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3QFY11: in line
Shoppers Stop’s 3QFY11 results were strong with same store sales growth
leading revenue growth of 21%. Ebitda margins dropped 75bps yoy on a high
base while falling depreciation and interest led net profit growth of 45%.
Overall Ebitda was 3% below and PAT 5% below our estimates. Hypercity
saw losses narrow sequentially to Rs138m. Looking ahead, we expect cost
driven price hikes in apparel while wage inflation will be an area of concern.
Whilst we remain convinced of Shoppers Stop’s quality as a retailer, we see it
as being priced to perfection and retain our UNDERPERFORM stance.
3QFY11: same store sales drive strong performance
During 3QFY11, Shoppers Stop reported 21% yoy growth in revenues, led by a
22% growth in department stores same store sales whilst the transfer of
Crossword operations back to the subsidiary dented reported sales growth by 4%.
Ebitda margins declined 75bps YoY (86bps gain excluding the Mothercare payment
in 3QFY10) and were at a strong seasonal peak of 10.4% driving Ebitda growth of
13%. The strong YoY performance was supported by a later festive period and
longer wedding season this year. Whilst the removal of the crossword stores
dented growth by ~4% for the quarter and gross margin by ~20bps, we do not
believe that this had any significant bottom line impact. Hypercity saw margins
decline due to an uptick in food contribution and costs from shrinkage during the
quarter and made a loss at the store Ebitda level.
Inflation in focus: price hikes and wage pressures ahead
Whilst Shoppers Stop’s strong store growth trajectory is expected to continue, the
company does anticipate a moderation in same store sales growth in CY11 as the
base toughens. Shoppers Stop is also expecting to see price hikes among apparel
brands of 10-15% for the summer ranges as the brands pass on rising input costs
from cotton. The company intends to take hikes similar to third party brands on
its private label portfolio. The broader inflationary trend is also expected to
pressure wages with hikes of 8-10% already visible for store employees and
overall employee costs keeping pace with the high sales growth. However, the
company does not anticipate Ebitda margin dilution from this as the operating
leverage benefits around central employee costs would offset store pressures.
Maintain forecasts and valuation, U-PF stays
We expect performance in the core business to moderate somewhat in 2011 but
remain strong. We have maintained our operating forecasts but adjusted the
figures to reflect the recent share split. Our Rs660 target price represents 20x
September 12 PE for the core business and Rs66/share for Hypercity. We remain
sceptical of current valuations given the historic cyclicality in margins and
execution risks to growth plans. We retain UNDERPERFORM.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
3QFY11: in line
Shoppers Stop’s 3QFY11 results were strong with same store sales growth
leading revenue growth of 21%. Ebitda margins dropped 75bps yoy on a high
base while falling depreciation and interest led net profit growth of 45%.
Overall Ebitda was 3% below and PAT 5% below our estimates. Hypercity
saw losses narrow sequentially to Rs138m. Looking ahead, we expect cost
driven price hikes in apparel while wage inflation will be an area of concern.
Whilst we remain convinced of Shoppers Stop’s quality as a retailer, we see it
as being priced to perfection and retain our UNDERPERFORM stance.
3QFY11: same store sales drive strong performance
During 3QFY11, Shoppers Stop reported 21% yoy growth in revenues, led by a
22% growth in department stores same store sales whilst the transfer of
Crossword operations back to the subsidiary dented reported sales growth by 4%.
Ebitda margins declined 75bps YoY (86bps gain excluding the Mothercare payment
in 3QFY10) and were at a strong seasonal peak of 10.4% driving Ebitda growth of
13%. The strong YoY performance was supported by a later festive period and
longer wedding season this year. Whilst the removal of the crossword stores
dented growth by ~4% for the quarter and gross margin by ~20bps, we do not
believe that this had any significant bottom line impact. Hypercity saw margins
decline due to an uptick in food contribution and costs from shrinkage during the
quarter and made a loss at the store Ebitda level.
Inflation in focus: price hikes and wage pressures ahead
Whilst Shoppers Stop’s strong store growth trajectory is expected to continue, the
company does anticipate a moderation in same store sales growth in CY11 as the
base toughens. Shoppers Stop is also expecting to see price hikes among apparel
brands of 10-15% for the summer ranges as the brands pass on rising input costs
from cotton. The company intends to take hikes similar to third party brands on
its private label portfolio. The broader inflationary trend is also expected to
pressure wages with hikes of 8-10% already visible for store employees and
overall employee costs keeping pace with the high sales growth. However, the
company does not anticipate Ebitda margin dilution from this as the operating
leverage benefits around central employee costs would offset store pressures.
Maintain forecasts and valuation, U-PF stays
We expect performance in the core business to moderate somewhat in 2011 but
remain strong. We have maintained our operating forecasts but adjusted the
figures to reflect the recent share split. Our Rs660 target price represents 20x
September 12 PE for the core business and Rs66/share for Hypercity. We remain
sceptical of current valuations given the historic cyclicality in margins and
execution risks to growth plans. We retain UNDERPERFORM.
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