex Outlook

Shoppers Stop opened 11 stores in Q1 (2 Departmental, 9 INTUNE). The guidance for departmental store openings for FY25 has been revised downwards from 15 to 11 stores due to regulatory delays and financial issues with local builders. Total capex for FY25 is projected to be ₹225-250 crores, including investments in a new warehouse in Bhiwandi and ₹20 crores for the renovation of the Malad flagship store, expected to open before Diwali. The company is also looking to rationalize 5-6 unviable stores.

Omnichannel & Customer Engagement

Omnichannel sales remained largely flat. The company is enhancing its digital presence by updating its SS.com mobile app by the end of Q2, aiming for improved consumer experience and potential for services like same-day delivery. The First Citizen loyalty program reached 10 million members, with loyal members contributing 80% of sales. The Personal Shopper program is being expanded from 300 to 400 in Q1, with a target of 500, as personal shoppers drive 3x higher Average Transaction Value (ATV).

Outlook & Demand Recovery

Management expressed cautious optimism for a gradual demand recovery, particularly in H2 FY25, driven by a larger festive season and increased wedding dates (50 days in H2 vs. 14 in H1). They anticipate Q2 to be better than Q1 and are confident in achieving mid-single digit EBITDA margins for the full year. The long-term outlook for Indian retail remains strong, with expectations of double-digit overall business growth over the next two years, fueled by premiumization and economic growth.

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