Retail: Another soft quarter

17 Nov 2023 , 01:31 PM

Pizza QSR was more impacted than Burger QSR with companies reporting a SSS decline as well as EBITDA margin contraction. Burger QSR companies reported a low single digit SSS growth during the quarter. In Jewellery, Titan reported robust sales growth. Apparel sector witnessed continued demand weakness and it was further affected by a festive mismatch versus Q2FY23. IIFL’s top picks in this sector are Trent, Vedant Fashions, Shoppers Stop, Nykaa and Titan.

Titan: Strong growth

Titan’s Jewellery division reported sales growth of 19% and EBIT margin of 14.1% (ex-bullion). The positive demand momentum of Q1 continued through Q2 in jewellery business and there was also positive impact of “Shraad” being delayed to October this year. Post 10^th October, the company has seen some demand sluggishness on the back increase in gold prices.

QSR: Demand remains soft

Weak demand trends continued to weigh on QSR sector performance, reflected in the muted/negative SSSG reported by the companies. An additional month of Shravan in this quarter further dampened the demand. With 4% SSS decline, Jubilant was better than Pizza Hut which reported a SSS decline in Devyani/Sapphire of 10.4%/20% respectively. This impacted the EBITDA margins with Jubilant reporting a 341 basis points YoY margin contraction whereas Devyani and Sapphire reported a YoY EBITDA margin contraction of 350 basis points/50 basis points respectively. Burger QSRs were better placed than Pizza QSRs. Burger King and Westlife reported a SSSG growth of 3.5%/1%.

Apparel retail

Peculiar aspects of the quarter have been growth slowing down from the previous quarter in most cases driven by a continued demand weakness, festive mismatch (a late Diwali this year) and a high base in some cases. Same store sales has witnessed a low to mid single digit decline for most companies in this space. Trent continues to be an outlier with LFL growth of 10% and overall top-line growth of 59%, driven by steady store additions in Zudio format. Commentary on Q3 so far is a mixed bag, with Manyavar and V-Mart sharing a bullish commentary, Go Fashion and SHOP have been more measured, while ABFRL has witnessed a sharp recovery in wedding related categories.