Shoppers Stop – Retail Trouble Evident

Shoppers Stop reported net sales of Rs. 289.19 crore for Q1 FY09 against Rs. 225 crore in Q1 FY08, an increase of 28.5%. Gross profit rose by only 26.3% to Rs. 104.37 crore for 1Q FY09 as compared to Rs. 82.59 crore in 1Q FY08 on account of decline in share of private labels (20.4% against 20.9%). The company reported operating loss of Rs. 0.59 crore for the Q1 FY09 as against operating profit of Rs. 13.55 crore for Q1 FY08 on account of increase in expenditure (37% growth) primarily attributable to service tax paid (Rs. 4 crore), expenses incurred on re-branding (Rs. 7 crore) and higher overheads of new stores.

New store takes 5-6 quarters to break even; space estimated to increase 51% in FY09e and 37% in FY10e, which will likely pressure the bottom line. Store rollout target for FY11e revised from 4.6m to 3.8m on the back of slowdown in mall developers industry.

HSBC is undderweight on Shoppers Stop as the company is expected to be in RED for FY09 expecting a loss of Rs 1.24. For FY10, the company is expected to report an EPS of Rs 1.61. HSBC has a target of Rs 260.