Shoppers Stop’s (SSL’s) adjusted revenue dip of 2.2% and Ebitda (ex-Ind AS impact) growth of 12.5% in Q2FY20 came in line with our estimates. SSSG came in at negative 1% y-o-y on a base of 3.6%. While personal shopper and beauty segments sustained traction, private labels were tepid. While gross store addition is likely to be 8-10, net of closures store addition will be restricted to ~4-5. On comparable basis, Ebitda margin also expanded 50bps y-o-y. New management team, strategic initiatives towards private labels and focus on beauty segment enthuse us. Maintain Buy with TP of Rs 454.
Negative SSSG; private label scale-up key – The share of private labels remained flat at ~12.0% (12.2% in Q2FY19). Management expects new collection planned for SS’20, consolidation of private brands and launch of new private brands to spur this segment. Design Studio, sampling unit and testing labs are now fully operational. The personal shopper experience (one of the growth planks) contributed >17.0% to sales versus 12.9% in Q2FY19. Building on another growth plank, SSL took over India franchisee business of Jo Malone London, thereby penetrating the beauty segment.
Outlook: Headed in right direction —SSL is a potential turnaround story with: (i) management’s focus on promoting private labels & beauty; (ii) omni-channel strategy; and (iii) net cash position. We have revised down FY20e PAT by 18% owing to tax rate change resulting in re-statement of deferred tax asset. We maintain ‘BUY/SP’ with TP of Rs 454 (35x, 12-month forward PE; `485 earlier). At CMP, the stock is trading at 30.4x FY21e PE.