Near washout quarter!
A prolonged lockdown situation in Q1FY21E (first 45 days of the quarter) severely affected revenues across the entire retail space. The resumption of retail outlets post relaxation of lockdown has been calibrated. Currently, most retailers have been able to open around 60-70% of retail outlets. However, restrictions on limited hours of operations and higher operating cost were deterrents for the sector. Early trends indicated at a significant decline in footfalls. However, average basket size and conversion ratio was higher than usual. The stores that have reopened for most retailers are generating average daily sales at 40-60% of pre-Covid levels whereas average online sales have reached pre-Covid levels (e-commerce penetration: 5-10%). We believe initial demand may be owing to pent up demand. Hence, sustainability would be a critical factor to watch. We expect companies in our retail universe (ex-Avenue Supermarts) to report revenue decline of 58-75% YoY in Q1FY21E. Cost rationalisation remains the key focus area, going forward. Companies have been successful in renegotiating rental agreements with mall owners through either full/part waiver during lockdown and aligning rental cost in line with revenues, going forward. Furthermore, companies will be materially curtailing discretionary and marketing spends. Despite cost saving initiatives, EBITDA losses in the quarter seem inevitable.
Curtailment of discretionary spend to impair revenue growth
While non-essential stores (including e-commerce) were completely shut during April-May 15, grocery stores were allowed to operate but with certain caveats. For Avenue Supermarts, more than 50% of stores were not operational in April with restrictions on sale of general merchandise and apparel (~27% of sales). However, post relaxation in certain states, green shoots were visible with the company reporting 17% MoM growth in the first half of May. We expect Avenue Supermarts to report revenue de-growth of 31% YoY in Q1FY21E. With reduced social gatherings and majority of people working from home, discretionary spending across categories such as apparel, footwear and jewellery stayed muted. With closure of stores for majority of period during the quarter, we expect Trent, Bata and Titan to report revenue de-growth of 73%, 74%, 62%, respectively. With complete closure of stores, fashion retailers had piled up inventory of fresh merchandise (spring-summer season). Majority of branded players are refraining from steep discounts and are planning to sell in the ensuing season (fall/winter season). Hence, we expect gross margins for Trent to contract moderately by 200 bps YoY in Q1FY21E. With people preferring home cooked food and without any domestic help, demand for kitchen appliances surged in May-June. Hence, for TTK Prestige, we expect pent up demand to aid revenues, to a certain extent (revenue de-growth of 57% YoY).
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