Opening of new stores will drive growth, but margins are likely to come under pressure.
Despite the pinch of rising prices, Indian consumers have not stopped spending on discretionary items like clothes and accessories. After the Budget slapped an excise levy of 10 per cent on branded garments, analysts were expecting retailers to slow down expansion plans as demand could come under pressure. However, growth plans of Shoppers Stop seem to be on track. Undoubtedly, both sales and margins will come under pressure, but sales from new stores should drive growth.
Shoppers Stop plans to take its overall store count to 39, from 36 at present, by the end of March 2011, occupying an aggregate area of about 2.1 million square feet. Hypercity, a 51 per cent subsidiary of Shoppers Stop, which is primarily into food retailing, has entered Ludhiana with a 70,000 sq ft store. This subsidiary currently has nine stores in its portfolio, which are spread across another 0.9 million sq ft.
Analysts are expecting continued pressure on margins all through FY12, and forecast store sales growth to be around seven per cent. However, the market expects revenues to grow at a compounded annual growth rate (CAGR) of 14.5 per cent over FY11-13, driven by store expansion.
The company has lined up plans for store expansion, which will take the total number of stores from the current 36 to 53 by FY13. The aggregate space occupied will go up from 2.1 mn sq ft to about three mn sq ft. Given the uncertainty surrounding the implementation of the goods and services tax, rising employee costs and the pressure on gross margins, a domestic brokerage believes, the operating profit margin could contract from about 7.6 per cent in FY11 to 7.4 per cent in FY12. This would inch to 7.9 per cent in FY13.
With a low interest burden, retail analysts expect the company’s earnings to witness higher growth at 21.3 per cent over the same period to reach Rs 110 crore.
