Shoppers Stop: Getting the right bargain

Cost control and rationalisation of operations have augured well and are getting reflected in the company’s share price.

Shopper’s Stop (SS) hogged the limelight at bourses on Wednesday, as it hit its 52-week high with heightened volumes. This comes close to its planned Rs 300-crore qualified institutional placement. The issue will help the company open 12 new stores this year, along with four Hypercity malls. Additionally, the management will increase its stake to 32 per cent in Hypercity at an estimated cost of Rs 125 crore by month-end. Hence, a lot of activity is seen in the company’s share price.

Moreover, SS has turned around the corner and has started reporting better results. It recorded double-digit same-store-sales (SSS) growth of 16 per cent in the March 2010 quarter after a gap of eight quarters, reckon analysts. A 13 per cent volume growth and a three per cent increase in average selling price per item buoyed the earnings before interest, tax, depreciation and amortisation (Ebitba) margins to around 7.6 per cent for FY10 from 3.2 per cent a year ago.

Cost cutting and rationalisation have worked for the stores. There has been a substantial reduction in employee costs. Some loss-making formats were also closed down. Operating cost declined 9.2 per cent sequentially to around Rs 522 per square feet in the March quarter. Net earnings have been consistently growing; the figure stood at Rs 35.9 crore in FY10 as against a loss of Rs 63.7 crore a year ago. The company is expected to double the number of stores in the next five years. However, extraordinary expansion in margins is unlikely. Stiff competition in the retail segment will keep a lid on the margin growth. Moreover, the recent rally in the share price renders it a tad expensive as it has a price-to-book value of around five times, higher than its profitable peers like Pantaloon Retail, which trade at around three times.