Shoppers Stop Ltd
NSE:SHOPERSTOP

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Earnings Call Transcript

Earnings Call Transcript
2022-Q4

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Operator

Ladies and gentlemen, good day, and welcome to the Q4 FY '22 Analyst Conference Call of Shoppers Stop Limited. [Operator Instructions]

I now hand the conference over to [ Ms. Mamta Samen ] from [ Perfect Relations Private Limited ]. Thank you, and over to you, ma'am.

U
Unknown Attendee

Good morning, and thank you for joining us on the Shoppers Stop Q4 FY '22 Earnings Conference Call. Today, we have with us the senior management represented by Mr. Venugopal Nair, Customer Care Associate Managing Director and Chief Executive Officer; Mr. Karunakaran Mohanasundaram, Customer Associate, Chief Financial Officer; Mr. Jaiprakash Maheshwari, Customer Care Associate, Vice President, Finance and Accounts. We will begin the call with the 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 the strategic questions only. Housekeeping questions can be dealt with separately with the IR team.

I will now request Mr. Venugopal Nair for the opening remarks. Over to you, sir.

V
Venugopal Nair
executive

Thank you, [ Mamta ]. Good morning, friends. Thanks for joining us today to discuss the Shoppers Stop financial results for the fourth quarter and the full year of fiscal year 2022 that ended on the 31st of March 2022.

Along with me, I have our CFO, Karuna and Jaiprakash, our FP and AV. We had shared our Q4 results, the investor deck and the press release with you, and I'm sure you would have gone through the same. I will now talk you through on our Q4 performance, progress on the strategic pillars and the way forward.

Q4 was a story of 2 halves due to the third wave of COVID. Sales improved dramatically in the second half, with March being particularly good, witnessing double-digit growth across all channels. While the most of January and half of February had been impacted by COVID. Fortunately, the impact on people was almost negligible, which helps an increase in consumer confidence. I must add that the strong momentum from March has continued into April. We had a reasonably strong quarter post-COVID and the highlights are as below. Sales grew by 8% versus last year but doesn't convey the strong momentum that we have now.

To give you the perspective, our sales declined by 15% in January, grew by 7% in February and 40% in March. As you are aware, January is the second highest month for us. And due to the festive and seasonal sales, it had a very high sensitivity overall for us. Any impact in January is felt over the entire quarter, and that's what happened, camouflaging our growth and impacting the profitability for Q4. To illustrate this in numbers, we would have had a 28% growth in Q4 sales with January sales had been the same as last year.

Our ASP, that's the average selling price and the average transaction value, grew by 17%, further substantiating the strong consumer demand, particularly in the premium and digital luxury categories that outperformed during the quarter. Our digital sales continue to be robust with a growth of 5% on a significantly higher base. For the full year, our digital sales grew by 60%.

In my last speech, I had spoken about wardrobe reboot, customers making choices on apparel our assortment of clothing, wherein we bring the latest state and references. We continue to curate depending upon the season with offices, schools and social like opening, we are now witnessing an office reboot, which is also the campaign that we ran in our stores and online at the end of March and beginning of April.

We curate our ranges to the latest fashion trends and bring this within our stores and offering the latest trend to our customers, helping them to build their wardrobe with confidence and feel good is what we do. And that curation is an important role that we play. And we believe the focus and attention that we have given to this area is leading to substantial results for us. On the operational costs, we saved INR 47 crores, out of which we invested a substantial portion for our future investments, such as new stores and e-com.

Before I move on to the EBITDA, I need to discuss the onetime costs, which we had to incur and that significantly impacted our profits for the quarter. We had implemented SAP last year, which was a massive change in the IT application from the earlier [ Oracle ] numbers. This was done in June 2020 at the height of COVID. And that was a call we took to use that downtime to make this transition.

As you know, COVID has surged and ebbed over the last 2 years. We have a perpetual inventory control system called PICS, and we have a complete inventory verification once in a quarter. While PICS was done partially in the earlier quarters due to COVID closures and festive season, a complete wall to wall inventory check was possible only in Q4 of this year. This led to a significant increase in inventory shortage of INR 9 crores.

We have revisited the process, strengthened the same significantly and put a separate team in place to monitor this on a weekly and monthly basis to ensure that our PIC process continues to be as robust as before. I must call out that this is an area where Shoppers Stop has been particularly strong in. And over the last many years, our shrinkage or PIC has been consistently 0.3% or lower, and which is what we believe we will be able to achieve going forward as well.

We have now got an external agency as well to verify our revised process to confirm that this is in order. Our e-com operations also had sales returns higher than off-line while recompiling our stocks, we took cognizance of the sales returns, which were damaged in transit. As a prudent and conservative company, we decided to provide INR 6 crores for the same.

Last but not the least, for some of the stores, we delayed our opening from the earlier quarters to this quarter due to COVID. We negotiated with the landlord and agreed for a onetime settlement of INR 1 crore for this delay as lease expenses during the closure period. INR 6 crores is the amount there. That explains the onetime expenses that we have provided for this quarter.

Moving on to operational costs. We continue to save over FY '20. In Q4, we saved INR 47 crores. We are nearly debt-free though January and partly February was impacted by COVID. With the strong sales and tight control on costs, we reported EBITDA of INR 97 crores as per GAAP financials and a small loss of INR 13 crores as per non-GAAP reporting.

We continue to invest in our business. The investments are to grow our digital commerce capabilities and to expand into new stores, along with refurbishment of some of our older stores. We have invested INR 59 crores in Q4 and INR 154 crores in FY '22. At this stage, 40% of our entire store estate is now less than 3 years old, either as new or refurbished and this number will continue to grow over the coming 4 quarters.

We are expanding rapidly. We opened 5 department stores, 12 beauty rose and 2 airport stores aggregating to 18 stores, the highest in the last several years. We also invested INR 46 crores as CapEx in the last quarter and cumulatively INR 101 crores for the full year. Our CapEx has been funded through our internal resources only. We have also significantly reduced our working capital by INR 100 crores despite the growth of 45% in the last 1 year.

