Shoppers Stop’s (SSL) Q4FY15 revenue and PAT came in line with our estimates. Key positives include: (i) recovery in like-to-like (LTL) sales growth at 4% y-o-y despite base of 8.4% y-o-y, possibly, in our view, due to lower impact of on-line players due to sale season fatigue; (ii) third consecutive quarter of company level Ebitda break even for HyperCity; and (iii) 181bps and 89bps y-o-y gross and Ebitda margin improvement, respectively. Key negative was LTL volume decline in department stores (1.7%) and HyperCity (1% YoY) with 4.1% y-o-y LTL fall in customer entry in department stores, also impacted by poor movie pipeline.
SSL is targeting LTL sales growth of 7-8% in FY16. Q4FY15 gross margin expanded 210bps y-o-y aided by increase in private label mix, cost control and lower discounting period. SSL is planning to invest R5,000 crore over the next 2 years for implementing the omni channel strategy in a phased manner (from online to stronger online to multi channel to omni channel) with expectations that online sales contribution will surge to 10%. Homestop turned PAT positive with Ebitda margin of 5.5% (to jump to 8% in 2 years). SSL will add 6 department stores and 4 HyperCity stores in FY16.
At CMP, the stock is trading at 14.8x and 11.6x FY16E and FY17E EV/Ebitda respectively. We maintain buy with a target price of R542.