Spencer's Retail

Spencer's Retail reported a respectable Q4 FY26, with consolidated sales growing 6% YoY to INR436 crores, compared to INR412 crores in Q4 last year. Consolidated margins were maintained at 18.8% (vs 19% last year), and EBITDA improved to INR2 crores from flat 0 EBITDA in Q4 FY25. For the full year FY26, consolidated sales were INR1,800 crores, a decline from INR1,995 crores in FY25, attributed to the strategic exit of 49 stores in the previous year. Full-year consolidated margins improved by 90 basis points to 20.5%.

The Spencer's format was the primary driver of Q4 growth, achieving an 8% YoY increase in sales to INR380 crores. This growth marks the first time after many quarters and is attributed to three key initiatives: inventory optimization focusing on fast-moving SKUs, a successful rewards program, and robust online business growth. The rewards program has garnered 100,000 members, contributing roughly 20-22% of monthly sales. The online business (Spencer's Jiffy) grew 37% YoY to INR200 crores in FY26, now breaking even at a unit order level with an average bill value of INR760.

Unlike Spencer's, Nature's Basket did not achieve similar growth, facing internal headwinds. Management identified issues with inventory synchronization, leading to working capital being tied up in slow-moving items and insufficient stock for fast-moving categories like fresh produce. The corrective strategy involves fixing the assortment, strengthening the 'Elysium' membership program (currently 9,000 members), and accelerating the online business by leveraging Spencer's Jiffy's tech backbone. Nature's Basket is also piloting listing on two quick commerce platforms in Kolkata and Bangalore to boost penetration.

The company is firmly focused on achieving operational EBITDA breakeven by FY27. Spencer's store EBITDA has doubled from low single-digit levels last year, with a target to reach 8%. The offline business has halved its EBITDA losses and is projected to break even this year. For the online business, the goal is to reduce the INR30 crores loss incurred in FY25 to low double-digit, ideally single-digit, by FY27, emphasizing judicious growth without excessive burn.

Spencer's Retail plans to repay INR108 crores of debt maturing in the first half of FY27, which will necessitate refinancing. The current cost of debt is stable at 9.5-10.5%. While the company is not pursuing aggressive network expansion, it plans to add 3-4 Spencer's stores in FY27, which may include relocations of underperforming stores or new opportunities within existing clusters. No new store additions are planned for Nature's Basket, with focus on improving existing store performance.

The Spencer's membership program, while driving sales and customer stickiness, impacts reported margins. The cashback offered to members, amounting to INR5.5 crores in Q4, is treated as a reduction in net sales. This accounting treatment results in a 120-basis point impact on the reported Q4 Spencer's margin of 17.4%, implying a real category intake margin of 18.6% before this adjustment.