IGI Logo

Continues to be hit by COVID-19 woes

* SHOP’s revenue fell 5% YoY (18% miss), led by lower footfalls due to its large mall presence, but strategic initiatives like Personal Shopper/First Citizen/omnichannel saw traction, with improving contribution supporting a sales recovery in 4QFY21.

* We have cut our FY22E revenue/EBITDA estimate by 26%/47% due to the second COVID wave impacting metros and non-metros. We marginally tweak our FY23E estimates as we expect a recovery by then. Maintain Neutral.

Large miss on EBITDA, impacted by lower footfalls in malls

* Standalone revenue fell 5% YoY to INR6.7b (18% miss) due to a decline in footfalls in malls

* Gross margin expanded 100bp YoY to 41%, with improving private label mix.

* EBITDA dropped 25% YoY to INR956m (40% miss) on account of higher than expected SG&A and EBITDA margin shrinking 350bp to 14.2%. The miss could be attributed to higher than estimated operational costs, with employee/SG&A cost at INR660m/INR1.1b (est. INR605m/INR869m).

* Other income stood at INR207m (3x YoY), which includes INR96m adjusted for rent concessions. The company recorded an exceptional expense of INR124m towards impairment of equity investment and financial assistance to loss making Crossword stores in 4Q (total impairment at INR224m in FY21)

* Reported/adjusted net loss stood at INR371m/INR247m (v/s our estimate of a profit of INR270m).

* Revenue/EBITDA fell 49%/90% YoY to INR17b/INR534m in FY21.

Highlights from the management commentary

* The management expects a recovery from 2Q, with a full revenue recovery by 3Q/4QFY22, led by the vaccination drive and store additions.

* It expects to open over 20 stores in FY22 (store size: 20-30k sq ft). It is increasing its presence in new cities, with a capex guidance of ~INR1b in FY22, unless impacted sharply by COVID-19.

* The company’s omnichannel investments have seen strong ATVs and repeat orders, with exclusive brands. It further plans to scale up investments.

* Omnichannel is seeing strong ATVs and repeat orders. It is offering exclusive brands to the omnichannel and targets to scale up investments to grow its online catalog to over 90% of the store’s catalog range.

Valuation and view

* Rising sales from strategic initiatives like ‘Personal Shopper’, ‘First Citizen’, and omnichannel are quite encouraging for SHOP, but a higher presence in malls, declining footfalls, and regular closures of non-performing stores raises concerns over store profitability.

* SHOP, which caters to the Lifestyle Apparel Retail segment, could see a more pronounced impact as higher share of stores in malls (87% stores) has been highly impacted by COVID-19 restrictions (than standalone stores). Consumer downtrading to Value Apparel from Lifestyle category may also result in a slower recovery. Its higher average store size v/s peers (30-40k sq ft) may also drive higher operating costs.

* We expect the business to revive by FY23E and achieve revenue/EBITDA of INR34b/INR5.6b (same as FY20 levels). We value SHOP on a SoTP basis, assigning an EV/EBITDA ratio of 6x to the standalone (SHOP) entity and EV/sales ratio of 1x to Crossword on an FY23E basis to arrive at our TP of INR230/share. The stock trades at an FY23E EV/EBITDA ratio of 7x. Maintain Neutral.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer