Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Shoppers Stop Ltd (BOM:532638, Financial) reported a 2% growth in Q1 sales, reaching INR1,260 crores.
- The Premium Brands product portfolio grew by 10% on a like-for-like basis and overall growth of 14% for the quarter.
- Beauty and INTUNE verticals remained EBITDA positive during this quarter.
- The company opened 11 new stores during the first quarter, including two departmental stores and nine INTUNE stores.
- Shoppers Stop Ltd (BOM:532638) achieved a milestone of 10 million First Citizen members, with loyal members contributing 80% to sales.
Negative Points
- Demand remained subdued due to fewer wedding days, a long election season, and a strong heatwave, impacting overall growth.
- EBITDA margin declined due to new stores taking time to turn profitable.
- Customer entries largely remained flat during the quarter.
- Gross margins were largely flat versus FY24, with some offset by the mix.
- The company may need to borrow approximately INR100 crores during the year due to softness in Q1.
Q & A Highlights
Q: Given the subdued demand and the strategic initiatives mentioned, what is the expected top-line growth for the next two years?
A: We expect double-digit growth over the next two years, driven by our expansion in INTUNE, Beauty business, and departmental stores. However, the growth from square footage addition alone is estimated to be around 8-9%.
Q: How will the company fund its CapEx plans, including the INR200-225 crores for store expansion and the new warehouse?
A: We may need to borrow around INR100 crores this fiscal year due to the softness in Q1. However, we do not expect to borrow more in the subsequent years as the business improves.
Q: What is driving the confidence in accelerating INTUNE store openings from 60 to 75-80 stores?
A: The initial stores have shown strong performance with SPS (Sales Per Square Foot) holding steady at INR14,000 for older stores. Customer acceptance is high, with a full price sell-through north of 80% and healthy repeat customer behavior.
Q: Can you elaborate on the cost increases and their impact on EBITDA margins?
A: The cost increase is primarily due to new store openings and investments in technology, including cybersecurity and cloud migration. Despite these costs, we expect mid-single-digit EBITDA margins for the full year, driven by revenue growth and cost rationalization.
Q: How is the Beauty segment performing, and what are the future growth plans?
A: The Beauty segment is focused on the premium space, which is growing slower than mass and masstige segments. We plan to introduce more masstige brands to accelerate growth and aim for a 12-15% growth rate this year.
Q: What is the outlook for departmental stores, and how are they performing compared to EBOs (Exclusive Brand Outlets)?
A: Departmental stores offer a differentiated experience with a house of brands and personal shoppers, which drive higher ATV (Average Transaction Value). Despite the challenges, we see strong demand for premium brands and expect departmental stores to continue performing well.
Q: How will the company manage working capital needs, especially with the expansion of INTUNE?
A: We are focusing on reducing inventory in Private Brands, which has already decreased by INR65 crores. While INTUNE's expansion will increase working capital needs, overall inventory should reduce, maintaining a stable working capital level.
Q: What is the rationale behind increasing the number of Personal Shoppers, and how does it impact profitability?
A: Personal Shoppers enhance customer experience and drive higher ATV, which is 3x that of a normal transaction. The program is structured to be cost-effective, with incentives based on sales performance, making it a profitable investment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
