Shoppers' Stop stares at FY21 loss on lower footfall, higher costs

Going ahead, analysts at Motilal Oswal Financial Services expect the lifestyle apparel segment to see more impact given the higher ticket size amidst down-trading by customers
The Shoppers Stop stock has shed 1.3 per cent following its weak operational showing in the March quarter. Sentiment in the near term will also be hit, given the sharp downward revision to operating profit estimates for FY21.

Operating profit, which came in at Rs 180 crore in FY20, could drop into negative territory on the back of muted sales and higher fixed costs.

The FY21 cut was prompted by indications that the June quarter has been a complete washout, and the outlook in the coming quarters will be weak because of the economic downturn.

The company said it has reopened 53 departmental stores, with business operating at 45 per cent of pre-Covid levels. However, sentiment remains weak, with footfalls lower by 75 per cent. The management has highlighted that it will close 10-12 stores, if rents are not renegotiated. It is focusing on an omni-channel strategy to improve sales and delivery.
Given the pressure on liquidity, the company is looking to conserve cash, and is moderating its FY21 capex to Rs 50 crore, from Rs 200 crore in FY20. Despite the cost-cutting measures in the March quarter, the company reported Rs 17 crore in operating loss — its first since FY07 — owing to a sharp fall in same store sales (SSS).

 

 
After posting 2.4 per cent growth in January and February, the loss in sales during March, because of the pandemic, led to a 16 per cent YoY fall in SSS in the March quarter.

Shoppers Stop’s SSS performance was worse than Westside and Pantaloons, both of which reported a fall of 7-12 per cent on that metric.
Analysts at Motilal Oswal Financial Services expect the lifestyle apparel segment to see a greater impact, given the higher ticket size, amid down-trading by customers.

Limited product differentiation, online competition, and a higher number of stores in malls could see sales slump, due to lower footfall. The lower share of private labels, coupled with the weak positioning vis-à-vis Pantaloons and Westside (in the sub-Rs 1,000 merchandise category) is a negative, they add.

While the earnings trajectory for the next year is expected to remain weak, the stock, which has gained 26 per cent over the past month, is trading at expensive valuations.



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