Shoppers Stop Limited — Q2 FY25 earnings call

Call held 23 Oct 2024

Management summary

Shoppers Stop reported a challenging Q2 FY25 with muted demand in July and August, but saw strong recovery in September. The company's premiumization strategy and Beauty segment continued to perform well, while the new INTUNE format expanded aggressively. Management provided a positive outlook for H2 FY25, anticipating mid-single-digit like-for-like growth and continued store expansion, alongside efforts to improve margins and reduce debt.

Highlights

  • Q2 sales reached INR1,296 crores, growing 2% YoY.

  • September sales grew 12% overall, with 9% like-for-like growth.

  • Beauty revenue (excluding subsidiary) increased 10% to INR218 crores; consolidated Beauty sales grew 19% to INR257 crores.

  • Loyalty contribution to sales hit a record 81%, up 240 bps YoY.

  • 19 new INTUNE stores opened in Q2, bringing the total to 50, with a target of 100 by FY25 end.

  • Capex for Q2 was INR43 crores; full-year capex guided at INR200-240 crores.

  • Net debt is projected at INR120-130 crores for FY25, with a goal to be debt-free by FY27.

  • H2 FY25 like-for-like growth is expected to be in mid-single digits.

Key financials

  1. Revenue ₹1,296 Cr +2%YoY
  2. Gross Margins — 0%YoY
  3. ASP Growth 7%
  4. IPT Growth 2%
  5. ATV Growth 9%
  6. Private Brand Inventory Reduction ₹40 Cr
  7. Capex ₹43 Cr
  8. Working Capital Reduction ₹30 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

  • Beauty (excluding subsidiary)
    ₹218 Cr Revenue10% YoY Growth17% Contribution to Sales
  • Consolidated Beauty (including subsidiary)
    ₹257 Cr Sales19% YoY Growth
  • Global SS Beauty (subsidiary)
    ₹52 Cr Sales1.3% YoY Growth
  • Home Stop
    18% QoQ Growth

Guidance & targets

Store Expansion

  • INTUNE Store Openings Store Expansion · this fiscal (FY25) · High confidence 100 stores
    As I said before, we should open 100 stores this fiscal in INTUNE.

    — Kavindra Mishra

  • INTUNE Store Openings Store Expansion · FY26 · Medium confidence 120 to 125 stores
    FY '26, we should be opening another between 120 to 125 stores.

    — Kavindra Mishra

  • Total Store Openings (all formats) Store Expansion · next 6 months (H2 FY25) · Medium confidence 60 to 65 stores
    We should open circa 60 to 65 stores across all the formats in the next 6 months.

    — Kavindra Mishra

Profitability

  • INTUNE EBITDA Margin Profitability · next 2 years · Medium confidence Mid-single-digit
    While it may not be able to contribute the same level of the overall company, it should still contribute mid-single-digit in the next 2 years, Resham.

    — Karunakaran M.

  • Overall EBITDA Margins (non-GAAP) Profitability · this fiscal (FY25) · Medium confidence Mid-single digits
    Our IndAS sorry our non-GAAP margins will be in the mid-single digits, the date of this fiscal. I'm talking about EBITDA margins.

    — Karunakaran M.

  • Overall EBITDA Margins (non-GAAP) Improvement Profitability · next year (FY26) · Medium confidence 100 basis points
    Next year, we'll definitely see an improvement at least by 100 basis points, if not more than that.

    — Karunakaran M.

  • Margin Expansion (Private Brands) Profitability · Q3 (FY25) · High confidence Substantial impact
    In terms of margins, I think we will have a substantial -- or we will have an substantial impact of margin expansion, especially in Q3 from private brands.

    — Kavindra Mishra

Revenue Growth

  • Like-for-like growth Revenue Growth · next 6 months (H2 FY25) · Medium confidence Mid-single digits
    We should be able to grow by mid-single digits like-for-like in the next 6 months.

    — Kavindra Mishra

  • October Growth (overall) Revenue Growth · October · Medium confidence Mid-teen growth
    We expect a mid-teen growth in the month of October.

    — Kavindra Mishra

Capex

  • Total Capex Capex · full year (FY25) · High confidence INR200 crores to INR240 crores
    our total capex will be anywhere in the range of INR200 crores to INR240 crores, Devanshu.

    — Karunakaran M.

Debt

  • Net Debt Debt · this year (FY25) · High confidence INR120 crores to INR130 crores
    This year, we will still have a debt of INR120 crores to INR130 crores net.

    — Karunakaran M.

  • Net Debt Debt · next year (FY26) · Medium confidence Less than INR100 crores
    Otherwise, we should be able to manage less than INR100 crores next year and probably a debt free in year 2, Ankit.

    — Karunakaran M.

  • Debt Status Debt · year 2 (FY27) · Medium confidence Debt free

    — Karunakaran M.

Business Mix

  • Non-apparel contribution to sales Business Mix · next 3 years · Medium confidence 50-50 or 55%
    If you ask me how I see the business going forward, in the next 3 years, I see either a 50-50 or a 55% towards a non-apparel and 45% towards apparel.

