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Profitability improves; INTUNE scale-up key to re-rating

* Shoppers Stop (SHOP) revenue grew 6% YoY in 1QFY25 (vs. +8%/+2% YoY in 3Q/4Q), led by 5% LFL growth in Departmental format and ~2x growth in INTUNE.

* EBITDA rose sharply by 17% YoY. Margins expanded ~145bp YoY to 15.2%, largely due to tight control over costs (other expenses flat YoY).

* Store count remained flat YoY as four additions in INTUNE were offset by three closures in Beauty and one in Home Stop.

* Management indicated that customer footfalls improved in 1QFY26, aided by weddings and lower inflation.

* However, value retail is facing challenges, resulting in a reduction in INTUNE store addition guidance to 30-40 stores (vs. 40-60 earlier). We believe a profitable scale-up of INTUNE remains the key trigger for SHOP.

* We tweak our FY26/27 EBITDA estimates marginally, as a slower ramp-up in INTUNE was partly offset by better margin performance in departmental. We build in FY25-28E revenue/EBITDA CAGR of 7%/9%.

* We value SHOP at 10x Sep’27E EV/EBITDA (implies ~23x Sep’27E pre-INDAS 116 EBITDA) to arrive at our revised TP of INR510. Reiterate Neutral.

Revenue in line; better margins drive EBITDA beat (up 17% YoY)

* Shoppers Stop’s (SHOP) standalone revenue grew 6% YoY to INR10.9b (in line; vs. +9%/+2% YoY in 3Q/4Q), supported by 5% LFL growth in department stores, driven by premiumization.

* Private brands’ revenue grew 3% YoY to INR1.56b.

* Beauty segment’s (excluding distribution) revenue grew 2% YoY; Including distribution, it grew 17% YoY.

* INTUNE revenue stood at INR680m (vs. INR540m QoQ, ~2x YoY), with presence expanding to 75 stores (vs. 71 QoQ).

* Store count remained flat at 299, as the addition of four INTUNE stores was offset by the closure of Beauty and HomeStop stores. The respective store count stands at – Departmental: 112 (flat), Beauty: 82 (three closed), INTUNE: 75 (four opened), and HomeStop: 10 (one closed).

* Gross profit was up 7% YoY at INR4.5b (in line), as gross margins expanded ~35bp YoY to 40.9% (40bp beat), likely due to lower markdowns and rising premiumization (ASP up ~3% YoY to INR1,740).

* Employee costs increased 4% YoY, while other expenses were flat YoY (5% below our est).

* EBITDA rose sharply by 17% YoY to INR1.66b (11% beat), with margins expanding 145bp YoY to 15.2%. (~150bp beat).

* Pre Ind-AS EBITDA stood modest at INR40m, marking a significant improvement from ~INR80m loss YoY.

* Depreciation and interest costs were up 10%/19% YoY due to store additions.

* SHOP continued to report losses with a net loss of INR179m (though lower vs. INR225m YoY and our est. loss of INR337m).

INTUNE ramp-up delayed; premiumization driving growth for SHOP

* Revenue from INTUNE grew ~2x YoY to INR680m (vs. INR540m/INR1,930m in 4Q/FY25), with presence expanding to 75 stores (vs. 71 QoQ).

* The format’s LFL growth lagged, weighing down overall company LFL to 3% (vs. 5% LFL for department stores).

* SHOP has lowered its store addition guidance further to 30-40 (from 40-60 guided in 4QFY25 and ~90-100 in 3QFY25).

* Excluding INTUNE, SHOP’s revenue grew 4% YoY in 1QFY26, driven by ~5% LFL in Departmental format.

* ASP grew ~3% YoY to INR1,740, while items per transaction grew ~3% YoY to ~3, resulting in ~6% YoY growth in ATV to INR5,169.

* Private Brands’ revenue rose 3% YoY to INR1.6b, with strong volume growth of 18%.

* Beauty segment’s (excluding distribution) revenue grew 2% YoY; Including distribution, it grew 17% YoY.

Highlights from the management commentary

* Demand trends: SHOP reported a steady 1Q performance with 6% YoY sales growth, led by 5% LFL growth in departmental format and 67% contribution from premiumization (+8% YoY). EBITDA rose 17% YoY, aided by cost controls and improved operating efficiency. Departmental EBITDA margins expanded 145bp to ~3%. Management remains upbeat about the outlook, driven by improvement in footfalls, festive momentum, and easing inflation.

* INTUNE: While YoY sales doubled on a low base, sequential performance was muted due to macro softness and discounting by value retail peers. LFL growth lagged, and losses widened due to store additions (75 vs. 31 YoY). However, metrics such as 60%+ full-price sell-through and INR12,000/sq.ft productivity for several INTUNE stores indicate customer-relevant offerings.

* Core Beauty grew 2% YoY, led by fragrances, while distribution revenue doubled YoY. The segment continues to benefit from premiumization and omni-channel investments, though footprint rationalization (4 closures, 1-2 more ahead) reflects evolving retail dynamics.

* Store openings: In FY26, SHOP plans to add 7-8 departmental stores (pivoting to 35-40k sq. ft.), 30-40 INTUNE stores (vs. 40-60 earlier), and 2-3 beauty stores despite ongoing rationalization.

Valuation and view

* SHOP’s key focus areas remain: 1) profitability improvement in Departmental format; 2) revival of private label brands; 3) focus on the high-growth and margin-accretive Beauty segment; and 4) ramp-up in INTUNE.

* We believe improved profitability in the departmental stores and profitable scale-up of INTUNE remain key to the re-rating of the stock.

* We tweak our FY26/27E EBITDA estimates marginally, as a slower ramp-up in INTUNE was partly offset by better margin performance in departmental. We build in FY25-28E revenue/EBITDA CAGR of 7%/9%.

* We value SHOP at 10x Sep’27E EV/EBITDA (implies ~22.5x Sep’27E pre-INDAS 116 EBITDA) to arrive at our TP of INR510 (earlier INR475). Reiterate Neutral.

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