From operations, I will now move on to the performance of our strategic pillars. Our First Citizen continue to contribute at a healthy share of 79% in off-line and 37% in online. We have been witnessing a steady increase in the First Citizen share over the year, particularly in the last quarter. Our new enrollments increased from 7% to 16% and has led to an overall improvement in our First Citizen contribution.

I'm extremely happy to say that our First Citizen Black Card enrollments recorded 173% growth in the last one quarter. In our online business, First Citizen online sales grew by 19% over last year with 37% contribution. On repeat online shopping, this increased by 37%, again over last year. This is still a small percentage of our total online space and hence, a huge opportunity for us to grow our sales to our First Citizen customers.

As always, our Personal Shopper contribution has been consistent and has contributed to 10% of our sales. The Personal Shoppers is a unique offering that Shoppers Stop has for its customers across stores and online, where they offer personalized service and engage with customers at a far higher level than normal. This is illustrated by the average ticket size continuing to be 3x higher than the normal ticket size. We have done several local events to spread the awareness of the Personal Shopper. Our other initiatives such as White Glove, WhatsApp calling, et cetera, continue to have contribution in our overall sales.

While our initiatives are continuing, I would like to call out the landmark event that happened in March 2022. HDFC Bank, India's largest private sector bank and we joint hands to launch co-branded credit cards. These credit cards will be available to over 9 million First Citizen customers, along with HDFC Bank customers with an endeavor to provide an elevated and rewarding shopping experience. The partnership draws on HDFC's strength as India's issuer of credit cards and our position as a reputed retail brand.

I should say that this is the first time HDFC has associated with the retail company to launch a co-branded credit card. This will also give us the benefit of being able to reach out to a larger universe and also get in significant insights into our customers' shopping habits. Our co-branded cards with HDFC will bring unmatched benefits to our [ parts of ] business. They will be able to avail discounts and offers provided by the bank and redeem points at our stores.

This is a win-win proposition for both HDFC and for our customers. The credit cards will be available in 2 categories: Shoppers Stop HDFC Bank credit card and Shoppers Stop Black HDFC Bank credit card. The reverts point will differ, depending upon the card with Black Card ensuring higher loyalty points.

Moving on to the next strategic pillar of private brands. During the quarter, private brands grew by 9%. Private brands continued to outperform the other brands and increase the overall share. The average selling price increased by 6% during the quarter. Kids continues to grow within private brands by 40% versus last year. Our private brand contribution is at a healthy 13% at an overall level. And within apparel, it is at 19%.

Our online contribution of private brands increased to 20%. I must add that in Q4, the private brand contribution was impacted by the sales in January where most of -- I mean sales were significantly muted, and it tends to be the second highest month for private brand, particularly and hence, the overall percentage and contribution to stores did not grow as it has done in the previous quarters, and it was muted. We have been focusing on women, Indian and Western brand, and these have had a healthy growth in our lead brands with Kashish and Insense, leading at 50% and 80%, respectively.

Our occasion wear for men's Bandeya has been received well with an annual run rate of INR 25 crores now. Our D2C brand Infuse has also been growing steadily. Moving to our third strategic pillar of beauty. Our beauty grew by 9% with the mix at 16.5% to our total sales. During the quarter, we launched 24 brands and close to 100 brands during the year.

Our own private brand Arcelia launched 85 new options. Arcelia is in the top 10 brands within fragrances in our stores and continues to be within the top 3 in bath, body and accessories. There were global supply chain issues during the quarter, especially from international brands due to the disruption caused by COVID and the Ukraine crisis. This is getting streamlined now.

We have opened 12 beauty stores during the quarter and this is an area we are focusing on to grow our presence in the Beauty segment to offer our beauty customers a great experience. Within those 12 were 4 stand-alone beauty stores with 3 of them being of [indiscernible] Beauty, which is our stand-alone beauty format that we are continuing to invest into. With masks now going away, we expect sales on Beauty to get even stronger.

As you are aware, Beauty is a key strategic pillar for us. We have taken higher targets in beauty and has aggressive strategic plans for the next 3 years. To achieve this, we need to offer best-in-class experience for our customers, particularly the digital related ones. For this content plays a crucial role in driving site traffic, building brand authority and improving conversions. This is an area we are investing in to improve the experience for our customers.

At this juncture, I'm pleased to share that we have a new Chief of Content and Webcom Officer, Ms. Madhavi Irani, who joined us a few weeks back. Madhavi has over 25 years of great experience in content and website management, but we have worked in [ makeup ] and from its inception and has also worked in the Times of India Group in the past.

Our expertise lies in content to commerce, omnichannel strategy, user experience and engagement, all of which will drive growth. This is a big addition to our team and helps us to focus in improving the customer experience, especially for the digitally native and also the experience for our customers across online and off-line.

Moving on to our fourth strategic pillar of omnichannel. Digital sales continued to be robust and grew by 5% on Q4 FY '21, which had a large base due to the beginning of the second wave in March 2021. We are now recognized as an omnichannel retailer with shoppersstop.com firmly established as a shopping destination.

Last time when I spoke to you, I had mentioned to you about the improvements on our app for customer service, the UI/UX of shoppersstop.com. The first phase had just been rolled out in December. I'm pleased to share that in the last quarter, the second and third phase of the UI/UX have now been rolled out, and this has further improved the customer experience. And this is illustrated by the improvement in our sales conversions on the app.

As you would appreciate, omnichannel is an area we are investing in. In the last quarter, we invested INR 13 crores and in total, INR 53 crores for the full year. Generating customer insights and using the same for better customer targeting is now a regular practice for the business team. The data lake that we are invested into earlier is now starting to bear fruit, aiding us in personalizing our communication to our First Citizen customers. And again, improve our conversion due to that.

