RETAIL Sharp growth due to festive season: Q3FY11 Result Preview: Edelweiss

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RETAIL
Sharp growth due to festive season: Q3FY11 Result Preview: Edelweiss


􀂄 Key highlights of the sector over the past 12 months
Past 12 months’ same store sales (SSS) picked up and it has been in double digits
since past few quarters, following increase in discretionary spend. Employee and
rent costs started to inch up. Past 12 months have witnessed delayed rollout of
stores. Footfalls have increased, followed by higher conversion ratios.

􀂄 Q3FY11 result season for the sector
Record sales were observed by most retailers in Q3FY11 as festive season in FY11
was in Q3 versus Q2 in FY10. Premiumisation trend is evident as consumers
become more brand conscious and are willing to increase their discretionary
spending. Higher same store sales were seen in both value and lifestyle retailing.
Store expansion slows in the current quarter.
􀂄 Outlook for the next 12 months
We believe momentum of urban demand will continue on the back of overall
buoyancy in the economy. With better liquidity for developers, improving
consumer sentiments, and consolidation of retailers, the next few quarters will
continue to see strong profit growth for retailers. Also, cost savings from cheaper
inputs, reduced inventory levels, lower salary levels, cheaper procurement and
higher share of private labels will help improve margins. However, with rentals
inching up, long-term profitability may be impacted. Increase in tax rate on
rentals will be slightly negative for the sector. Future Group’s digital retailing arm,
FutureBazaar.com, is expected to generate a big portion of the group’s revenues
over the long term. Easing of FDI norms in cash & carry now allows retailers to
sell goods sourced from their foreign investment-funded wholesale ventures,
which was earlier meant for internal use. This will offer some relief to a number of
Indian companies which have formed joint ventures with foreign firms. Permitting
FDI in multi brand retail can be a big positive boost for the sector. We continue to
maintain our positive stance on the retail sector.
􀂄 Top picks
Pantaloon Retail, Shoppers Stop, Titan Industries.