Shoppers Stop Ltd
NSE:SHOPERSTOP
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Ladies and gentlemen, good day and welcome to the Shoppers Stop Limited Q1 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Mamta Samat. Thank you, and over to you, ma'am.
Thank you, Aman. Good morning, everyone, and thank you for joining us on the Shoppers Stop Q1 FY '23 earnings conference call. Today, we have with us the senior management represented by Mr. Venu Nair, Customer Care Associate, Managing Director and Chief Executive Officer; Mr. Karunakaran Mohanasundaram, Customer Care Associate, Chief Financial Officer; Mr. Jaiprakash Maheshwari, Customer Care Associate, Vice President, Finance and Accounts.
We will begin the call with opening remarks from the management, after which we will have the forum open for the interactive Q&A session. I must remind you that the discussion in today's earnings call may include certain forward-looking statements and must be viewed therefore, in conjunction with the risks that the company faces.
Please restrict your questions to the quarter and yearly performance and to strategic questions only. Housekeeping questions can be dealt with separately with the IR team.
I would now request Mr. Venu Nair for the opening remarks. Over to you, sir.
Thank you, Mamta, and good morning, friends. Thanks for joining us today to discuss the Shoppers Stop financial results for the first quarter of FY '23. As Mamta mentioned, along with me, I've got our CFO, Karuna, and Jaiprakash, our FP&A Lead.
We had shared our Q1 results, the investor deck and press release with you, and I'm sure you had a chance to go through it by now. In the next few minutes, I will talk to you on our Q1 performance, progress on our strategic pillars, and the way forward.
In April, while speaking to you on our Q4 performance for FY '22, I had indicated that we had a strong March month and the momentum is continuing in April. Indeed, we have had a very good quarter and I am delighted to share that we had the highest sales and profits in the first quarter of a financial year in the history of Shoppers Stop. More importantly, this momentum is carrying on. All our financial KPIs such as sales, gross margin, EBITDA, and profit have witnessed strong growth. Sales itself grew by 383% and on EBITDA, we made INR 67 crores as against a loss of INR 116 crores in the first quarter of last year.
Even against our pre-COVID sales numbers, our non-GAAP sales grew by 8% while EBITDA grew by 37% versus pre-COVID. This is despite the end-of-season sales getting postponed by 10 days this year. Had the end-of-season sales scheduled happened on the same day as that of the pre-COVID, we would have registered a growth of 13% in sales and corresponding profits would have been higher by that much. On some of the other KPIs, our gross margins have improved by 550 basis points. This is primarily due to the lower base of last year and the lower markdowns that we've had in this current year.
Our average selling price has grown by 15% further substantiating the strong consumer demand, particularly the bridge to luxury categories and the premium categories that we are focused on and these have outperformed during this quarter. Another indication of this is the fact that our average bill value grew by 7% year-on-year. We've now had 8 consecutive quarters of increasing average bill values and this just shows the sharp focus that we have had on our premium categories is being rewarded by our customers. Our digital channel continues to outperform with a growth of 29% on a significantly higher base.
On the operational costs, we continue to save versus FY '20 on a like-for-like basis and this is despite a large inflation and lease rentals. Our operational investments in new stores and e-com was INR 33 crores and they are being profitable. With the strong sales and the tight control on costs, we reported an EBITDA of INR 67 crores on a non-GAAP basis or INR 168 crores as per GAAP financials.
On expansion, we are back on the track in terms of opening of new stores and in the quarter, we opened 6 new stores, which breaks down as 2 department stores, 3 beauty doors, and 1 airport store. Our CapEx investment in new stores was INR 21 crores. Our plans to open 12 department stores and 15 beauty doors for the year is on track. As always, our CapEx has been funded through our internal resources. We reduced our working capital by INR 67 crores and our cash from operations remain positive.
Overall, there is a transformation of the retail landscape. Customer experience is the new reality. A host of global trends such as changing demographics, increased urbanization, and hybrid ways of working are coming together to propel large stores like us to change the role they play in people's life. Now, when customers visit our stores, they are looking for multi-sensory experiences simultaneously keeping comfort and hygiene in mind. Going omnichannel has become an integral part of our strategy. I spoke about wardrobe reboot in the last 2 quarters. This reboot and the steady recovery of demand post-COVID has now moved on to omnichannelization and that will gain momentum from now on. Customers are being provided information on offers, promotions, and unique experiences in our physical stores as also on their mobile devices. This digital transformation of retail is real and I am delighted to share that we have adopted and embraced it. In the true sense with our off-line presence and this strong online presence, we are the true omnichannel retailers and that's being rewarded by our customers.
I'll now talk to you in detail about our strategic pillars. The first one is on First Citizen. And our First Citizen has been -- is our loyal customer and they have been instrumental in our growth. With our increased offering on premiumization and various other initiatives, our sales from First Citizen continues to grow. We had 63% of our sales from repeat customers on First Citizen and a further 16% from new First Citizen customers who enrolled during the quarter, thus resulting in 79% of our total sales being from First Citizen customers. During the quarter, we enrolled 6.5x more First Citizen customers and in the Premium Black Card program we enrolled 5x more customers than the corresponding quarter in the last financial year. Just to remind everyone, our Black Card program is the annual subscription program within our First Citizen wherein our customers pay a INR 4,500 enrollment fee or an annual subscription fee and this is the segment within our customer -- within our First Citizen base that is growing spectacularly.
