Looking at financial performance of retail players namely Trent and Shoppers Stop (SSL) in September 2012 quarter, one can conclude that it is better to grow at a modest rate and maintain profitability than being aggressive, especially in the current stressed environment. SSL reported better growth of 16.6% in standalone sales compared to Trent’s 1.1%.
However, SSL’s operating profit and net profit declined 26% and 67% respectively mainly due to higher operating expenses (namely lease rentals, which shot up 27%).
Also, interest and depreciation costs have jumped 35% and 62% to Rs 7.7 crore and Rs 14.25 crore respectively. Shoppers Stop incurred a consolidated loss of Rs 5.6 crore compared to a profit of Rs 8.7 crore in the same quarter last year.
On the other hand, Trent reported an operating profit compared to a loss in same quarter last year and net profit has tripled as the company substantially brought down its advertising to sales expenses from 8.1% in Q2FY12 to 3.3% in Q2FY13. The company’s other income has been significantly higher than its net profit historically as cash forms a more than 10% of total assets.
Despite diverse financial performance, market has punished both the stocks equally. Trent is down 4.8% since announcement of its results on October 25. Shoppers Stop is also down 4.5% today. Analysts feel Trent seems to be better placed than SSL going ahead atleast given the current stressed environment.
| Results | Trent | Shoppers Stop | ||
| Standalone (Rs Crore) | Sep-12 | Sep-11 | Sep-12 | Sep-11 |
| Net Sales | 230.3 | 227.7 | 579.8 | 497.3 |
| % change (y-o-y) | 1.1 | 16.6 | ||
| Operating Profit | 4.3 | -7.3 | 29 | 39 |
| % change (y-o-y) | NA | -25.3 | ||
| Net Profit | 9 | 3.4 | 6.4 | 19.5 |
| % change (y-o-y) | 164.7 | -67.2 | ||
| Source: companies | ||||
Note: NA is not applicable
Says Hiral Sanghvi, analyst, Dalal Broacha Stock Broking, “There has been a significant improvement in the company's performance on a year on year basis. We continue to remain positive on the long term business prospects of the company. We expect the company to post operating margins of 6-7% in the second half of FY13, on the back of higher sales growth due to festive season and expected lower advertisement costs.”
However, the outlook for Shoppers Stop continues to be grim. Says Abneesh Roy, analyst, Edelweiss Securities, “We expect cost pressures to continue due to rapid expansion and low pricing power due to slowdown in discretionary spend. We remain concerned on the slowdown in sales in HyperCity.”
