Pantaloon Retail India posted a growth in its year-on-year profit for the core retail business, but at a consolidated level it continues to underperform as its net profit plunged 78% in the June quarter at R22.7 crore compared with R101.4 crore in the year-ago period.
?There is a clear slowdown in the economy and consumer sentiment is hitting retail significantly,? said Pantaloon in its investor update.
The company’s profitability was affected as finance costs shot up 53% to R180 crore. Its same store sales, which is a measure of the performance of stores operational for a year and more, dipped to its lowest in four quarters at 0.37% for the value formats (Big Bazaar and Food Bazaar), while in home retail it dropped to a negative of -0.85%.
?Sales in May were particularly sluggish and this severely affected same-store-sales growth,? said the company. In the lifestyle segment, however, same store sales picked up sequentially, and stood at 4.7%. In the March quarter, it was 3.46%.
According to estimates from domestic brokerage Prabhudas Liladher, the company’s core retail debt stood at R6,500-6,700 crore at the end of June quarter. This is likely to keep interest costs at a high in the coming quarters as well.
Analysts maintain a cautious stand on Pantaloon. ?Unless there’s any significant improvement in the operating environment, there wouldn’t be any recovery in Pantaloon’s performance,? says an equity analyst at a Mumbai-based brokerage. ?Discount sales may drive topline in some quarters but these are incremental benefits in the short-term.?
The June quarter was sluggish for other large-format retailers as well. Shoppers Stop, a player in the same space as Pantaloon, recorded poor numbers with its net loss widening to R11 crore.
?The June quarter has not seen any major pick up in sales as consumers postponed their purchases towards the discount season in the second quarter of FY 2013,? said Nikhil Vora, managing director of IDFC Securities. In times of such slowdown, Pantaloon plans to manage its inventory better and cut costs across stores. ?At a number of locations, the company decided to rationalise spaces either through shutting down non-performing sections of a store, conversion of lifestyle formats to value formats or full closure of stores,? it said in its investor update.
During the June quarter, it added 0.55 million square feet of total retail space. In the lifestyle segment, it opened two Central and two Brand Factory stores. In the value segment, three Big Bazaar, three Food Bazaar, were opened along with two FBBs. FoodHall, the premium lifestyle food destination launched its second store in Bangalore.
But new stores aren’t picking up, say brokerages, and operating costs have shot up by 30 bps on account of store expansion. ?Operating overheads will take 18-24 months to get fully absorbed and hence will lead to subdued margins,? a June report released by domestic brokerage Aditya Birla Money said.
Pantaloon plans to increase focus on customer loyalty. ?Rather than attract new customers through increased marketing spends, the company?s efforts are focused on improving its consumer loyalty programmes that now have more than 7 million customers,? it said.