All you need to know about Shoppers Stop at a glimpse

Stock Data:

Ticker	SHOPERSTOP
Exchange	BSE and NSE
Industry	Retail – Textiles (Products)

Price Performance:

Last 5 days	+8.64%
YTD	+83.5%
Last 12 months	+93.75%

Why is the stock price rising?

Since July 27, the stock has risen 7% after the company reported impressive Q1FY23 quarter results. The company saw a 362% quarter-on-quarter growth in its revenue to INR 948 Crores while the net profit was up by 122% to INR 23 Crores. The sales went up as the company witnessed its first disruption free quarter even after the end of season sale being delayed by 10 days. The strong growth momentum, seen March 22, persisted through the first quarter of FY23 and could be witnessed continuing in August. The company  recorded a strong quarterly performance, and believes that the growth will continue in the coming quarters due to the easing of Covid related restrictions. This, coupled with the upcoming festive season, is likely to release a significant pent-up demand and further aid the company’s revenue growth. And hence in anticipation of such positive growth, the stock price is rising.

Management Commentary:

“All our product categories and channels have witnessed a surge during the quarter. Consumer sentiments have improved with the economy reopening which has led to an increase in footfalls. Our digital sales base remained intact in spite of our robust offline performance. We expect good demand in tier-2 cities and beyond, with the rise in smartphone penetration, and the growing adoption of digital payment systems. We plan to launch new stores primarily in tier-2 and tier-3 cities while sustaining our investments in store renovations, during the year.”

Venu Nair, CEO and Managing Director

Competitive advantage:

The company markets a total of 500+ fashion and beauty brands that are targeted towards the youth population in India. To cater to such a large population, the company has a total of 264 stores covering 3.8M Sq Ft.(As of Aug 10). They have a dedicated program called “First Citizen Loyalty Program” which has a base of 8.9 million customers. This program contributes ~80% of the total revenue. The other is a premium program called “Personal Shopper” where the revenue per customer is four 4 times the average revenue. This is targeted at high-income individuals. Overall, the company has managed to build one of the largest customer bases in the retail industry. However, it has to compete with other online retail players who are growing rapidly in the Indian e-commerce market. Even the company has ventured into this space, however – commerce only contributes 4.7% to the total revenue of the company. 

About Shoppers Stop Ltd:

Shoppers Stop Ltd is a leading premier retailer of fashion and beauty products established in 1991. It owns and operates various department stores, home concept stores and specialty beauty stores across the country.

Investors (in %)	June 21	Sept 21	Dec 21	Mar 22	June 22
Consolidated Promoter Stake	65.46	65.41	65.51	65.55	65.55
FIIs	5.76	5.83	5.94	6.10	6.38
DIIs	19.93	20.21	20.15	19.82	20.45
Public	8.85	8.54	8.40	8.53	7.62

Owned and Private label brands:

The company has a vast universe of personal and private brands. ‘Stop’ is the store’s own brand catering to clothing and lifestyle needs of consumers. ‘Life’ is its own brand for denims and casuals. Amongst other brands are Kashish, Karrot, Haute Curry and Fratini. It sells products under its 15 private & exclusive brands and also sells products of 500+ trusted brands from its stores.

Investment by Amazon.com

In FY18, the company issued and allotted ~44 lakh equity shares for INR 408 per share for a total consideration of about INR180 crores. It also has opened 8 EDI (Electronic Data Interchange) stores in partnership with Amazon till FY20.

Sale of Subsidiary:

In Aug 2021, the company sold its controlling stake in its subsidiary Crossword Bookstores Ltd at a gross valuation of INR 42 crores. The subsidiary handled the company’s bookstore retail operations and it has been divested to focus on its core operations.

Growth factor:

We believe the new MD (former Westside CEO) would bring in his expertise in the private label brands domain and focus on enhancing the share of high margin private label brands which contributes ~14% of the total revenues. It has commenced on healthy store addition plans with opening of 12 departmental stores and 15 beauty stores in FY23E. Majority of this store addition is in Tier II/III cities. The capex for the same is expected to be INR 150 crore which will be funded mainly through internal accruals. Meanwhile the management expects the Same-store sales growth of 9-11% in the near term. The company’s key thrust is on accelerating investments in omni-channel with long term target of channel contributing 20% of sales from current ~5%. Further the company expects to focus on the beauty segment (currently ~16% of revenues) through the scale up of its own private brand Arcelia. The interesting news is that Shoppers-Stop turned debt free with a net cash of INR 80 Mn. Though one needs to keep a track of discretionary spending due to the rising inflationary pressures. 

Our View:

The company is taking new initiatives such as smaller sized stores (30k sq. ft. against its existing average of 50k sq. ft.), growing private label mix (to 30% in new stores v/s 21% in old stores), and increased focus on high-growth Beauty segments are good opportunities for the company to increase its market presence. Though, the stock price has underperformed the broader indices over the last five years on account of weak Same-store sales growth, muted store addition pace and lower share of private label brands. With the new and integral management team in place, we expect Shoppers Stop to revive its revenue trajectory and margin profile. Stock price has appreciated ~88% on a YTD basis. Despite recent run-up, reasonable valuations and good anticipated future growth, we remain positive on the stock and advise to add it in your portfolio keeping a long term horizon.  

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