 "Capital structures of retailers to remain stressed, says CARE")
The capital structures of most of the retail companies are expected to remain stressed due to slower inventory and pressure on operating margins, said a new report.
“The working capital requirements of the retailers may increase due to slow moving inventory. Traditionally, retailers have relied on debt to fund their expansion plans, which has led to high interest out go and reduced free cash flow and moderate capital structures,” said a report by CARE.
For instance, Future Retail, the flagship company of Kishore Biyani's Future group, has paid 99.09 per cent of its profit before interest and taxes (PBIT) as interest on its loans in quarter ending December 31, 2013, meaning whatever it has earned during the quarter has gone towards interest payment.
The rating firm said the operating margins of retail companies are expected to remain under pressure in the short to intermediate term on on account of increasing rentals, higher manpower costs and slower growth in same store sales growth. Same store sales growth refers to sales growth coming from the stores which are in the business for a year or more.
Raheja-owned department store chain Shoppers Stop posted a SSS growth of 5.5 per cent in December quarter and 15.5 per cent in September quarter of FY 2014. Whereas, Kishore Biyani’s Future Lifestyle Fashions posted a same store growth of 7.3 in Q3 of FY 2014 and 15.2 per cent in Q2 in retail segment.
“Companies are responding to the pressure on margins by improving employee productivity, lower capital expenditure (by slowing down new store addition or by closing down unprofitable stores), changing store formats, better inventory management and increasing supply chain efficiencies," Care said.
“The working capital requirements of the retailers may increase due to slow moving inventory. Traditionally, retailers have relied on debt to fund their expansion plans, which has led to high interest out go and reduced free cash flow and moderate capital structures,” said a report by CARE.
For instance, Future Retail, the flagship company of Kishore Biyani's Future group, has paid 99.09 per cent of its profit before interest and taxes (PBIT) as interest on its loans in quarter ending December 31, 2013, meaning whatever it has earned during the quarter has gone towards interest payment.
The rating firm said the operating margins of retail companies are expected to remain under pressure in the short to intermediate term on on account of increasing rentals, higher manpower costs and slower growth in same store sales growth. Same store sales growth refers to sales growth coming from the stores which are in the business for a year or more.
Raheja-owned department store chain Shoppers Stop posted a SSS growth of 5.5 per cent in December quarter and 15.5 per cent in September quarter of FY 2014. Whereas, Kishore Biyani’s Future Lifestyle Fashions posted a same store growth of 7.3 in Q3 of FY 2014 and 15.2 per cent in Q2 in retail segment.
“Companies are responding to the pressure on margins by improving employee productivity, lower capital expenditure (by slowing down new store addition or by closing down unprofitable stores), changing store formats, better inventory management and increasing supply chain efficiencies," Care said.
The retail sector is expected to see single digit growth in revenues in FY 2014, similar to that of FY 2013, it said
Care said to counter the falling SSS growh, the retailers have been re-locating the existing stores in view of the consumer mix relevant to the particular store format or closure of unviable stores unable to attract footfalls or generate desired revenues on per square feet basis.