Finally, moving on to expansion. And this is specific to brick-and-mortar. We opened 5 department stores, 12 beauty dose and 2 airport stores. Overall, we opened 8 department stores in the financial year, and our pipeline of new stores is strong for the coming year, where we expect to open between 12 to 15 department stores in FY '23.

In summary, we have grown the last quarter -- in the last 4 quarters. And as I speak, we have seen a strong April. While we have taken aggressive targets for this fiscal, and we have a strong team now in place with resources and plans to achieve this. We continue to fire on all cylinders on our strategic pillars and are confident that it will contribute significantly to our overall growth.

Thank you, and we will open up for questions.

V
Venugopal Nair
executive

So we have already received a few questions. So [ Mamta ], I would suggest that we will start with those questions first. I'll read out the question and then also give the answers to the same.

So the first one that we got is, can you explain the inventory loss of INR 9 crores in details? Not clear on change and IT application part?

I think I've clarified that during my speech in detail. I assume that's now clear. The second one is understanding of INR 21 crore one-off and INR 40 crore EBITDA loss of January '22. Does operating PBT and reported PBT include the adjustment of both the points or only one-off? Yes, it does.

Can you explain the integration with Unicommerce and how it will benefit Shoppers Stop?

Unicommerce is a middleware, and we have now linked that up with our own system, and it helps us to integrate with other brands to grow our drop-ship model substantially. What Unicommerce does is to give -- get a real-time inventory of the brand that we associate with and through that, we are able to offer a much wider set of brands to our customers. This is an area where we expect to see significant growth in the number of brands that we work with. And to aid that, we have actually put a separate deal in place.

Next one is on details about the acquisition plans of new D2C brands as seen in media? How many brands, when and at what value, et cetera? Also mentioned about SS Beauty app. We already have [indiscernible] and other [ site ]. How will it help?

On the acquisition, what I had said, and this was to a specific question on whether we are considering acquisitions. And what I had my reply was that if there are good opportunity, we will consider. We normally do not make any speculative statements and there is nothing at this point that we would like to share on that.

On the second part of the question about the SS Beauty app, this is to go with the SS Beauty stores that we have launched to offer our environment for the beauty customers of ours. The SS Beauty app will have all the brands that we would have in our stores and a significantly larger number as well, which will be online only. This app will be great on customer experience, driven through content, social commerce and extremely interactive with innovative features built into that.

I will talk about -- more about the SS Beauty app in the next quarter, which will be around the time that we will be ready to go live with this. Even as we speak, the team internally are working extensively to the [ industry ]. It is different to [indiscernible] and the other delta sites because [indiscernible] is specific to MAC. Similarly, the other ELCA websites are specific to that brand only.

Next question is on Shoppers Stop Beauty. If you can share more details here. How has been the performance so far? What is the differential offering there versus the other beauty stores?

We have recently opened 3 stores in addition to the 3 stores that are already existing in Hyderabad and Bangalore. The performance of new stores is too early to comment, but the existing stores, the 3 that have opened earlier, have higher sales and profitability.

As far as the SS Beauty concerned, we have 3 distinct features in our stores. First and foremost, will be assortment, and we bring a slightly different assortment, and we intend to have a number of brands, which would be available only in our stores.

Further, the assortment would be tailored based on the location. And there will be 3 -- I wouldn't call it a format, but 3 different types of assortment that we would offer, which internally we call it as luxury, premium and hybrid. So that's really the -- on the assortment.

The second point of difference would be the customer engagement such as makeover skin care and also our digital engagement tools that would be there in the stores. And the third is, of course, the look and feel of the store itself, which is are significantly premium and inviting to our beauty aficionados that we cater to.

Next question, athleisure demand trend. Remember, last quarter, you saw moderation probably on account of people gearing up for post-COVID live. Athleisure and active categories are continuing to show good growth, 150% growth as we are building the base on this category. Workwear related categories, formal and semiformal have shown a 10% growth over the business.

And it's also at that -- and talking to one of our sportswear partners who have a lot more insight and data into this area. While formal has grown the growth on athleisure has not significantly slowed down. If there's a slight shift from pure sportswear to more casual wear, so that people can use for both occasions along with sport. But overall, the casual part of the business is definitely continuing to be strong.

The next question is on prices. Cotton prices are on an uptrend. How are we planning to respond to the situation?

FMCG companies have highlighted stress on consumer wallets, therefore, will taking price hikes in such situation lead to demand erosion? We have taken selective price increases in January on our products to retain the margin. The price increases on raw material were substantial, which is why we had to take this increase.

What we have seen -- and again, this is going by the [ past ] when we look at the -- over the last many years, what our data tells us that whenever there have been increases in prices due to cost pressures, we have done well, Shoppers Stop has done well. And the reasons we believe that this happens is because customers prefer to trade up and prefer with trusted brands like Shoppers Stop and that's why we don't see demand erosion. I must say, in the 3 months, we haven't seen a drop in overall demand due to the price increase.

Next question. In the press release, it is mentioned the company will grow in line with retail industry at double-digit pace. Can you share any guidance on margins for FY '23?

We don't normally give any margin guidance. However, we do expect it to be higher than the pre-COVID levels.

Next question. We are spending a significant amount for renovating stores and plan to run away 8 stores in FY '23, what is the incremental revenue that a renovated store brings in?

Investment on store renovations was only INR 25 crores. Total CapEx for the year was INR 101 crores. For store renovations, payback period tends to be around 2 years.

Next question is on omnichannel. Omnichannel growth rate has moderated in Q4, any reason for the same?

As I mentioned in my opening statement, part of this was because of the base. And the other reason that this has caused is also a shift in our category focus to more on apparels, where the return rates tend to be higher and hence, impact on the net sales.

Online sales -- next question. Online sales grew only 5% year-on-year with overall sales at only [ 500 million ]. What contribution as a percentage of sales can be expected by FY '25 and what will be the levers or the sale? For the fourth quarter, it was on an increased base as I just said. For the full year, we achieved INR 26 crores, a growth of 59%.