Some of the key features on our First Citizen program itself, I would like to also share with you. Firstly, the median age of our First Citizen consumer continues to reduce, and this is happening because we expand our offer to bring in the young consumer into our stores and online. More than 75% of our members are shopping for women categories. Specifically on Private Brands, our penetration within First Citizen customers is 50% and our engagement continues to be very high. We have automated replenishments for our beauty product, which is very critical and we have also created a point-based incentive program campaigns every month. Specifically on our Black Card First Citizen customers, we have revamped the onboarding communication and the experience and the basket of benefits that they get continues to grow.
Further, on our Personal Shoppers, the contribution has been consistent and for the quarter, they contributed 10% of our sales. Here, the average ticket size is over 3x of our normal ticket size. We have done several local events to spread the awareness of our Personal Shopper. In the last quarter, I had announced the launch of the co-branded HDFC Shoppers Stop credit card. I'm pleased to share that we have additional members through the co-branded credit card as we engage with HDFC Bank in a synchronized manner and I'm confident that many more HDFC Bank credit card customers will join through this program.
Moving to our second strategic pillar of Private Brands, we have had a fantastic quarter on Private Brands clocking the highest sales ever in a quarter. Our Private Brands grew by 29% and our share of Private Brands within apparels has now grown to 21%. Specifically talking of some categories, in kids, we have been growing at over 100% for the last 4 quarters, and even in this quarter, we grew by 181% over pre-COVID numbers. Our focus on womenswear has yielded good results and our womenswear and Indian wear put together grew by 4x. Specifically for our Women's Private Brands, we now have Sanya Malhotra as the brand ambassador. For the summer season, we had Sanya for Fratini and the brand grew by 120% over pre-COVID. In the coming seasons, we will have Sanya associated with our other womenswear Private Brands as well. The average selling price for our Private Brands increased by 50% during the quarter. Our volume grew by -- more than doubled and our Private Brands contribution at a healthy 15% and as I said before, within apparel, 21%.
Moving to the third strategic pillar on Beauty. And our Beauty grew by 321% over last year with a mix of 16.4% to our total sales. Our fragrance, the top 10 brands that we have grew by over 7x. Our growth in Beauty would have been higher, but for the supply chain disruptions that we have experienced due to the disruptions in Ukraine. Our private brand sales within Beauty have also been impacted because of the supply chain issues, this time from China. However, despite these issues, our private brand Arcelia grew by 8x and we have seen good sales coming in from a number of the new brands that we have introduced, specifically Indian beauty brands and we are continuing to bring in more beauty brands to cater to the aspirations of the customer. During the quarter, we launched over 30 digital-first brands on shoppersstop.com.
We have also opened 3 beauty stores of SS Beauty during the quarter. We now have 7 SS Beauty stores trading and we are very satisfied with the performance of these stores. We will continue to open more SS Beauty stores, which is a key part of our Beauty strategy. Further, to complete the omnichannel experience, we will be launching ssbeauty.in in the month of August as I had shared with you in the last trading call.
Moving onto our fourth strategic pillar, omnichannel, we have been leapfrogging in our digital sales and for the quarter this grew by 29%. This is significant considering that we have had a large base in FY '22 largely on e-com space, especially as stores were shut for a period in the last quarter -- I mean, in the first quarter of last year. As mentioned earlier, we are a true omnichannel retailer and we are now serving customers across stores and online and have had 105% more visits across the channels. It is important for us to look at the customer journey across both channels together and that's what we have now been doing over the last few months. Transaction size increased by 6% in the digital channels and 38% of our total sales in this channel came from our First Citizen customers.
As I spoke a few minutes back, customers are looking forward for an omnichannel experience. I'm glad to share that we have been investing and continue to invest in the omnichannel experience, especially on analytics, on data, on content, which -- all of which enables us to engage with our customers in a much better way. The investments made in the data lake last year has enabled us to have better cohorts of our customer helping us to personalize and cater to the needs and aspirations of our customers in a much more focused manner.
With our omnichannel retail, marketing and service strategy in place, we are now reaching and engaging with our customers in whichever channel they choose to engage with us. As you all know, majority of the customer journeys today start online before being completed either in-store or online. We see the journeys weaving across various channels through shoppersstop.com, social media channels, et cetera. As omnichannel integrates off-line and online, internally we have decided to stop tracking our digital sales separately as the journeys are merging and the lines are getting very blurred.
Finally on expansion, we opened 2 departmental stores, 3 beauty stores, and 1 airport store during the quarter. Our pipeline of new stores continues to be strong and as I said before, I reiterate that we expect to open the 12 to 15 department stores in FY '23.
In summary, we have grown in the last 5 consecutive quarters and as I speak, our July month has been or continues to be very strong being one of the strongest months that we've had. We had great plans for the festive season ahead with our omnichannel firing on all fronts. The strategy that we have put in place is coming together nicely and working well for us and we intend to continue to focus on that as we go forward.
Thanks for listening patiently and we'll now open up to questions. We have quite a few questions, which in the interest of making sure that everyone who has dialed in gets an opportunity first, we will take questions first and then answer the questions that we've got. Mamta, we'll open the call for questions.
[Operator Instructions] We have the first question from the line of Nihal Jham from Edelweiss.
And congratulations on this strong performance. Sir, 3 questions from my side. The first one was, you mentioned about demand trends for July and the fact that they're continuing strong. Why I just want some more color on the same is because obviously the April to June quarter, as you said, had a lot of revenge element or a wardrobe refresh aspect as you highlighted. So, moving into July, what are the kind of trends that we are seeing? Is it a similar kind of trend in terms of wardrobe refresh continuing? Or you think this is the organic footfall that you did see pre-COVID? I just wanted to understand that because it is slightly contrary to maybe what I was picking up and I was doing sort of checks.
