Shoppers Stop - Volume Growth Improves; Hypercity Turns EBITDA Positive; Result Update Q2FY15 :: Edelweiss PDF link

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Shoppers Stop’s (SSL) Q2FY15 revenue came in line; PAT surpassed expectations. Key positives were: (i) sharp uptick in LTL sales growth, which surged at 11% YoY on high base of 15.5%; (ii) company level EBITDA breakeven in Hypercity for the first time (likelihood of PAT positive by FY16E); and (iii) 98bps YoY improvement in standalone EBITDA margin to 6.1%. Key negative was 6.7% YoY dip in consumer entry in LTL departmental stores. The company will be one of the key beneficiaries of recovery in urban consumption.

LTL sales improved in both departmental stores and Hypercity

SSL’s departmental stores reported strong LTL sales growth of 6.9%/20.2% YoY in mature/new stores in Q2FY15. LTL volume growth of 7.2% YoY was the second highest in past 10 quarters. Sales per sq ft at INR2,354 is at 15-quarter high. Conversion ratio at 23.7% is second highest in past 10 quarters. Hypercity’s LTL sales growth (ex-CDIT) improved to 4.0% YoY vis-à-vis a decline of 0.3% YoY in Q1FY15.

Q2FY15 conference call: Key takeaways

The company expects 7-8% YoY LTL growth for departmental stores in Q3FY15. The slightly lower growth vis-à-vis Q2FY15 will be due to high competition from online retailers. Consumption should rise much faster in H1FY16 as actual on-ground recovery is expected to commence then; LTL sales growth can be in double digits in FY16. Management expects standalone EBITDA margin to be 6.0-6.5% in FY15E and 7.0-7.5% in FY16E. With gold prices correcting, investment in fine jewellery has plummeted. Hence, demand for fine jewellery will be subdued till gold prices stabilise. Of 15 Hypercity stores, 9 have achieved breakeven at the EBITDA level. Ad spends of private labels have been increased.

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https://www.edelweiss.in/research/Shoppers-Stop--Volume-Growth-Improves;-Hypercity-Turns-EBITDA-Positive;-Result-Update-Q2FY15/27479.html