Next question is on Arcelia. Could you share revenue contribution of Arcelia to Beauty segment? How has the brand fared over the last year?

Arcelia is still in its infancy, and the entire assortment is not yet launched. So far, we have launched bath and body. We have launched fragrance and deodorants and we are just in the process of launching nails, which was to launch in Q4, got launched at the end of March. Further, we will be launching nails and finally face. And that's when the entire assortment would get mixed. So I would say, at this stage, it's a bit early. The overall contribution is small, but we do expect this to go up considerably over the next year.

Karuna will take the next question.

K
Karunakaran Mohanasundaram
executive

Thanks, Venu. There are a few more questions, which has been given to us. What I thought I will answer that, and then we will open question answer session to the people who are waiting.

The next question is employee expenses have seen a 21% increase in Q4, while revenue has increased only by 6 percentage. Any reasons for the same?

You may remember, we have opened 8 new stores and 18 beauty stores that almost contributed INR 4 crores to INR 5 crores. In addition to that, we've also strengthened beauty, omni and private brand for increased growth in the coming years. That -- we invested almost INR 3 crores on that. Last year, we had capitalized due to SAP, and that's almost INR 2 crores. So more or less, plus we also had inflation this year. So these are all small, small items, but that contributed almost 21 percentage. That's the reason for the employee expense increase.

The next question is, CapEx for the new stores seems high at INR 148 crores for 12 departmental stores and 50 beauty stores. In FY '22, the company added 8 departmental stores and 4 beauty stores and the CapEx was near INR 64 crores. Why such high CapEx for FY '23 on [indiscernible] basis, assuming all new stores will be 25,000 to 30,000 square feet?

See, what we said is we will open 12 new stores, okay? Whereas the CapEx is considered for almost 20 to 23 stores because some of the still to be on work in progress, and it will be opened in Q1 of FY '24. So that's the reason the CapEx is around about INR 148 crores.

The next question is, overall, the sales group is 9 percentage. Strategic pillars, beauty 9 percentage private omni private brand grew by 5 percentage, beauty 9 percentage and nominally grew by 5 percentage. Personal Shopper is on a decline. Ideally strategic pillar growth should be higher than overall company growth, given the investment behind these initiatives. What are we missing here?

We'll just explain in detail about the private brand. Predominantly, what happened was our sales in January were very low, and that impacted our private brand overall growth. Similarly, beauty we have just opened a number of new stores in the month of March, and you will see a significant higher growth in the coming months to come. Personal Shopper is consistently at 10 percentage, and it has not changed at all.

The next question is, out of 8.7 million [indiscernible] customers, how many are active users? And what is the average ticket size? Our active users are at about 25 to 30 percentage who have actively shopped in the last 12 months. Of course, there are others who shop probably once or twice in the last 1 year. And our average ticket value is around about [ 4,500 ] it's significantly higher than the walk-in customers.

Again, the next question, I mean, just in the question, Venu has already replied it. The contribution from private brand and Beauty continued to remain steady at 13% and 18% of the sale. How the company is planning to increase sales contribution from these verticals? We have already reflected that. PB had a higher impact due to January closure slowdown. On beauty, again, I have said, we have opened 12 new stores, signed up 100 new brands and we are planning to open 10 new stores next year. We are also discussing with other international brands for a possible tie up.

The next question is on depreciation. Why it is higher in this quarter, is this due to store renovations, what kind of quarterly run rate can be built here?

See, depreciation, if you see the [indiscernible], it has both [ ROU ] as it is right to use asset depreciation as well as a normal deposition for the fixed assets. I would suggest you should go through our non-GAAP income statement, which normally we published on the left-hand side of the income statement. And if you see the depreciation is approximately INR 35 crores for this quarter, the depreciation for our fixed assets.

And in the last 3 quarters, it was ranging between INR 30 crores to INR 35 crores. This quarter, it is marginally higher by a few crores because we've opened 8 stores in the last 6 months, and that's the reason it's higher.

The last question was employee other expenses has increased due to store additions on a year-on-year basis. But it still cannot explain some [ 20 percentage and 12 percentage ], well we could not understand the question. Probably the question is asked why the employee and other expenses have increased. We have given a slide in the investor presentation. Our total expenses has increased by 10 percentage there in cash terms and about INR 30 crores. This is last year.

This is primarily due to onetime expenses, which we spoke about almost INR 12 crores. And the normally cost for the users, I mean we almost spent INR 15 crores to INR 18 crores on the new stores. These are the 2 large breakup for the increase in expenses.

And the last question is, please share India's 116 rent expenses and EBITDA on a GAAP reported basis? Again, we have given in the investor presentation. Our rents, including [ CAM ] and variable rent is around about INR 133 crores. Rent that is allocated in index for GAAP is at about INR 91 crores. And in the reconciliation, we have also mentioned that. EBITDA on GAAP is INR 97 crores.

So we will now open the questions, [ Mamta ].

Operator

[Operator Instructions] The first question is from the line of Nihal Jham from Edelweiss.

N
Nihal Jham
analyst

Sir, 3 questions from my side. Sorry to repeat but just for the one-offs that you have given, I just wanted to confirm that I assume the inventory write-off that would have reflected in terms of higher COGS, right? Is that the right understanding?

K
Karunakaran Mohanasundaram
executive

Yes. Nihal, that's the right understanding. And thanks for your question.

N
Nihal Jham
analyst

And what about the receivables write-off, where would that reflect in the P&L? Just to be sure about it.

K
Karunakaran Mohanasundaram
executive

Under operating expenses.

N
Nihal Jham
analyst

And similarly for the lease one-off, that would have idly shown up as a higher other income? Or it shows -- how does that show up?

K
Karunakaran Mohanasundaram
executive

That is shown again as -- it's not an income. It's an expense. That is [ a lease ], it is included in other operating expenses.

