Shoppers Stopís (SSL) Q1FY15 sales and PAT came in line with our expectations. Key positives were: Decent LTL volume growth in departmental stores of 5.4% y-o-y on a base of 3.3%; 104-bps y-o-y improvement in gross margins of departmental stores and store-level y-o-y Ebitda growth in Hypercity from R2.8 crore to R7.8 crore.
Key negatives included modest like-to-like (LTL) sales growth of 3.7% y-o-y in departmental; impacted due to closure of four key stores for renovation (otherwise LTL sales growth would have been ~8% y-o-y), subdued sentiment till May and lack of good movie releases in Q1FY15 (PVR saw 14% y-o-y drop in LTL footfalls) and 14% y-o-y LTL decline in Hypercity footfalls due to resizing of stores. The company will be one of the key beneficiaries of recovery in urban consumption.
SSL continues to execute better than most peers and will be one of the key beneficiaries of recovery in urban consumption. We maintain Ďbuyí with TP of R441. All big stores have been renovated in Q1FY15 itself, precluding further closures. LTL growth is expected to be 7-8% y-o-y in FY15E. The management expects to achieve Ebitda breakeven in Hypercity business in FY15.