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Jan 31, 2013, 09.57 AM IST | Source: Moneycontrol.com

Shoppers Stop says HyperCity profits may get pushed to FY16

Shoppers Stop expects same-store sales at its department store chain to grow 7-8 percent in the fourth quarter, with the overall standalone revenue growth of around 17 percent year-on-year for the current financial year, Govind Shrikhande, MD, told moneycontrol.com on Wednesday.

Nachiket Kelkar
moneycontrol.com

Shoppers Stop expects same-store sales at its department store chain to grow 7-8 percent in the fourth quarter, with the overall standalone revenue growth of around 17 percent year-on-year for the current financial year, Govind Shrikhande, MD, told moneycontrol.com on Wednesday.

However, the break-even of its food and grocery retail chain HyperCity may be delayed to first half of the 2015-16 financial year as the restructuring of the existing stores is taking more time than expected.

"FY15...maybe first half FY16...I wouldn't say it's slowed down. But I would say when you are looking at rightsizing (stores), you think you will be able to do it in three months, but its taking almost a year. So if the rightsizing we would have been able to complete in the first half of this year, then we would have started seeing the results right away. But every rightsizing is a discussion and debate with the mall owner, landlord and then it takes time to execute it. And that's something that is taking little more time," Shrikhande said in an interaction.

HyperCity is currently cutting down its store size in some of its existing large box stores. For instance, its Amritsar store has now been reduced to 50,000 square feet from 100,000 square feet and the company is working on similar lines at three more stores, so as to reduce operating costs. The overall area of HyperCity will come down by 20 percent post this restructuring and with the company banking on higher revenue growth, there is a hope that profitability will start improving "dramatically."

Apart from resizing stores, the company is also increasing the share of apparels in HyperCity stores, as apparels generate much higher margins than food and grocery. The share of apparels is already up to 10 percent from 7.5 percent a year ago, which has helped expand its margins by 70 bps, Shrikhande said.

Dragged down by HyperCIty losses and an increase in finance costs and depreciation, Shoppers Stop's third quarter consolidated net profit slumped 54 percent year-on-year to Rs 4 crore, while retail sales were up 20 percent to Rs 894 crore.

The consolidated operating profit was up 26 percent to Rs 39 crore, while margin increased to 4.2 percent from 3.8 percent.  HyperCity's store EBITDA doubled to Rs 2 crore, last quarter.

On a standalone basis, Shoppers Stop's net profit was down near 11 percent to Rs 17 crore, while income from operations rose 21 percent to Rs 596 crore. Its same-store sales (sales at stores that were open for at least one year) grew at 12.5 percent, helped by the festive season demand.

"The bump in festive season, which is double digits, may not be sustainable. But definitely, you are not going to hit the 5 percent like-for-like growth that we saw in the first half. So our focus is on maintaining 7-8 percent like-for-like growth," he said.

Shrikhande said that the retailer had not seen any slowdown in discretionary spends so far and volumes in fact had risen 3.5 percent in the third quarter.

He maintained earlier views that the retailer is open to tie-ups with foreign companies for HyperCity, following the government opening multi-brand retail sector to foreign direct investment.

However, it has not had, nor is it in discussions with any player at this point of time, he added.

CAPEX PLANS

Shoppers Stop says it will incur a capital expenditure of around Rs 150 crore per year to expand its operations.

While 3 Shoppers Stop outlets will open over the next couple of months, the plan is to open around 8 each in FY2014 and FY2015. It will also continue to open 2 HyperCity and 2 Home Stop stores every year. Its speciality formats like MAC, Clinique and Estee Lauder will also continue to be expanded at around five stores all together every year.

A lot of malls, which were delayed so far, will open in FY14, so there could be a "bunch up" of malls and little more than 8 Shoppers Stop stores opening during the year, he added.

It currently has a total retail area of 33.5 lakh square feet and last quarter it opened 1 Shoppers Stop, 1 Crossword, 1 Clinique store and 3 MAC outlets.

The company will fund the capex partly via internal accruals (around Rs 90 crore a year), while the rest via borrowings. Shrikhande expects the debt level to go up a little over Rs 100 crore in the next 2.5 years. Currently, Shoppers Stop has a debt of Rs 400 crore at the standalone level and around Rs 600 crore on a consolidated basis.

SMALL TOWN EXPANSION

Shrikhande says that the mall construction speed has slowed down due to high costs and limited availability of space in big cities, and so believes that the current mall supply will dry up in two years. That means retailers will have to increasingly look at smaller tier II, III towns for expansion.

Shoppers Stop is also expanding into smaller towns, with new stores expected to come up in cities like Baroda, Agra, Raipur and Surat next year. While its store format is unlikely to change much, the size of the stores will certainly be smaller.

"The challenge definitely would be, yes you won't be able to get space in tier I (cities) and so you will have to start opening in tier II. A question would be, do you dilute your format or take the same format? As of now we haven't diluted our format, but we have tightened the store size. So in a tier I if we have 50-60,000, we are going with a 30-40,000 square feet store sizes here," he said.

Shoppers Stop shares were up 1.8 percent at Rs 432 in afternoon trade on NSE on Wednesday. The stock is up over 9 percent so far this financial year.

nachiket.kelkar@network18online.com

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