N
Nihal Jham
analyst

So basically, other operating expenses are higher by INR 12 crores than what they ideally should have been and your COGS is higher by INR 9 crores. So that is the way this has been accounted in the P&L?

K
Karunakaran Mohanasundaram
executive

Absolutely, right. 6 plus 6, 12, yes. 12 plus 9, INR 21 crores. You are right.

N
Nihal Jham
analyst

That is absolutely clear. The second question was that in your presentation and in terms of your store openings also, we do see that most of your stores that you opened last year are mainly in tier 2 and 3 cities. And even for the pipeline ahead of the 12 stores, I think then you're planning in the T2 and T3 city?

Just wanted to get a sense that how has the store economics for these stores which I'm guessing are smaller being in terms of pickup? And is -- are there any specific aspects which are better or worse than the existing set of stores, which I say, more Tier 1 city focused?

V
Venugopal Nair
executive

So on the store economics, these tend to be -- you're right that a larger proportion of the total stores tend to be in the Tier 1 or Tier 2. And I'm separating out metro and Tier 1 when I say that. The overall store side tends to be [ slimmer ] and we are now looking at between 25,000 to 30,000 square feet in our Tier 1 or Tier 2 store.

Because of this, the trading density is very healthy. And the lease cost is on a lower side. Further, we are also able to get CapEx contributions from the landlords, which again helps in our overall investment. In terms of sales, the productivity is at par or in medium cases, better than what we have seen in some of our larger stores. And overall, because of this, the payback tends to be around the 2 to 2.5 years.

N
Nihal Jham
analyst

And if I just want to ask, how -- would that [ payer we say around ] 4 years versus stores that we've traditionally opened in the key city, main metro and Tier 1 cities?

V
Venugopal Nair
executive

Around 2 years.

N
Nihal Jham
analyst

Two years for the stores are currently opening in tier 1 city. I was asking for the legacy stores that would have widely been opened in metro and tier 1 cities earlier.

K
Karunakaran Mohanasundaram
executive

That would be 3 to 3.5 years.

N
Nihal Jham
analyst

3 to 3.5 years. My last question before I get back in the queue is that I know you've highlighted about your digital sales, obviously, having a strong base. But it's now been, say, 24 months since COVID has happened. You've seen multiple months, whether they were as a part of lockdown or normalized, and there is a run rate that you would have seen does get established.

So the sense that I wanted to get is that is this run rate of INR 50 crores that we saw for this quarter, maybe it would have been slightly higher or lower if Jan would have been normal? The normalized run rate that you expect things would progress at. And if not, then what are the initiatives we need to do to take this higher from here? Because the Shopper Stop brand and the app has been well known in existence now, say, for the last 18, 24 months since we undertook the strategic initiatives.

V
Venugopal Nair
executive

So when it comes to digital sales, while we classify digital sales where it is directly not online. We do believe and based on data that we have that customers specifically, our First Citizen customers would shop online shop offline as well, even when they are looking at online. So one, shoppersstop.com definitely aids in driving customer traffic both ways.

In terms of the absolute rate itself now while the overall number has been growing because the total sales has gone up in the year, and hence, the percentage looks not as must as it would have been otherwise. And going forward, the improvements that we have done on customer experience in Shoppers Stop on shoppersstop.com and the SS beauty app which we are planning are the initiative, which will help us to grow our sales digitally.

Operator

The next question is from the line of Percy Panthaki from IIFL.

P
Percy Panthaki
analyst

Sir, I just wanted to understand how have you derived this number of INR 40 crores for the operating profit impact due to COVID?

K
Karunakaran Mohanasundaram
executive

You were talking about this January, right?

P
Percy Panthaki
analyst

Yes.

K
Karunakaran Mohanasundaram
executive

Yes. January, ideally, we do anywhere between INR 400 crores to INR 450 crores revenue, Percy. That is what we did with INR 280 crores to INR 285 crores. And the balance INR 120 crores, whatever is the profit that normally we get it because the fixed expenses are fixed. I mean nothing changes there. So that's the flow through. We got it around about INR 40 crores.

P
Percy Panthaki
analyst

But sir, wouldn't there be some postponement of purchase, so if a person has not purchased in January, that sale is not lost for the quarter completely, right? It will filter through in February or March to a large extent. And that's why you have seen also March being very strong, at least one of the reasons partially would be that the January sales has got postponed into March?

V
Venugopal Nair
executive

So that's an interesting thought. Now what is different in the month of Jan. Jan tends to be an industry driven sale market. And that is where brands go heavily on sales. And a big chunk of that was completely missed out because of the closures or the slowdown as one might put it. So that is why -- and as you would have seen, the sale didn't get extended -- they extended beyond the 15th of February, which is normally when it closes. And that's the reason a lot of what would have come through in Jan did not get postponed.

P
Percy Panthaki
analyst

Okay. Got it. Secondly, I'm just trying to derive a very clean profit for you, excluding any one-offs. So basically, you have done non-GAAP EBITDA of INR 13 crores. On that, if I add back the INR 40 crores of COVID impact, if I add back INR 15 crores of omnichannel investments, and I add back INR 21 crores of all the write-offs one-offs that you have done, I get about INR 63 crores of profit. Now this INR 63 crores of profit as a percentage of your sale of INR 798 crores, that comes to about 7.8% EBITDA margin. Now is that -- I mean, this is normalized for any kind of one-offs, any kind of COVID impact. So basically, 7.8% is the kind of margin that is sort of inherent in the business now. Is that understanding correct?

K
Karunakaran Mohanasundaram
executive

Percy, one thing. Q4 is normally the lean quarter for us. Normally, we do see Q4, if you have observed after January, February and March is relatively low. So to answer your question, the INR 15 crores and normally, I think in all probably will continue next year also because as far as we have this omni, we have to continue to invest in omni. So I would say the EBITDA margin at that level of sales, I would expect anywhere between 6 to 7 percentage if it's on a normal basis, Percy.