Okay. Is that -- you said 2 to 3 questions. Is that all or you want to cover all the questions?
I'll just tell you the other 2, if you could give me the physical visits in Q1 FY '23? You've clubbed I think the online visits also, if that is possible.
And the last one was on the EOSS comments. Sir, I think you mentioned that your sales would have been 30% higher had the EOSS has started on time. I wanted to confirm that. So these were the 3 questions from my side.
Okay. So on the July trends, there was -- the momentum has been continuing into July and while there was a little bit of a softening, if I were to split sales in the previous quarter, April and July were extremely strong. First half of June was slightly weak, and after that, it sort of seem to gather momentum back and that has continued into July. And we are seeing very strong growth. I mean, I don't want to get into specific numbers for July. But all I can share or what I can share is that, it's definitely probably better than what we had expected so far. So that's what I would say.
In terms of your second question on physical walk-ins, if you were to look at it -- compare it to pre-COVID numbers, it was almost flat. We are not comparing against last year, because it's meaningless and hence, a comparison to pre-COVID.
And finally, your third question on EOSS, it's not 30%. I wish it was, but that could have been spectacular. It was -- it would have been grown -- it would have been higher by 5%, the quarter -- the overall quarter number because end-of-season sale and especially the first 2 weeks of end-of-season sale does have a fantastic response that we do get. So against the 8% that we reported, it would have been 13%. So higher by 5% or 500 basis points.
Understood. Just 1 follow-up, if I may, that the EOSS in the Q1 quarter of '20 has started on what date? And I'm guessing, we started the same in July. Is that the right understanding?
No. It started on June 13 -- in July '19 and this year it started on June 23. So, 10 days shift.
The next question is from the line of Percy Panthaki from IIFL.
Sir, just wanted to understand on a slightly longer term, let's say, 3-year kind of horizon. What is the total square footage that you would want to add across department stores as well as other formats?
So, our plan is to add 12 department stores every year for the next 3 years and between 15 to 20 beauty doors every year. So if I were to compare the 2, that would yield to about 300,000 square feet per year, or a 15% to 20% increase on a yearly basis.
Okay. And basically, we don't expect any issue in terms of identifying and procuring suitable locations for these stores?
Finding the right location, of course, is -- I wouldn't say a challenge, but that's something which is we give a lot of focus and attention to. Having said that, when we look at the pipeline for the next 2 years, we have a very robust pipeline and fairly confident that we would be able to achieve those numbers. And obviously for the third year, the process is on. So broadly, no, we don't expect that to be a challenge.
Understood. And when you are giving this guidance of 10 to 12 stores per year, you are sort of building in buffers for normal builder delays, et cetera, in terms of actually commencement of these stores, et cetera?
We have built -- I mean, it's 12 department stores and 15 to 20 beauty stores that we have budgeted and we have built in buffers, but as you probably know better than me, the -- I mean, we can never build-in enough of a buffer. But having said that, when we say 12 to 15, we actually have a longer pipeline or a longer list internally. So, to that extent, we should be able to achieve those numbers.
Understood. Secondly, I wanted to understand from the digital sales, which is currently at 4.7%. Now, this quarter has been completely normal from a COVID point of view. So, in a normalized quarter your digital sales is about 5%. Where do you see this number going on a 3-year horizon?
As I was sharing earlier, Percy, increasingly the customer journey is getting blurred across online and off-line. And hence, measuring it separately as just online is not necessarily the right indication of how much of engagement we have online. Specifically for us, because I think we are in the unique position given the physical presence that we have and at the same time, this strong digital physical presence that we are now having, we are probably one of the only retailers which have got a strong online and off-line presence today and going increasingly into omnichannel being the way we look at it.
So we use online to drive engagement, to drive visibility, and a lot of -- especially, because we have high bill values and end customers are choosing to buy high-value products. Many a times, they would prefer to physically see it, feel it, touch it before they buy, specifically in categories like beauty, watches or even apparel. And hence, while it is 4.7% and we reckon that [indiscernible] of our sales would definitely be heavily influenced by online, if not higher. I mean, even today we reckon that 60% to 80% of all our sales would have originated online, where customers have chosen to visit us on shoppersstop.com to see what's there before they walk into the store. And we expect this to get even higher as our online UI/UX improves even further, which is something we are continuing to work on.
Specifically, we also see the First Citizen customers and how they engage with us and that's something where, with data, they are able to see the engagement that we get both online and off-line. So, absolute value will continue to grow and this will be a derivative of the whole journey across online and off-line.
How will you report the same-store sales growth from now on? Supposing if someone has ordered something on your app, I mean, and that has generated some sales. How is this -- how will this particular transaction be accounted for in your same-store sales growth reporting?
I think that -- it's a good question. It's a very good question and these are some of the -- I wouldn't say challenges, but intriguing points that we do internally debate as well. Now, when it comes to same-stores, it's easier because we -- I mean, the store is a store and similarly the shoppersstop.com is treated as a store or we'll continue to treat it as a store. However, as I just said before, the omni journey does mean that they could have started the journey off-line and bought online or vice versa and hence, to that extent, there will be an influence on both the channels meshing across each other.
Sir, the reason why I'm asking this, sir, is that, we are investing this INR 12 crores in the omni initiatives per quarter approximately. So, how do I evaluate what kind of benefit we are getting from this INR 12 crore investment in the top line?