    — Kavindra Mishra

Risks & concerns

  • Muted Demand & External Factors

    medium

    The external factors weren't conducive in the first 2 months (July/August) due to early US impact, excess rains, and lower discretionary spending, impacting sales.

    Management acknowledged

  • Lower EBITDA due to New Business & Investments

    medium

    Q2 EBITDA non-GAAP was lower due to fixed costs in new businesses and incremental technology investments, though cost reduction efforts are underway for H2.

    Management acknowledged

  • Competitive Intensity (Quick Commerce)

    low

    An analyst raised concerns about quick commerce, but management views it as a market expansion opportunity and a potential for departmental stores to offer faster delivery.

    Analyst downplayed

Areas of evasion (2)

  • Specific timeline for INTUNE non-apparel expansion
  • Details on INTUNE franchisee route (stated as WIP)

Q&A highlights

2 direct
Omnichannel revenue reporting and strategy Partial
In case of ss.com, the new app or the version 2.0, which is on a headless architecture, should be up and so it's already up and live. We are right now in the testing phase. And I think by the end of this month, we should be able to roll it out for the entire 100% of our consumer base.

Highlights the company's continued investment in digital platforms despite not explicitly reporting omnichannel revenue in the presentation, indicating future potential once upgrades are complete.

Asked by Resham Jain

INTUNE profitability and expansion plans Direct
FY '26, we should be opening another between 120 to 125 stores. And my sense is, it will be a greater number in FY '27. So we see a lot of opportunity sitting there, we have just started with cluster.

Provides clear quantitative targets for the aggressive expansion of the new INTUNE format and offers an early indication of its expected profitability trajectory.

Asked by Tejash Shah

Gross margins and interest expense explanation Direct
Okay. So Shalini, the interest as per the GAAP includes the lease cost. If the lease cost goes up, the depreciation and the interest cost goes up, that as per the Accounting Standard 115. That has nothing to do with the actual interest cost, what we pay on the loans and overdraft.

Addresses a potential red flag regarding a significant increase in interest expense by clarifying the accounting treatment (GAAP lease costs), reassuring investors about the underlying financial health.

Asked by Shalini Gupta

2 min read 6 chapters

Detailed narrative

Q2 FY25 Performance Overview

Shoppers Stop reported Q2 FY25 sales of INR1,296 crores, marking a 2% growth. The quarter saw muted demand in July and August due to external factors like early US impact and excess rains, with sales declining 7% in July and growing 5% in August. However, September showed strong recovery with sales increasing by 12% overall and 9% like-for-like. Gross margins remained widely flat compared to FY24, while key metrics like Average Selling Price (ASP), Items Per Transaction (IPT), and Average Transaction Value (ATV) grew by 7%, 2%, and 9% respectively.

Strategic Pillars & Premiumization Drive

The company's loyalty program, First Citizen, achieved its highest-ever contribution to sales at 81%, an increase of 240 basis points year-on-year, with repeat sales at 67%. The premiumization strategy is yielding results, with sales on premium brands increasing from 60% to 64% and premium categories growing 6% like-for-like in Q2. The recently renovated Malad store is experiencing a 70% increase in productivity, and the company plans to upgrade more top-performing stores to enhance customer experience.

INTUNE Expansion & Profitability Outlook

Shoppers Stop opened 19 INTUNE stores in Q2, bringing the total to 50, and aims to reach 100 stores by the end of FY25, with plans for another 120-125 stores in FY26. Management expects INTUNE stores to achieve positive store-level profitability by the end of this fiscal and contribute mid-single-digit EBITDA margins in the next two years. The format is showing strong traction in IPT and conversions, with kids' wear as a category continuing to outperform.

Beauty Business Continues Strong Growth

The Beauty segment demonstrated robust performance, with revenue increasing by 10% to INR218 crores (excluding its subsidiary). Including the 100% subsidiary Global SS Beauty, consolidated sales reached INR257 crores, a 19% growth. Global SS Beauty alone delivered INR52 crores in sales, growing by 130%. The company is launching a new 100% makeup private label, JOYOLOGY, developed with Intercos, to further accelerate momentum in the beauty space across all retailers and e-tailers.

Financial Health, Capex, and Debt Management

The company spent INR43 crores on capex for additions and renovations in Q2, with a full-year capex guidance of INR200-240 crores. Working capital was reduced by INR30 crores, primarily driven by a INR40 crores reduction in private brand inventory. Management expects net debt to be INR120-130 crores this year, aiming to reduce it to less than INR100 crores next year and become debt-free in year 2 (FY27), servicing expansion through internal accruals.

H2 FY25 Outlook and Market Conditions

Management expressed confidence in a path to recovery, with October sales trending better than September, expecting mid-teen growth for the month (including new stores). They anticipate mid-single-digit like-for-like growth for the next six months (H2 FY25), driven by improving external factors and the upcoming wedding season, with 4.8 million weddings expected in the second half. Overall EBITDA margins (non-GAAP) are guided to be in mid-single digits for FY25, with an expected improvement of at least 100 basis points in FY26.

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