Targeting 8% EBITDA growth in FY16: Shoppers Stop

Summer sale season will be restricted to 30 days from this year onwards, he said.

"The year has been mixed because the maximum transaction has come out of value, which is price increase, and not volume," he said.

Reduction in size of stores and control on cost will lead to profitability and a positive EBITDA margin this year, Shrikhande said.

The company plans to open 6 Shoppers Stop stores, 3 HyerCITY and 6-8 specialty stores, he said.

Below is the edited transcript of Govind Shrikhande's interview with Sumaira Abidi and Reema Tendulkar on CNBC-TV18.

Reema: Starting with a macro question of consumer demand, given the gloomy monsoon forecast, do you expect sales markdowns or discounts on products to be as aggressive as they use to be?

A: There has been a clear understanding by the industry that unnecessarily stretching the sale period does not help, unnecessarily marking down too much also does not help.

Therefore, if you look at this year’s sale period in Q4, almost everybody shrunk the sale period by almost one week to two weeks. We were down by ten days during the sale period; we cut it down by 10 days.

However, going ahead for the summer sale season, again everybody said that we will not stretch it beyond 30 days and that is a great industry initiative and you will also realise that the biggest challenge that has come one discounting has come because online players have been discounting heavily and they also seems to have been realising now that you cannot keep on discounting so much because at the end of the day business have to be profitable.

So, overall as an industry we are getting more mature, we are cutting down on overall discount period and also cutting down on the overall discounting. Therefore, my belief is that in the long-term customers will be invited to shop more and more of fresh merchandise and discounting will get reduce overall, which will also mean that you can get better margins and better throughput.

Sumaira: You have seen an improvement both on year-on-year (YoY) basis as well as sequential basis in terms of your margins. Now your gross margins have been consistently trending higher for almost all quarters of FY15. How have you been able to achieve this and are customers now picking up items with higher value or ticket size compared to the last few quarters?

A: The year has been little mixed in terms of how volume value has worked, so for example Q4, the maximum traction has come out of value which is price increase and not volume whereas for the entire year when you look at about 6-7 percent like to like, majority is driven by value but there has been 1-1.5 percent of volume growth as well but current continuation that we are seeing in summer, which is April-May, we are seeing almost equal contribution by both value and volume which is very good, one.

Second, we are also seeing that margin growth that we have been able to get either on account of better negotiation or better throughput – (a), (b) all renovations that we completed in the last year have started impacting growth much better and they are giving us a better margin as well.

Third, the way we said earlier is we are targeting 8 percent EBITDA in the financial year ’16-17, you have seen clear ramp up towards that. This year we should be another 50-80 bps up of what we performed last year and then we should be another 80-100 bps up in the next financial year.

So we are able to see a turnaround of new stores, turnaround of stores in which we had renovation and yes, definitely better margins throughput based on what we have been able to negotiate.

Reema: Talk a bit about HyperCITY. We have seen a significant improvement across all parameters this quarter. Could you throw some more colour on how HyperCITY has done?

A: We had said that our target was to hit company EBITDA positive last year. We missed it but if you look at the overall number for the year, our EBITDA number dropped by almost Rs 50 crore for the last 12 month period and we are tracking towards EBIT positive this financial year – that’s the target for us and we believe we are through the mix of fashion that we have been able to grow to more than 15 percent in the last year.

We are targeting to take it to 19 percent plus over the next 24 month period. So that will start contributing. On the other hand productivity in each store has been going up, so while you are seeing like to like growth of 6-7 percent the sales per square feet growth has been more than 19 percent aided by the reduction in size of each store and its foot play and also good control of cost.

So these three combined we believe that we can head towards EBIT positive this year and towards profitability, PAT positive in the next financial year. Therefore, we are very much on track and we believe we could be the first hypermarket in the country to breakeven.

Sumaira: Tell us what are the retail expansion plans for FY16, how many stores are you targeting to open this fiscal?

A: In Shoppers’ department store we are targeting to open about six stores in this year. In HyperCITY we are targeting about three stores and across all other specialty formats the target is to open between six and eight stores.

Reema: Could you leave us with the guidance on headline numbers for FY16. How do you see this year panning out?

A: Overall target in the department store is to hit 7-8 percent like to like growth and in HyperCITY to hit EBIT positive. These are the two big numbers that we are chasing for the next financial year.