Post our interaction with Shoppers Stop (SHOP) management, we expect 3% SSS growth in the key Shoppers Stop format in Q2 (vs. 5.5% in 1Q) despite a favourable base. This is because demand weakened sharply post end of discounting period in August. Lower discounting (Q2 sales period was shorter YoY) should moderate margin drag from low SSS growth, driving 3% EPS growth.
Hypercity format (20% of sales) should see 4% SSS growth in Q2 (pickup from 1Q levels) as initiatives to drive growth bear fruit. SHOP remains hopeful of a strong H2FY17 (Oct has been healthy despite aggressive discounting from online peers).
However, it moderated FY17 SSS growth guidance from 8-9% to 7-8%. We cut FY17/18/19 SSS growth estimate from 9/10/11% to 6/10/10%, driving 4/5/7% Ebitda cut. Proceeds from sale of a property option in Q2 and Ebitda breakeven at Hypercity in Q3FY17 should reduce stress on the balance sheet from the Hypercity business.
Revamp of food categories (new categories/ products) should aid pickup in Hypercity SSS growth to 4% vs. -0.5% in Q1 as customer walk-ins and conversions improve. SHOP remains optimistic of reaching Ebitda breakeven in Q3. Sale of a property option in Q2 should add gain of `120-140million to Q2 PAT and reduce interest costs going forward.