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Growth improves slightly; INTUNE ramp-up key trigger

* Shoppers Stop (SHOP) reported in-line results, with a slight pick-up in revenue growth (+9% YoY) on 4% LFL growth (-4% YoY in 2Q).

* EBITDA rose 11% YoY, driven by higher gross margins on lower write-offs and improved intake margins in private brands.

* The management reiterated its guidance of maintaining ~5% LFL for 2HFY25 (4% in 3Q), supported by a higher number of weddings, and expects to open ~32 stores in 4Q (6 Department, 26 INTUNE).

* SHOP has aggressive store expansion plans for its fast fashion format, INTUNE (90-100 store openings in FY26), with break-even targeted by 3Q4QFY26. We believe the ramp-up in INTUNE will remain the key trigger.

* Our FY25-26 revenue/EBITDA estimates are broadly unchanged. We build in ~10% revenue/EBITDA CAGR for SHOP over FY24-27E.

* We value SHOP at 12x Mar’27E EV/EBITDA to arrive at our TP of INR700 (earlier INR670). Reiterate Neutral.

In-line results, slight pick-up in growth

* SHOP’s standalone revenue grew 9% YoY to INR13.1b (in-line, 4% YoY in 2Q) driven by 4% LFL growth, while net store additions remained muted.

* The company added 1 Department store (closed 4), 6 Beauty stores (closed 8), and 9 INTUNE stores. The respective store counts stand at 109, 85, and 59, bringing the total store count to 284 (net addition of 4 stores QoQ).

* Gross profit was up 11% YoY to INR5.3b (in-line), as gross margins expanded ~90bp YoY to 40.7%, driven by higher intake margins in private brands, lower write-offs, and optimized markdowns.

* Employee cost/other expenses increased 10%/11% YoY.

* EBITDA rose 11% YoY to INR2.4b (in-line) as EBITDA margins expanded 45bp YoY to 18.3%. This was driven by gross margin expansion, which was partly offset by other expenses.

* SHOP generated INR1.1b EBITDA (Pre-Ind-AS) for 3QFY25, with pre-Ind-AS margin expanding 100bp YoY to 7.8%.

* Depreciation and interest costs were up 16%/12% YoY.

* Reported PAT came in at INR488m (vs. est. of INR408m), primarily driven by higher other income.

* Net debt declined INR0.8b QoQ to INR0.9b.

INTUNE continues to ramp up; slight moderation in the Beauty segment

* Revenue from INTUNE stood at INR630m (vs. INR410m QoQ), with its presence expanding to 59 stores (vs. 50 QoQ). The company expects to open 26 INTUNE stores in 4Q.

* Private Brands revenue declined ~2% YoY to INR1.9b (vs. 15% YoY decline in 2Q).

* The Beauty segment reported modest ~3% YoY revenue growth to INR2.7b (excl. the distribution channel) and 6% YoY growth (incl. the distribution channel)

Highlights from the management commentary

* Demand trends: Demand trends in 3QFY25 were mixed, with strong LFL growth in October driven by the festive season, followed by a weak November. Management indicated that demand trends in Dec’24 were below expectations for most retailers. Discretionary spending remained subdued, though slightly better than 2QFY25.

* Demand outlook: Management reiterated its guidance of ~5% LFL growth in 2HFY25 (delivered 4% LFL in 3Q), driven by the wedding season. SHOP expects to sustain ~5% LFL over the medium term, supported by its customer-relevant campaigns.

* Store openings: SHOP plans to open 32 stores in Q4 across all formats (6 Department/26 INTUNE). Management noted that ~11 INTUNE stores could not be opened in 3QFY25 due to the GRAP order banning construction in Delhi NCR. For FY26, the company aims to add gross 12-15 Department stores (closure of 2- 3) and ~80-90 INTUNE stores.

* INTUNE: Management indicated that INTUNE is closer to store EBITDA breakeven at current store productivity levels of ~INR9k/sq ft. Mature stores (>6 months) are at ~25% higher productivity levels. 3QFY25 was the first winter season for most INTUNE stores, so the company was conservative on the availability of winter wear, which pulled down productivity. However, overall trends remained positive. SHOP expects to achieve complete breakeven for INTUNE by 3QFY26/4QFY26.

Valuation and view

* SHOP’s focus on: 1) opening smaller stores (30k sq ft vs. existing average of 50k sq ft) to improve store efficiency; 2) rationalizing unprofitable stores; 3) reviving private label brands; 4) focusing on the high-growth and margin-accretive Beauty segment; and 5) an aggressive store ramp-up in INTUNE, could help sustain growth amid the weak discretionary demand environment.

* SHOP has aggressive store expansion plans for its fast fashion format, INTUNE (90-100 store openings in FY26), with break-even expected by 3Q-4QFY26. We believe the ramp-up in INTUNE will remain a key trigger. However, expanding design and private label merchandising capabilities in INTUNE will be crucial to enhance its value proposition.

* Our FY25-26 revenue/EBITDA estimates are broadly unchanged. We build in ~10% revenue/EBITDA CAGR for SHOP over FY24-27E.

* We value SHOP at 12x Mar’27E EV/EBITDA (earlier Dec’26E EV/EBITDA) to arrive at our TP of INR700 (earlier INR675). Reiterate Neutral.

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