See, today -- I mean, digital and we all know this, the fact is, the experience that customers have online is absolutely vital for you to be even in the consideration set. And that's something both through our research and talking to our First Citizen customers and looking at their journeys, we can see that, where while they may have chosen to buy from us off-line, the journey started online and hence, the investment that we do into online should not be measured only through the digital sales. It has to be measured through the total sales that we get because the benefit is across both.
Understood. And last question from my side, sir. You have done approximately 5.5% EBITDA margin on gross sales this quarter. Just wanted to understand 2 separate effects. One is, you said this quarter had lower number of sale days. So this would have probably had a positive effect on your gross margin, because sales would happen at a lower gross margin, but on the other hand, it reduces the overall top line and therefore, there will be an operating leverage effect, which is negative in nature. So which of these 2 effects is larger? Is it a net positive? Or is it a net negative on our EBITDA margin perspective?
I think -- I mean, I would say that it was a net negative on the EBITDA margin because the -- say, the surge in sales that we get during the end-of-season sale does make up for the drop in the absolute gross margin percentage. So it makes up the absolute number or the absolute margin that [indiscernible] be higher during the sale period, especially the first few days of the sale.
Rough quantification possible instead of 5.5%, this would have been, what, 5.8%, 6%. How much could it have been if the sale days had been normal?
Percy, if you're talking specifically on gross margins, it would be probably 5-point -- slightly higher because you are aware, on our brand, the margins remain the same, whether end-of-season sales starts 10 days before or 10 days after. There will be some drop in the private brand margin. So probably, yes, 6.5%, 6.6% would be the ideal number, Percy.
Despite if the sales had been normal?
Yes, that's right.
The next question is from the line of Ankit Kedia from PhillipCapital.
Sir, my first question is, what is the SSG growth compared to pre-COVID if I see? Because 15% is the ASP growth. Our top line has grown lower compared to pre-COVID. We have also had 10 departmental stores opening in the same time. So, if you can just quantify volume growth and value growth compared to pre-COVID on SSG basis, it would be helpful.
Sorry, just could you -- I mean, I lost you for the first 15 seconds. Could you just repeat the first 15 -- the first part, Ankit?
Sir, I wanted to know the SSG growth compared to pre-COVID given that we have had a 15% ASP growth. We have had nearly 10 departmental stores open compared to pre-COVID. So I just wanted a breakup of the volume decline compared to pre-COVID numbers and that's the opportunity for us to go back to in next 2 to 3 quarters, at least on the volume side. So I just wanted that breakup.
Yes. So to pre-COVID numbers, the same-store sales, both sales and volumes were broadly flat and conversions were slightly lower because of -- especially because of the end-of-season sale that drives a higher number and the ASP growth also, to some extent, would be influenced by the same factor that end-of-season sale has moved back.
Sure. Sir, despite store opening our revenue growth is around 13%. So you're saying -- and ASP growth is also 13%, so you're saying despite that our SSG is flat compared to pre-COVID?
Yes. And, I mean, while we opened new stores also, I think what -- even that we are comparing now against 3 years back, in fact, not even 3, 4 years back, because we're comparing against June '19, we've also had store closures. So if I were to factor in the same-store -- I mean, the EOSS date change then it would have been a positive 5% if the EOSS had been the same. So I think that the right way to look at it is that, like-for-like sales would have been plus 5%. And accordingly the total would have been 13%, yes.
Sir, my second question is on the Beauty side of the business. What is the online contribution of Beauty today and how are you looking at ssbeauty.in, what is the investments expected? And do you think some cannibalization from shoppersstop.com to SS Beauty would come in? How is the positioning and marketing expected for this new app?
So, SS Beauty, as I mentioned, SS Beauty stores, we now have 7 and that's something we are continuing to expand on. And this we are growing our stand-alone Beauty format to offer our customers the experience opportunity to physically come in as a -- whether it is a makeup -- makeovers, the makeup artists that are in store are fantastic ambassadors to the brands that we retail. And that gives a whole beauty environment in which the customer is shopping.
At the same time, as an omnichannel retailer, it's important that we are able to also augment that physical experience with an online experience, and that's why ssbeauty.in. So that it complete the customer journey. And again, as -- today, the customer journeys are completely interwoven and moves across online and off-line seamlessly and it's important for us to be able to offer that seamless experience for our customers and hence, ssbeauty.in. I wouldn't separately call out the marketing investment that goes into it, because what we do on ssbeauty.in is literally our 360-degree marketing expense for both off-line and online and that's the way we look at it.
In terms of cannibalization from shoppersstop.com, we believe that the growth that is there in the retail business and specifically in the beauty industry would more than make up for whatever small amount of cannibalization that we would have. I think also important to call out that even today, apart from shoppersstop.com, we also manage and with -- as part of our partnership with Estee Lauder, we manage the mac.in, clinique.in, et cetera, stand-alone sites. So that's also on the channel through which we are serving our customers. And it's about being present across channels for our customers wherever they choose to engage with us.
I want to reiterate that beauty as a market is massive, and it's something which we are absolutely doubling down on. To your specific question, 21% of our online sales is Beauty.
Sure. Sir, just a follow-up on this. If I look at the overall contribution of Beauty over the last 6, 7 quarters has been in that 15%, 16% kind of a ballpark mark. What is the inflection point you think where this contribution would increase? Because it is growing in line with the company sales, the investments on the private label side of the Beauty, the investments on the store opening side is not visible at the sales level to us. So how should we look at this number moving or the KPIs? And when do you think is the inflection point expected?
