Disappointed with Q1 results, slowdown visible: Pantaloon

Pantaloon Retail has announced its fourth quarter results. The company's Q4 consolidated net profit was down 78% at Rs 22.7 crore versus Rs 101.4 crore, year-on-year, YoY.

In an interview to CNBC-TV18, Rakesh Biyani, joint managing director of Pantaloon says, the company is disappointed with the Q1 performance. "There is a clear slowdown in the economy. Unfortunately, the slowdown and the lack of confidence among consumers are hitting retail significantly," he asserts.  Below is the edited transcript of his interview with Udayan Mukherjee and Sonia Shenoy. Q: The market is a little disappointed particularly with your same-store sales (SSS) growth, can you just take us through the numbers there and account for the sluggishness? A: We are also disappointed with the performance. But this has been going on for about seven-eight months where there is a clear slowdown in the economy. I think it goes back to all the way to the festive season, which was again not the best. We had reasonable sale season. But thereafter in the May month, where there is typically some amount of festivity, some amount of weddings etc, the market just collapsed. That has dragged down the sales numbers significantly. It has been a market wide phenomenon. Unfortunately, the slowdown and the lack of confidence among consumers are hitting retail significantly. Q: Is it across geographies and across categories or some of your locations or some of your product categories have been hit harder than others? A: When you talk about geographies, some geographies have performed better. But West and South of India are definitely on the slower side. In the West, markets like Pune and Mumbai have been slow. Whereas North has been better off compared to the other two markets, but still no way near the potential. Also, what has caused a problem for us is that the malls, which had opened up in the last twelve months or so, are taking a much longer time to ramp-up. The growth in the organized retail space itself has been about 4X, 5X within one year because multiple malls have opened at one time. The ramping up is taking a significant amount of time. Even though you open at most spaces, the productivity is not there and the sales reflection is not there. _PAGEBREAK_ Q: In the new store productivity, is it a function of oversupply and competition or just that the sluggish market is leading to very slow ramp ups or much lower ramp ups than you budgeted for? A: I would say that the sluggishness in the market place plus cannibalisation because there is an expansion of the market place, which is much faster than where the consumers are there. That is definitely causing a lot of issues. I have been mentioning earlier also, we have restructured quite a lot of our organisation. Though all the work has now got completed as of May and June, the impact that we are seeing in our numbers is also reflection of internal changes that we have carried out. Things are looking a lot better. We had earlier also that we have been focusing hard how do we manage our inventories better, how do we increase our margins and how do we control our costs. So, we are trying our best to keep the cost at the same levels. It is not an easy task, when you consider the fact that costs are actually increasing across the board. Wages have gone up more or less everywhere in the country now. One is working very hard. We have still managed to keep our cost at the same level as last year. Pressure is building on a lot of efficiencies and the corrections that we have done in our operating teams. Q: Product wise, which are the softest spots right now between home, value and lifestyle? A: I think the bigger impact for us has been on the value side. That is more to do with the reorganisation that we carried out. But lifestyle has done well compared to the value side. Home continues to be moving at a very slow pace. Q: Have things improved even a little bit in the months of July-August or do they continue to be pretty much as sluggish as the previous quarter? A: I would say that July is a better month. Even though the discounts have been high, but we have been able to maintain margins. Even on the value side, July has performed better. The big promotion is due starting tomorrow. I think that is going to define the way ahead. This year is a year where the festive season is getting pushed out by about a month. So, if you go quarter-by-quarter comparison, it is only the October month, which will reflect the festive sales October-November-December. That is going to be the peak quarter. I think any action, which will lead to a better confidence among consumers, would work well. But from our side, we have worked hard to correct price increases, bring in better entry price points so that we can get more customers to come and shop with us. Q: Can you give us an update on the strategic initiatives, which are progressing on any kind of divestments that you were looking at? A: Two of them have been concluded in June. Pantaloon’s process is currently on and by the end of this month should get completed. The process will still take atleast six months before the actual action would happen. Future Capital, I think the transaction should get concluded by middle of September. So, these are the two big initiatives. Overall, we would definitely address significantly the debt portion of the company with these two transactions going through. Q: Any other transactions likely this quarter? A: Not in this quarter, maybe something by the end of the year.