Shoppers Stop (SSL), which operates department stores and specialty stores such as Crossword, Mothercare, MAC and hypermarkets under HyperCity, recorded a fourth consecutive quarter of not-so-healthy numbers.?
For the June quarter, SSL saw its net profit plunge 96% on a standalone basis, despite a 15% increase in sales, as its interest costs, rentals and power costs escalated. The service tax outgo was big too, shrinking margins by 70 bps.
?Overall, cost during the quarter went up 27%,? said Govind Shrikhande, managing director, Shoppers Stop. ?Power costs, rentals and interest costs shot up.?
On a consolidated basis, the company?s loss widened to R11 crore from R1.5 crore a year ago, as the department store format, which contributes more than 67% to revenues, performed poorly.
SSL?s other listed contemporaries like Tata Group?s Titan Industries, too, missed analysts’ expectations and recorded single digit sales growth for the June quarter.
For fast food retailer Jubilant Foodworks, sales remained flat and customer additions slowed down. Pantaloon Retail, the other major listed firm in the sector, is yet to announce its June quarter results. Shrikhande is cautious of the overall consumption scenario and reckons that most retailers have been hit due to the weak macro-economic sentiments.
?Consumption happens when the overall sentiment is positive and we don?t see any boost in the next 12-18 months,? he says.?
For SSL, like-to-like (LTL) growth, which is a measure of performance of stores operational for more than a year, stood at a meagre 1%. This is a sharp fall from the 10% LTL growth recorded in the last quarter of 2011-12, which was driven by a 9% rise in the average selling price (ASP) of goods due to higher cotton prices.?
?Volumes and margins declined as consumption slowed down. They are expected to remain flat until the festive season,? says an analyst at a domestic brokerage.
According to estimates by brokerage MF Global Sify Securities, for the June quarter, SSL?s operating margin dipped to 3.6% from 6% on a yearly basis.?Extended discount seasons, in order to attract footfalls and drive volume growth, also took a hit on the retailer?s margins.
Harminder Sahni, managing director of retail consultancy Wazir Advisors, says? ?Indian retailers are not in a position to give steep discounts, as some foreign players do. Losses for Indian retailers are always very high.??
While SSL?s topline has been driven by store expansion in the last two quarters, its newly opened stores during the June quarter were slow to take off. ?Expansion can be a way to grow but most companies don’t have the capital outlay to do that. Hence, fund-raising through private equity deals or stake sales may be on the cards,? says Sahni. SSL?s loss-making subsidiary HyperCity, which has 12 hypermarkets, recorded a 15% sales growth and a 1% growth in operating margins as it shifted its focus to high-margin categories such as fashion and apparel.