I think we will need to give it the next 3 to 4 quarters for that impact to come through because overall, I mean, we opened 3 stores and at the moment, we are at 7 SS Beauty stores. So given the total size of our business, it's still relatively small. I also mentioned that specifically in the last quarter, Beauty was the one category, which had supply chain issues because of the disruptions in Ukraine and also the difficulty of imports from China and both of these places are big when it comes to international beauty brands. That's something, which we expect to stabilize by August. So that should help. But specifically to the overall Beauty percentage, we would see the participation in the total business go up over the next 3 to 4 quarters.
And sir, lastly on the Beauty side, like we have had partnership with Estee Lauder for exclusive EBOs for more than a decade now. You have added around 130 brands over the last 4, 5 quarters. Do you think any of these global brands would like to partner with you for exclusive off-line EBOs like Estee Lauder? Or you're focusing more on SS Beauty currently and not on third-party brands for EBOs?
We are doing 3 things. We are -- of course, our partnership with Estee Lauder is strong and we continue to grow that. We are also in conversation with a number of brands and some of them where we may -- we are looking to have exclusive partnerships and that's something which we will report as soon as that gets finalized. And the third, we would also, within SS Beauty bring in brands, which would be available either exclusively on SS Beauty or on a limited basis. So 3 things that we are doing there.
[Operator Instructions] We have the next question from the line of Gaurav Jogani from Axis Capital.
And congratulations on the strong top line numbers despite the challenges. Sir, my first question is with regards to the...
Gaurav, we request you to use the handset mode, please. Your voice is not clear.
Yes, Gaurav, we can't hear your voice, Gaurav. That's right.
Sir, is it better now?
Yes.
Yes. It's better now.
Yes. Sir, my first question is with regards to the expenses line items. While we do understand that the gross margin has seen a good expansion on account of the lower EOSS and the higher private brand sales. But at the same time, your employee cost and the other expenses, even on the non-GAAP front has seen a sharp increase on a Q-o-Q basis. So, if you would like to highlight, is there any one-offs in these? Or are these numbers sustainable now going ahead with the normalization setting in?
Thanks, Gaurav. Thanks for the question. See, please understand, compared to the last couple of quarters, we have opened 9 stores. So, that largely is added in the quarter. And sequentially quarter-on-quarter, it's not comparable. So that's one of the main reason for the increase in expenses. Other than that, like there is an inflation on employment because -- and plus there is an inflation on lease cost. So these are the 2 normal inflations and there are no one-offs in the Q1 cost, Gaurav. It's primarily because of inflation, plus lot of new stores what we have opened in the last 1 to 1.5 years.
Sure, sir. So if I understand you right, I mean, these costs now are sustainable, right? I mean, you can extrapolate this for the rest of the year as well?
Absolutely. You are right. Probably it should settle down between INR 340 to INR 345 per quarter. That's our expectations, Gaurav.
Okay. Sure, sir. And sir, in conjunction to this also, actually the depreciation cost actually has seen decline on a Q-o-Q basis. Ideally, because these stores are getting added. We would have expected a depreciation to go up, but this has seen a decline. So anything there you would like to call out?
That's again a very good question, Gaurav. See, we follow a straight line method on the depreciation. Lot of assets that got retired last year and that's the reason there is a reduction in depreciation. Again, on annual basis, extrapolating this INR 30-odd crores as depreciation, we should have an annual depreciation of between INR 125 crores to INR 130 crores.
Sure, sir. And sir, my last question is on -- is with regards to again like one of the previous participants has asked. So, even if we look at a 3-year CAGR basis in terms of the top line growth and if I adjust for the 5% incremental growth lost to the EOSS, still it would be grown at a 5% CAGR. And given the fact that there has been a lot of inflation in terms of the ASPs and the growth seems to a bit tepid. So, is there anything that you would like to highlight that, that could further boost the top line growth going ahead?
Specifically, as we said, the overall volumes I think can't be read on its own because of the shift in EOSS dates, et cetera. The 2 points that I would like to call out: one is, we had in terms of our full price sales that has been extremely strong and that is definitely helping from overall margin as well as very little impact on the absolute volume. The second factor, which is worth looking at is the growth of our own Private Brands and the volume growth that we are getting on Private Brands, which is extremely strong. And I have shared some of the volume growth that we are seeing in Private Brands like and kids wear, it was at -- over 7%, we have been doubling and we've seen that over the last 4 years -- sorry, 4 quarters. Similarly, in womenswear, we've seen some very strong improvements and that is helping the overall volume to grow up. And as we dialed down on our Private Brands and as the growth there continues, we would expect our total volumes to rise ahead of the business volumes.
Sure, sir. And sir, just 1 last question, if I may. I mean, in terms of the gross margin again, the gross margin has seen a smart expansion this quarter. I do understand that the absence of the EOSS has marginally boosted it. But what could be a sustainable gross margin going ahead given there was a lot of noise in the base due to the COVID and all? So if you can help us like what kind of a sustainable gross margins can we expect going ahead?
Gaurav, again, thanks for that question, Gaurav. See, tell me like are you comparing on a GAAP basis or on a non-GAAP basis? So it will be easy for us to explain.
Sir, I would say, it's the reported basis, the ones you report, the non-GAAP -- sorry, the GAAP basis.
Okay. See, on non-GAAP basis, we have reported 38.6 percentage, 60 basis point increase over FY '20. This should go up to as -- I think Venu just spoke about our increase in Private Brands. The Private Brands have grown almost 30 percentage in -- this is the pre-COVID level. So this gross margin as we grow the Private Brands should settle anywhere between 39 to 40 by the end of this year, almost 200 basis points increase versus FY '20, Gaurav. So that's the number we are looking for.
So, 200 basis versus FY '20, right? I heard it that right?
