A challenging quarter for Retail Sector: IIFL Capital Services

2 Jun 2023 , 10:07 AM

Demand slowdown continued to weigh on Retail sector’s performance in Q4FY23. QSR sector was the worst-impacted, leading to negative/subdued SSSG across formats. Pizza QSRs were impacted the most due to higher penetration in the category. However, Titan and Westlife bucked the trend, posting robust sales/margin performance on healthy demand and company-specific initiatives, respectively. In Apparels, growth was healthy, albeit on a favourable base with formats catering to low-income consumers continuing to be in pressure. Analysts of IIFL Capital Services top picks in the sector are Titan, Shoppers and Vedant Fashions.

Positive demand outlook in Jewellery: 

Titan’s Jewellery division reported a robust growth of 23.5% YoY (ex-bullion) ahead of Kalyan’s India business growth of 16%. Growth was broad-based, led by increase in buyers and average ticket size. Post Akshaya Tritiya sales, traction has improved; thereby giving comfort on near-term sales trajectory. Jewellery business Ebit margin (ex-bullion) of 13.2% expanded by 30bps YoY, due to higher studded ratio YoY.

QSR – Stress all around: 

SSSG continued to be negative/subdued across formats due to demand slowdown. Pizza QSRs were impacted the most due to relatively higher penetration of Pizza category, leading to negative 3-4% SSSG in Dominos and Pizza Hut. KFC SSSG was positive but subdued as same store transactions declined. Due to this, negative operating leverage resulted in YoY decline in margins. However, Westlife bucked the trend, posting 14% SSSG and 200bps YoY expansion in Ebitda margin.

Apparel – Mixed-bag quarter: 

Most Apparel retail players witnessed a 20-30% top-line growth, aided by a favourable base with Trent and Page being outliers with a 75% growth / 13% decline respectively. While formats catering to low-income consumers (V-Mart, Pantaloons) continue to be under pressure, there are early signs of demand slowdown in the premium end as well (Page, Lifestyle brands in ABFRL). Except Shoppers Stop and Vedant Fashions, Ebitda margin contracted for all other players; driven by company-specific factors.