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Shoppers Stop’s (SHOP) reported revenue of Rs10bn (up 60% YoY, 7% QoQ) and EBITDA of Rs1.7bn in Q2FY23, which were above consensus estimates. EBITDA margin at 16.6% was up 540bps YoY, but down 67bps sequentially. Revenue recovery rate from Q2FY20 (pre-covid levels) continued its upward trajectory with 119% recovery in Q2FY23 vs 113% QoQ. SHOP added a single department store and a single beauty store, in net terms, during the quarter. This takes the total count to 91 department stores and 175 beauty stores, with plans to add 9 and 11 stores (net) in the respective categories in H2FY23. SHOP is also targeting ~9% area addition in the course of FY23. Under the new management, company is likely to improve its growth trajectory driven by accelerated small-size store expansions, growth in private-label mix, and increased focus on the high-growth beauty business, aided by improved consumer sentiment, in our view. We raise our pre Ind-AS 116 FY23E-FY24E EBITDA by 14-22% and DCF-based target price to Rs850/sh (earlier: Rs530). Maintain ADD. Key risks: Lower discretionary spends, and execution challenges.

Revenue (Ind-AS) stood at Rs10bn, up 60% YoY, on a favourable base as covidled restrictions were still in place in a few locations during Q2FY22. Management indicated that the demand trend was strong during the quarter and the momentum is continuing in Oct’22 as well. Company recorded 35% revenue growth during Pujo festival in the eastern region. Average transaction value (ATV) increased by 8% YoY in Q2FY23 while customer visits (online + offline) were at a record high of 40.8mn during the quarter (vs 25.3mn in Q2FY22 and 29.8mn in Q2FY20).

Aims to add 12 department stores and 15 beauty stores (net) in FY23, of which nine are expected to be opened in tiers-2&3 towns. SHOP added 2 stores (1 department and 1 beauty) during the quarter and currently has six department stores under fit-out, which are likely to open in Oct-Nov’22. As of Q2FY23, it has 91 department stores (added 1 QoQ), 11 home shops, 139 beauty stores (added 1 QoQ) and 25 airport doors – taking the total store count to 266.

Improvement in key strategic pillars: First Citizen (FC) customers accounted for 77% of sales, with new enrolments increasing by >16% YoY in Q2FY23, taking the total count to 9.2mn as of Sep’22-end. Private-label business grew 76% YoY (21% of apparel sales and 15% of overall sales) while beauty portfolio contributed 15% of total sales (up 45% YoY). 24 new brands in beauty segment were launched in Q2FY23. Omni-channel sales grew 8% YoY and accounted for 5% of total revenue

Invested Rs680mn in Q2FY23 including Rs130mn opex in omni-channel, during Q2FY23. On the EBITDA margin front, management indicated it is targeting high single-digit margin in the next three years and low double-digit in the fourth year

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