You're absolutely right.
The next question is from the line of Sabyasachi Mukerji from Centrum PMS.
Very basic question. So if I look at the numbers of Q1 FY '23 and Q3 FY '22, that is the December quarter last year, we have clocked almost same number of -- similar number of the revenue in terms of non-GAAP, almost INR 1,200 crores. The gross margins -- gross profits have improved INR 392 crores to INR 401 crores, but the non-GAAP EBITDA number has sharply come down. Can you just explain, I mean, why this has happened? What is different in this quarter vis-a-vis the Q3 last year?
2 or 3 reasons, one on the lease cost, we had some concession in Q3 that did not, obviously, we are -- we have opened the stores in all days and the customer footfall is as good as pre-COVID level. So we did not get any lease concession. That's one. Again, on the lease rentals, we have opened more than 10 stores versus last year what you are comparing, 9 to 10 stores. So that the new store cost is also there on the lease rental. Similarly, there is an inflation on the employment cost plus the new stores. So, it's a combination of both, I mean, inflation, some of the concessions what we got, not only on the lease rentals, on the other service providers last year because of the COVID and the inflation. So these are the 3 reasons where you will see an increase of almost -- I understand that, I mean, INR 40-odd crores in the cost.
Can you just -- if possible, can you break up among the 3 things that you said, this INR 40 crores, INR 45 crores of additional incremental cost?
Almost 50% comes in from -- because of lease rentals and the balance equally shared on our employee cost, as well as the other administrative expenses pertaining to the stores.
Lease rentals you mean the incremental stores that we have opened, we are incurring rental cost for those, right?
Plus, we also got concessions last year because there was a COVID impact in Q3.
Okay. And going ahead, you said that the quarterly run rate would be somewhere around this INR 340 crores, INR 345-odd crores, am I correct?
You are right. That's our -- that should be the average cost per quarter from now.
Okay. And just one more question, you mentioned 10, 12 store additions on the departmental front and I think 15, 20 store additions on the Beauty side. So, let's say, a 2- to 3-year kind of a horizon, where do you see the margins -- gross margins and EBITDA margins settling down, keeping in mind that we also have store additions to do in the next 2, 3 years?
Again, we don't give any guidance either on gross margins, on EBITDA margins. However, with increased store additions, our gross margins will either be sustained or it will marginally improve, because of our private brand mix. Our EBITDA should also improve like 3 years from now, we should be close to a double-digit EBITDA margin.
Our next question is from the line of Jatin Sangwan from Burman Capital.
Congrats for the amazing set of numbers. I have 2 questions. The first one is on, could you please give some color on growth by category in the apparel segment? And where do you think -- which categories will drive the growth going forward in the medium term in the apparel segment?
Sorry, what on apparel, Jatin?
Yes. So, I am -- could you please give some color on growth by category in the apparel segments? So which categories are growing fastest and also going forward which categories will be driving the growth in the medium term?
So, within the apparel category, the growth -- the 2 categories which had disproportionately higher growth compared to the overall business was western womenswear and menswear for us. And I think this was driven by: one is, the whole mobility and getting back to work happening and I think especially in western womenswear that something which becomes quite obvious. And that is also a reflection of the fact that we are a destination when it comes to western womenswear, where we offer a complete portfolio of brands for the customer to choose from.
The other, menswear also I talked about, as being very strong. And then specifically for us, we saw watches as a category which grew very well. And Jatin, again, I think because of weddings and weddings which had been postponed, which happened during the -- especially during the months of April and May, I think drove that demand.
And finally, luggage, and travel and luggage as a category also saw some very strong growth for obvious reasons, because travel is back, people are going out on holidays. And I think that's a logical extension as to why that category would grow.
Got it. Just a follow-up question, how is women ethnic wear as a category doing? Is it back to pre-COVID levels or is it still struggling?
Women's ethnic wear has made good progress and is now at the average of the business itself. So while women's western wear was the strongest, women's ethnic wear has also caught up and is doing reasonably well now. So, during the COVID period, it has seen a definite dip, but post-COVID that has come back to the average numbers. Specifically within that, what I would like to call out is our own Private Brands in ethnic wear has done spectacularly well.
Got it. My last question is around the share of the private label. Currently, it is around 20% in the apparels category. So how do you think the share of private label will move across in the next 3 to 5 years in the apparel segment?
Currently, it is between 20% to 21%. In fact -- to be specific, it's 21%. While I wouldn't like to give a guidance in terms of how it would pan out in the coming years. What I can tell you is that, this is an area where we would continue to invest in and we do expect this to grow strongly. I mean, if I could give you an indicator, in some of the new stores that we have opened, the overall private brand mix within apparel is upwards of 30%. So that just gives you an indication of the direction we are going in.
Okay, got it. Just a follow-up, I mean, if you could give some guidance or add some color, what's the share of private labels in men's casual wear and women's ethnic wear?
I think in all fairness, Jatin, that's getting into a lot more detail than what we would like to. So I would not want to go there.
[Operator Instructions] We have the next question is from the line of Aliasgar Shakir from Motilal Oswal.
I had a question on your new smaller format departmental stores. If you could just share what is the kind of revenue, productivity or revenue per store that we are able to do there compared to our older, larger stores? I mean, if you could talk about stores which you would have opened probably about a year back, you would have seen some kind of reasonable revenue stability? And a related question there is, how is your shelf space of private label in those stores? I mean, is that significantly increased? And should that probably increase our share of private label significantly? I mean, does it had an ability to go upwards of probably 35%, 40%-odd in the next 3, 4 years?
