Dear Friends,
We are recommending Buy on our Actionable ViewPoints "Shoppers Stop" as per following:-
CMP: Rs 491 Target: Rs 589 (20% Upside)
Key Points:
Viewpoint: Shoppers Stop Q2FY19 update - Festivities to bring in cheer
· Comparable revenue growth of 7.4%; Significant decline in interest cost led to profit: For Q2FY2019, Shoppers Stop Limited (SSL) reported an increase of 3.2% in its reported revenue to Rs. 864.5 crore, with same store sales growth (SSSG) at 3.6%. If we exclude the adjustments due to IAS 115, implemented from April 1, 2018, and GST, revenue growth would be 7.4%. During Q2FY2019, July saw robust SSSG of 7.5%, while August witnessed SSSG of 10%. This growth was offset in September due to shift in festivities this year as compared to last year. Gross margin expanded by 147 BPS y-o-y to 41.1% because of better sales mix. However, operating profit margin (OPM) increased only marginally by 20 BPS y-o-y to 6.3% due to higher other expenses as a percentage to sales (up by 97 bps y-o-y). Operating profit grew by ~7% y-o-y to Rs. 54 crore. Interest cost reduced significantly by ~75% and other income came in lower by ~58% y-o-y, which resulted in adjusted PAT at Rs. 13.2 crore in Q2FY2019 (lower than our expectation of Rs. 19.5 crore) as against Rs. 0.8 crore in Q2FY2018.
· Private label and omni channels to drive growth ahead: During the quarter, private label contributed 10.3% (highest in the past four quarters) to overall sales of SSL. The company has been revisiting its strategy to increase the contribution of private labels and, thus, is looking to set up and run its own design studio and testing lab by January 2019. Moreover, a new management team is in place, which will look into the design and sourcing for private labels, which are two important parameters to push sales of private labels going forward. The company envisages its private label to grow by 10.8-10.9% by the end of FY2019. As far as the omni-channel strategy of SSL is concerned, it accounts for 2% of overall sales and has seen an increase of 96% y-o-y. The company has already placed 80% of its entire catalogue on Amazon.com, which is pushing its e-commerce sales. With a view to ease shopping and making fashion collections available to maximum customers through its online platforms, the company has scaled its Click & Collect service to over 50+ stores and expanded the fulfillment centre base to 37 stores and four warehouses. The Personal Shopper programme has been gaining good traction for the company; and now 13% of its sales are through this programme, which has a ticket size of 3x. SSL has expanded its Personal Shopper at Home programme across nine cities (in Q1FY2019, it was in two cities), which has a ticket size of 5x. By expanding the personal shopper model to all stores, the company aims to enhance the total shopping experience of customers and increase the frequency of their visits to SSL.
· H2FY2019 performance to be driven by festivals, new stores and enhanced contribution from private labels: SSSG stood at 3.6% in Q2FY2019, largely driven by strong SSSG of 19% witnessed in the east due to Durga Pooja and robust performance in the ladies ethnic wear due to festivities such as Ganesh Chaturthi. SSL has seen double-digit SSSG during the first four weeks of October because of Diwali. Further, the company is targeting to generate increased revenue from its high-margin beauty stores (added four beauty stores in Q2FY2019, taking total stores of MAC/Estee/Clinique/Bobbi Brown to 108). The company envisages opening three new departmental stores and 10 beauty stores in H2FY2019. The company had adopted a new strategy for boosting private label sales, which was offering value fashion and introducing new labels. This has been working well for SSL, and the company is investing in its own brands to support the revenue growth momentum going forward. Thus, with increasing revenue share from private labels, omni channels and beauty segment, management is targeting SSSG of 5-6% for FY2019 (down from the earlier guidance of 7-8%). As per management, efficiencies at store level, improvement in revenue mix and increased contribution from private labels and omni channels would help SSL achieve 100 BPS improvement in OPM over the next two years (management targets OPM at 8% by FY2020). Overall, with a lean balance sheet (to be nearly debt-free by the end of FY2019), we expect SSL to post better operating performance over FY2019-FY2020.
· Maintain Positive view with 18-20% upside: We have reduced our earnings estimates for FY2019 and FY2020 by ~6% and ~4%, respectively, to factor in weak H1FY2019 revenue performance. Improving OPM and lower interest cost mitigated the impact of muted sales performance in H1FY2019. The performance of SSL is likely to improve in H2FY2019, with major festivities (such as Diwali and New Year) falling in Q3 and end of season sale expected in Q4. Thus, with improved SSSG, new store addition (mainly in the beauty segment) and increased contribution from private labels and omni channels, we expect revenue and PAT to register strong growth. With a correction in broader market and fall in the stock price of SSL, we maintain our Positive view on SSL with an upside of 18-20% from current levels.
Regards,
F1,Achyuta,111,bharathidasan salai,
Cantonment
Trichy-620001
Tel:04314000706
Ph:8144517351
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