P
Percy Panthaki
analyst

Okay. Okay. But I was like taking out the omni just to get a clean picture. And where I'm coming from, I'll just give you an idea. So before COVID, let's say, FY '18 or '19, on an average, we used to do about 6% EBITDA margins. And then you mentioned that around INR 200 crores of cost saving per quarter -- sorry, per year would come through, which are actually coming through this quarter, you did mention INR 47 crores, which is very close to the annualized run rate of INR 200 crores.

So that INR 200 crores as a percentage of sales works out to about 5 to 6 percentage points. So if my pre-COVID margin is 5% to 6%, and then I add another 5% to 6% on this, we should be at a double-digit level before the omnichannel investments, which we are not yet there.

K
Karunakaran Mohanasundaram
executive

Again, a very, very interesting thought, Percy. Without omni, we will be in about close to 8 percentage. Please understand that Omni also has a sales of INR 50 crores. So we are only taking these expenses and saying that this will be the number. But we should also lose the sales to get the ideal number. One thing Percy in the month in quarter 4, we have a muted quarter 4. The fixed expenses, more or less, say, be January and half of February, remains constant. So at that sale of around about INR 890 crores in non-GAAP, any percentage of EBITDA, like will be slightly distorted. I would say, take an ideal number of INR 1,100 crores, which would be the normal in Q4 and then we should calculate the...

P
Percy Panthaki
analyst

I understand where you're coming from. The only reason I asked this because historically speaking, I was just looking at your Q4 margins, and they were not very different from the full year margins. That's why I asked.

Operator

The next question is from the line of Varun Singh from IDBI Capital.

V
Varun Singh
analyst

Two questions. First is on inflation. Sir, why do you think that Shoppers Stop business will not be impacted because of such a rapid rise in inflation and not just in the raw material of apparel, but also, I mean, the general inflation that we are seeing, so kind of 40 or 50 years was inflation that everyone is facing and apparel and beauty both being a discretionary category. So my question is twofold. Why don't you -- why you think that the frequency of buying will not be impacted as well as shift of customers from branded to private label products and also because there is so much now competitive intensity has heated up that there is an easy access, more apparel retail outlets are out there and as well as private label retailers are so dominant in presence. So Venu if you can give me some -- your view on this.

V
Venugopal Nair
executive

So I think I'll take your question in 2 parts. One is the inflationary -- the inflation and hence, the pass-through that we have already impacted, and we now have about 3 months of history where we haven't seen a significant impact, which is the reason that in the current trade, we believe it has been accepted.

The second factor is our loyal First Citizen consumer. And you'll remember that between 75% to 79% of our sales from our First Citizen customers. And these are our all customers who have been with us for a long time and would prefer to shop with us [ dusters ] and in times like these when our costs go up, they choose to go to brands that they trust. And that's where we benefit compared to a number of the others.

And the third probably factor, which is also that our target, and we are in the premium segment. And this target segment of ours, especially on retail is likely to be less impacted by the price rises compared to some of the other lower segments.

V
Varun Singh
analyst

Understood. That's very helpful. So you are saying that stickiness of the premium customer will help you with regards to not losing market share to competition. So let's hope that...

V
Venugopal Nair
executive

And hopefully gaining market share.

V
Varun Singh
analyst

And gain market share, right, right. And second question, Venu, is on beauty. So please help me understand with regard to why we are obsessing about the aggression or discriminating more towards with regards to CapEx investment for the SS beauty stores? What are the -- so I have just 2 questions on this. The first question is, why we think that aggression towards beauty -- so I mean investment more towards beauty is more accretive for the company.

And second is what are the right 2 wins that we are creating into this category? I understand you talked about the assortment and the 3 different types of assortment that you want to curate an exclusive brand sign up that will be available to your stores only and look and feel, et cetera, that you are focusing. But still, I mean, I would dare to ask this question that compared to the other ramping competition, which is already there into this category, what are the right to win that you think we should be creating?

And also, I wish to know that who are we idealizing? So if you can name 1 or 2 companies the look alike, which we are -- at least we are very much inspired from. Yes, that's it from my side.

V
Venugopal Nair
executive

Okay. So if I take the question on beauty at an overall level. Firstly, beauty is 16% of our overall sales and on an overall turnover of 4,500, that INR 750 crores that we do on beauty. And this was pre-COVID. That makes us the largest player in beauty, the largest retailer in beauty in the physical space. And that is a position that we have established over a number of years now. So we are a destination for beauty and has been over the years now.

As the beauty space is starting to get more mature and customers are moving or adopting beauty, the market itself is growing, and that gives us the opportunity to get a larger share of the market as the market itself grows. Specifically within that, our right to win comes from the fact that we are focused on the premium and digital luxury segments of beauty.

And this is, again, a category that we hold, and we are the largest player there. What has moved rapidly over the last 2 years is the advent of digital and online in beauty. And that is something which we have -- we are adopting and through both ss.com as well as ssbeauty.com. We would be catering to the digitally native customers who are adopting and getting into beauty. I must point out that overall, online beauty players contribution has been less than 10% from premium brands and that is where we see a big opportunity.

At the same time, having SS Beauty stand-alone stores gives us the opportunity to create an environment where the customer engagement is a lot more personal with specific focus on makeover skin care. And these are interactive engagements where the customer would walk into the store for the experience. And that's the point of difference that we are creating for ourselves based on the strength that we have of the strong beauty stylists and artists that we already have with the last dose.

This is something which is quite -- which is a big strength for us again because of the experience that we have in this area. And that's what we are leveraging as we go into the SS Beauty stores.

The second factor is also with the smaller SS Beauty format. It helps us to grow faster because these are smaller stores and getting space is easier. We will keep tweaking the mix of brands and improve on the mix to tune further to our customers' needs and requirements.