So firstly, in terms of your first question on smaller stores or -- and what you term as smaller stores, I mean, I would like to highlight that these are small relatively, but from a market perspective, these are still large, between 25,000 to 35,000 square feet stores. So it's versus our own 45,000 to 50,000, it's a smaller footprint. On these, our sales per square foot from the newer stores that we've opened is upwards of INR 13,000 per square foot. In some of our older stores, to put that in comparison, it was around INR 11,000.
In terms of the apparel mix, overall private brand mix tends to be around 25% and specifically within apparel, it is around 30%.
So, that's in the smaller size stores, right, the 25,000 to 35,000 square feet stores?
That's right. Yes, the newer stores.
Okay. So it's about 30% compared to what would be in the larger stores?
21% is the company average.
Got it. So, I mean, in the context that now majority of our stores that we are opening are in these 25,000, 30,000 square feet store. What kind of number we think we should be able to achieve in the private label in the next, probably 3, 4 years?
You've got the guidance already, Aliasgar. So...
All right. Okay. Just one more question is, we've been earlier talking about the INR 200 crores savings that we have done through our cost optimization. So, I just want to understand, I mean, when I see our OpEx, I see a quarterly run rate of about INR 25-odd crores of lower number against the 1Q FY '20 number. I'm looking at the iGAAP numbers. So it's like a INR 100 crores annualized savings. Is this lower because of the increased spend that we have done in online? Or, I mean, how should I look at it? Because I'm seeing in terms of like-to-like area, we are pretty much the same versus 1Q FY '20. I don't think there is a very material increase.
Again, that's a good question, Aliasgar. See, I just explained the savings are there. That is also because there is some inflation that has happened, both on lease rentals as well as on the employee cost. And we have also opened number of new stores. So, more or less, yes, if you ask me, are we getting INR 200 crores, may not be, lower than that, but still we get savings on the stores, plus like Venu has also mentioned that, we do -- we are making investments in our omnichannel, so both on the tech as well as on the marketing, plus a lot of other new initiatives such as Beauty. So, most of the savings, in fact, even in our previous meetings, we did say that, these savings we are planning to invest and we are investing in for the future, Aliasgar.
Mr. Shakir, request you to join the queue for any follow-up. We take the next question from the line of Devanshu Bansal from Emkay Global Financial Services.
Sir, I had just one question, if you can quantify the lease rental inflation that we've seen?
Sorry, what inflation?
Lease rental.
Lease rental inflation will be -- see, some of the stores we have a 15% increase once in 3 years and some of the stores we have a increase of 5% every year. So, an average of 7% -- 6 to 7.5 percentage will be for the quarter, but for a year, it will be around about 5 percentage.
The next question is from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas.
Sir, I just have one question on your Beauty business. So we have seen recently large online players who have become aggressive in the market and they have been tying up with the brands, the beauty and fashion players. So in that context, do you see any competition getting up for you in the coming years?
So it's a very fair question and thanks for that. The beauty market is growing ahead of the overall retail market as I think we all know. And within that, if you look at the -- all the existing players together, there still the headroom available in the market is very large. So, to that extent, this is an area, which will continue to grow. And even as the competition, both existing and new one comes in, the strength that we have, both in physical retail and now online, will continue to give us that edge to grow ahead of the market and that's what we would expect to see.
Sir, the number of brands we are launching in this space, how is the traction building up? Like how are the repeat sales happening in some of this? For example, some of your brands, which you have launched in past few years, which gives us an indication that -- yes, so these are the products the traction is building up and this gives us an indication that the growth prospects are good enough to compete with some of these online players and to scale up in the coming years.
Are you specifically talking about Beauty, Kaustubh?
Yes, I'm talking about Beauty, yes, specifically.
So, Kaustubh, in Beauty, at this stage we have 1 private label brand and that is Arcelia. And within Arcelia, we have launched bath and body, we've got fragrances, we've got deodorants, and we've launched nail polishes so far. We will be launching lips and foundations going forward. So, it's only when we have finished all of that, the basket of offering would be complete.
As I mentioned to you, we saw a 5x growth -- sorry, 8x growth on our Arcelia sales from the first quarter of last year. So, the overall sales is obviously dramatically high. But as a percentage in total, it is still insignificant, given that it is not the entire category is not completed. So, as we go forward, we would expect the sales from our Private Brands to continue to grow and would get very, very strong as it progresses.
We take the next question from the line of Ankit Kedia from PhillipCapital.
Sir, couple of repeat questions from my side. Sir, in private label, while the value contribution on apparel is around 20%. I believe the right indicator would be the volume contribution given that the ASP of private label would at least be 20% to 30% below the other brands operating. So, if you can give the breakup between the older stores and new stores, what will be the volume contribution? Because that will show the acceptance of the product to the consumer level.
Fair question. On the volume contribution of private label to the overall apparel business is over 25%.
The next question is from the line of Abhijeet Kundu from Antique Stock Broking.
My question was on the digital transformation that's happening, you are also heavily investing into it. Other retailers are also doing that. So, some qualitative aspect on understanding on what -- I mean, what does it comprise of? Because there would be a lot of things happening in the supply chain where the lead time would be reducing. So across functions, what is the change that we can expect to see? And how will it help the overall operation of the company and the cost of the company going ahead? Some color on that.
Sure. Thanks, Abhijeet, for that. The investments and the improvement that we are focusing on is across all the phases of customer touch points beginning from the customer discovery point of view, the UI/UX online, as well as the digital engagements within the store. Going further on the UI/UX, content and engaging experience is very, very vital. And you will see a significant improvement in that when we launch SS Beauty in the -- and going further on [ ss.com ] as well in the coming quarters.
