Q3FY24 Review: Shoppers Stop: A subdued performance

23 Jan 2024 , 02:39 PM

Shoppers Stop (SHOP) reported Q3FY24 results below analysts of IIFL Capital Services estimates, with like-to-like sales declining by 1%, driven by weak demand trends and delayed onset of winter. While management expects gradual recovery from FY25, the store addition targets in department stores and Intune format stay on track. Analysts of IIFL Capital Services downgrade their FY25/26 adj. Ebitda estimates by 8%/3%, so as to factor in the Q3 miss and a more gradual recovery. Maintain BUY with TP of Rs800. 

Below estimates: 

SHOP delivered Q3FY24 results below analysts of IIFL Capital Services estimates, on weak expectations. Non GAAP sales grew 4% (1% below estimate) with like-to-like (LTL) sales declining by 1%. Beauty segment grew 10%; while private brands declined by 13%. Gross margin contracted by 112bps, driven by provisions for inventory obsolescence and higher offers / discounts in private brands. Pre IND AS Ebitda declined by 14% (10% below estimate) with Ebitda margin contracting 6.0% on non GAAP sales. 

Store additions on track: 

While muted demand sentiments continue, SHOP added three department stores / four Intune stores in Q3; and is on track to meet its store addition guidance for FY24. LTL sales has been impacted by weak demand as well as delayed winter. Within private brands, Indian women’s wear and kids are performing well. The company is taking corrective steps to revive the western women’s wear and men’s wear categories. With these initiatives and a gradual recovery in consumption from FY25, management is confident of clocking a mid-single digit LTL growth in the medium term. 

Adj. Ebitda downgrade of 8%/3% for FY25/26: 

With broad consumption revival pushed to FY25, analysts of IIFL Capital Services factor in a more gradual recovery in FY25; resulting in a downgrade of 8%/3% in adj. Ebitda estimates for FY25/26. Analysts of IIFL Capital Services are forecasting 108 Intune stores by FY26 (vs management guidance of 164). Steady execution in Intune and beauty distribution business could result in earnings upgrades, in their view. They maintain BUY with TP of Rs800.