I must also point out that while online has been growing when it comes to premium and luxury brands, experience is very key, and that's something which comes only offline. And that is what would help us to increase our reach due to the small format.

Operator

[Operator Instructions] Next question is from the line of Ankit Kedia from PhillipCapital.

A
Ankit Kedia
analyst

I have 3 questions, and I'll say all the questions together. Cost is on the beauty expansion for SS Beauty. You have planned on the 10 stores for SS Beauty in FY '23. Do you think the number is not very aggressive, given the opportunity size you guys are targeting? And some of your competitors, even some of these start-up brands are actually doing payoffs and expanding more aggressively. Within the 20 years, we have invested in beauty and having one of the highest market shares in offline, 10 stores for brand would be less.

Second question is on the A&P spend. While we have just recruited a percent of content a month back, and with the SS Beauty app coming in, do we plan to do more including our marketing campaigns and our A&P spends in FY '23, '24 could see a significant jump?

And my third question is on the throughput for the renovated stores. While the new stores, which are 25,000 square feet in the past, we have said they do 1.3, 1.4x of the regular stores. Do the renovated stores also have the same throughput as the new small store format?

V
Venugopal Nair
executive

Okay. So let me take -- I might have to ask you to remind me of the questions, but let me take the first one SS Beauty. On SS Beauty, it's a fair point that 10 stores would look to be soft, let me put it that way. I mean that's what we have put into our numbers for now, but that's not a restrictive number. What is important for us to have is to create a sustainable, profitable model.

And that's why for the first year, we have taken a slightly lower number to help us get the brand mix right, the product mix right and also the assortment mix right for our turn. So that's the reason that we have taken a softer number, but there is -- that's not to say that we cannot go faster or we will not go faster as the success in the -- as we see sectors in this area. The second one was on the...

K
Karunakaran Mohanasundaram
executive

A&P spend.

V
Venugopal Nair
executive

On the A&P spend. Yes, I think it's a very fair point. And we have provided a slightly higher number for A&P for this year because of the importance of making sure that using content, using influencers, using celebrities, we are able to reach to the customers and communicate better. We do believe that this will also result in higher sales.

And the third point that you had or the third question you had was on renovation. Yes, we do see significant improvement in productivity post renovation, almost second to the new stores. In fact, I could give you an example of in [ orbit ] in Hyderabad, where we actually reduced the space. We renovated the entire store, reduced the space and from almost 30% less space, we are achieving the same level of sales that we had before the renovation was done. On an average, we do see double-digit growth after a renovation.

Operator

The next question is from the line of Ali Shakir from Motilal Oswal.

A
Aliasgar Shakir
analyst

This is Aliasgar. So I have a question on private label. So can you share what would be your target over the next 5 years for a private label share in our overall department store? And also would like to get some more insight in terms of a private label shelf space is certainly increasing from what used to be probably single digit to probably now 40%, 50% in particularly smaller stores.

So how is the customer reacting to this? We've been a department store which largely provides a wide range of brands to customer. Now we are giving a very large proportion of private label to the customer. So if you could just share some insight in terms of how does the customer react to this. Is there any risk to customers' response in terms of average ticket size? I stop here.

V
Venugopal Nair
executive

Thanks, Aliasgar. So if I give part of the question. So first, the overall share of private brand is [ 15% ] and if we look at only apparel, [ 13% ] because we do have a large proportion of non-apparel that's not [indiscernible]. Second refers to [indiscernible] as you point to [indiscernible] ability for the private life also equally from our side to give a higher portion of the [indiscernible]

Operator

I'm sorry to interrupt you, sir, but we cannot hear you clearly.

K
Karunakaran Mohanasundaram
executive

Yes, the line is -- yes.

V
Venugopal Nair
executive

I hope it has gone away. I mean I can promise you we haven't.

Operator

I can hear you clearly now.

V
Venugopal Nair
executive

Perfect. So I'll just repeat the second part again. So on the space provided to private brands. When we go into the Tier 2 stores, it does tend to be higher, and that's because the acceptance of the private brands into the smaller stores is definitely high. And that's something which we will continue to work on as we go forward.

A
Aliasgar Shakir
analyst

Okay. Got it. And sorry, I didn't hear you clearly, what is the target we mentioned over the 5 years for private label share?

V
Venugopal Nair
executive

Over the next 5 years, we -- and we aim to be around the 25% mark.

A
Aliasgar Shakir
analyst

That is for the overall region? I'm sure apparel will be much higher.

V
Venugopal Nair
executive

Correct. Yes.

Operator

The next question is from the line of Gaurav Jogani from Axis Capital.

G
Gaurav Jogani
analyst

I have 2 questions. So one is with regards to the integration with the Unicommerce that you have done, if you can explain it a bit more in detail as to how it will help us in the overall sales on the online front?

And second thing is a question for Karunakaran, when you mentioned that the EBITDA margins would be like 6% to 7%. So that would be on the non-GAAP sales or the reported sales? That's it from me.

K
Karunakaran Mohanasundaram
executive

I think let me take the easier one. And on the EBITDA margins, whatever I have said to Percy is on a non-GAAP basis, Gaurav.

V
Venugopal Nair
executive

On Unicommerce, Gaurav, Unicommerce is the middleware that we use. And they have partnerships with a number of brands. And what it does is it makes the integration with our own inventory -- our own front end or shoppersstop.com much easier and provide a real-time inventory thing on shoppersstop.com for all the brands that we work with. So without the Unicommerce, the inventory team would have to be done manually at the end of the day or a few times a year -- a few times during the day, whereas this gives the real-time swing.

What it also does, because of that is that the inventory may not be in our stores or in our VP only. It can be in the DC or the stores of the associate partner brands that we work with. And down there through our logistics partner, we can -- once we get the order pickup from wherever the inventory is and get it to our customers. So it helps us to expand the number of brands that we work with.