Then, as we move on, we will -- in terms of the overall discovery of the product online and making it a lot more personalized and based on the customer history and again, we are blessed with a loyal customer in terms of the First Citizen and using their transaction data to be able to help them get -- I mean, be much more sharper and narrow focus in terms of what would appeal to them, which then increases the whole conversion that we would be able to achieve online.
If I were to just give you an example, even today, I mean, our customer, irrespective of whether they have shopped online or off-line, on the shoppersstop.com as a First Citizen customer, they can see their entire purchase history over the last many years, whether it is off-line or online and that's just -- now that's what the customer is able to see. What we are able to do is to use that data to then be able to offer personalized brands or products depending on what they like and this is something that we will be dialing down further on. And this is one area we are investing into.
The other area that we are looking into is also the lead time and the delivery part because that is equally important. While that is post-purchase, that's a very important part of the customer journey and using algorithms to be able to get the product into the customer much faster and one of the indicators of that is the speed at which we are able to get product to our customers and that has significantly improved to the extent that, today, doubled -- almost more than 40% of what is ordered with us would be with the customer within 48 hours and that's more than double of what it was last year same time.
The other indicator that, again, shows the improvements that have been made on the customer journey is the app rating. And on Google Play, 2 years back -- 18 months back when COVID had hit, our rating was worse around 2.7 and today, it has moved to 4.5 and it is at par with some of the major online-only players. And as a omnichannel retailers to be able to offer that kind of experience just illustrates the engagement that we have with our customers.
The next question is from the line of Tejash from Spark Capital.
Sir, my question is, you spoke about the customer -- servicing the customer wherever they are, in terms of omnichannel presence. So just wanted to understand the journey of the customer, is it the discovery happens in online platform and fulfillment happens in off-line or it is fungible both ways?
It's fungible both ways really, Tejash, and that's something which we are increasingly seeing where -- I mean, if I were to give you as an example, in the case of, let's say, watches, it might be something where the customer starts the journey online, does his research, looks at the various products available and then before making the actual purchase, comes into the store to see the product, probably wear it on his wrist and then buy. So that's one part of the journey.
Equally on the other side where in some of our Beauty products, where it is a repeat purchase and the first purchase for that, the customer would come into the stores, she would want to -- and let's say, it's a lipstick, she would want to check the shade, wear it, feel it and be comfortable with it, but then the repeat purchase would happen online. So, it is extremely fungible now and we expect that to continue to happen as we go forward.
I now request the management to answer the questions received online. Request you to take over, please.
Thank you, Aman. So the first question was, overall area for the company was 4.4 million square feet in FY '22 and now it is showing 3.8 million square feet. If the company is showing carpet area now, can you share both the area for the next 4 quarters for us to get an understanding? What is the industry norm for area, carpet or sellable area?
The industry norm is carpet, which is circa 80% of the chargeable area. On chargeable, we are now at 4.5 million square feet and it may increase to 4.8 million square feet and the carpet area would be 80% of that.
The next question, what is the same-store growth pre-COVID? I think that's already answered.
The next question was -- it was around the contribution of private label, and again, that I think has got answered.
The fourth one, omnichannel contribution has reached 5% of revenue, does this level of contribution justify INR 50 crores in OpEx for FY '23? When do you think is the inflection point in omnichannel?
I think again I touched upon that or rather went deep into that area. It's not fair to look at the investments only as investment for digital, because it is an omnichannel business and effectively, it has to be seen as an investment for across the entire chain off-line and online. Most customer journeys will initiate in the digital space and hence, it is an absolute necessity. And as the off-line sales increases due to the impact of COVID and the restrictions moving away, the overall contribution from digital has reduced. But as I said, it's really fungible and internally we have stopped looking at it separately as online and off-line, because that's not a fair way to look at it. And even if you were to look at just the digital as we said, it has grown by 29% despite the large [ space ].
Next one is on inventory, while the total inventory system -- in the system is INR 1,129 crores, private label inventory is INR 360 crores. ROR inventory is INR 767 crores which is 32% of total inventory, revenue contribution is 14% to 15%. Are you sitting on very high inventory of private label or expect revenue to grow at an exponential pace?
The INR 360 crores inventory includes private brand as well as national brands. Private Brands will be about 50% of this, because there are a few national brands, where also we may have an outright model where we buy out the inventory.
Next question is 13% sales growth above Q1 FY '20 is a positive, gross margin also back to pre-COVID, EBITDA margin is also strong. However, customer visits have doubled but doesn't reflect in revenues to that extent.
As an omnichannel business, our customer entry which we showed includes the online visits and the conversion in the online channels does tend to be lower than in the off-line channels.
Next one is on employee expenses, they are up INR 7.5 crores quarter-on-quarter. I think this was already answered.
The next one is on depreciation, the reported depreciation has fallen by INR 7.5 crores quarter-on-quarter despite incremental store additions. However, one should -- how should one look at this, what would be a quarter depreciation run rate for us going ahead?
We follow a straight line method and some of the assets have been fully depreciated last year. Due to that, our depreciation reduced by INR 7.5 crores. Our overall, depreciation for the year would be around INR 125 crores to INR 130 crores.
Next one is answered.
Yes, we've -- all the others have been answered. So I think, Aman, we are through with the questions.
Thank you, sir. That would be end of our Q&A session. Ladies and gentlemen, on behalf of Shoppers Stop Limited, that concludes today's call. Thank you all for joining us, and you may now disconnect your lines.