G
Gaurav Jogani
analyst

Sir, if I understand it right, it will help you to not only increase your assortment to the customer, but also reduce on the working capital requirement as well. Is that the understanding right?

V
Venugopal Nair
executive

Absolutely. So to multiply the number of brands that will be available on shoppersstop.com.

Operator

The next question is from the line of Yash Bajaj from Lucky Investment Managers.

Y
Yash Bajaj
analyst

Sir, can you hear me?

V
Venugopal Nair
executive

Yes, very clearly. Yes.

Y
Yash Bajaj
analyst

I had just one question. So seeing how there's a rise in inflation within going on for the past 2 months. So I read a few reports that stated that the premium segment is compare -- is performing comparatively better compared to the mass segment. So like how do you see that in Shoppers Stop since we are a premium segment store concept?

V
Venugopal Nair
executive

So yes, we are in the premium and our overall sales numbers are satisfactory. And so to that extent, we are quietly confident of the coming months and quarters. While we have had to take an increase in our average selling price because of the increase in the input costs, we haven't seen a significant impact on the sales.

Y
Yash Bajaj
analyst

Okay. Okay.

V
Venugopal Nair
executive

In our stores, what -- one comparative, which we do see is that the premium brands within our stores are growing faster than the rest. So that's the implication.

Y
Yash Bajaj
analyst

Okay. And what kind of price elasticity do we have in terms of our products which we offer?

K
Karunakaran Mohanasundaram
executive

So [ can you, ] Yash, because there is a lot of disturbance.

V
Venugopal Nair
executive

So in terms of price elasticity, we have taken an increase in our average selling price of roughly 8% to 10%. And so far, we are not seeing a volume drop.

Operator

The next question is from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas.

K
Kaustubh Pawaskar
analyst

Sir, my first question is on the working capital. So we have seen a reduction in working capital in this quarter despite the time that there was disruption led by the Omicron. So what led to this improvement in working capital and whether it is going to be sustainable?

And related question to this is that we have around INR 190 crores of debt on our books. So going ahead, since we are expecting FY '23 to be one of the strongest years and profitably, we expected to improve on better operating levels. So considering that and with improvement in cash flow, should we expect our debt to come down or the CapEx would largely be done through internal accruals and debt would remain at similar rates?

K
Karunakaran Mohanasundaram
executive

Let me answer one by one. First one, yes. See, we borrowed from 3 banks: HDFC, IDFC and ICICI Bank. From HDFC and IDFC, we borrowed INR 75 crores. And we have to pay the quarterly installment that we will pay this year, whatever that's payable, we will pay. That should be around about INR 75 crores for the entire full year. So that should come down.

ICICI, we have 2 or 3 installments that is due this year, so that will also come down. With no new fund, I would expect by the end of the year will be around about INR 105 crores, not more than that. That's one.

Second, you also asked about the working CapEx. Overall, for this year, we had almost INR 120 crores reduction in working capital. If you ask me whether this is sustainable because we are existing in private brands, the kind of working capital reduction, what we have this year, we may not have next year, but we will still see a negative working capital for next year.

We also have a very, very tight control on inventory. We are planning to institute a completely different process to ensure that our immunity is under control. So those -- so those things will have a negative working capital.

On the last question, by the end of the year, we should have a net negative debt. When I say net negative debt, that means our investments will be higher than the debt so that we will have a net negative debt at the end of the year.

Operator

The next question is from the line of Paresh Jain from Bajaj Allianz.

P
Paresh Jain
analyst

Can you just update us as to what is the potential dilution arising from ESOP and its impact on the P&L?

K
Karunakaran Mohanasundaram
executive

Normally, we don't give this, Paresh, but it's a very, very significant number because if you're talking about the past, ESOP, what we have given, that will be probably 0.1 or slightly lower than that, not more than that.

P
Paresh Jain
analyst

And there's some planned 2022 also which has been formed, right?

K
Karunakaran Mohanasundaram
executive

That's right. So that has been, again, see, all these things are over a period of 3 to 4 years, nothing will cease in 1 year. So even ESOP 2022, probably may see a sharing dilution of between 1.5 to 1.8, not more than that.

P
Paresh Jain
analyst

Okay. And its impact on the P&L?

K
Karunakaran Mohanasundaram
executive

We'll see in 4 to 5 years, okay?

P
Paresh Jain
analyst

Yes. And impact on the P&L?

K
Karunakaran Mohanasundaram
executive

We are working on the -- an agency because it also depends on what you share the employees because it is still not got approved by the shareholders right now, I would probably may not be able to share beyond this price. If it is approved by shareholders, then we can share probably in the next quarter.

Operator

The next question is from the line of Deepak Poddar from Sapphire Capital.

D
Deepak Poddar
analyst

I just wanted to understand, so is there any kind of revenue growth that we are looking at in FY '23? Some direction would be helpful.

K
Karunakaran Mohanasundaram
executive

Of course, we are looking for revenue growth, Deepak. If all goes well, we should be in double-digit growth. In fact, at the beginning of the speech, Venu did mention that we will grow in line with the retail industry. So we should have a decent double-digit growth for this fiscal, Deepak.

D
Deepak Poddar
analyst

Okay. Understood. And the INR 7,000 crores in 4 to 5 years, that remains our outlook, right?

K
Karunakaran Mohanasundaram
executive

Yes, absolutely.

D
Deepak Poddar
analyst

In the medium term?

K
Karunakaran Mohanasundaram
executive

Yes.

Operator

[Operator Instructions] The next question is from the line of [ Shivaji Meta ], individual investor.

U
Unknown Attendee

Sir, if cotton prices continue to increase from the current INR 90,000 per candy. Do you feel that you'll be able to take price hikes without really impacting demand? Or you feel that this increase in the cost will have to be borne by the entire textile supply chain?

V
Venugopal Nair
executive

Definitely, there is no room for a constant price increase. It's not that elastic either. So it is something which will need to be reined in and even as we speak, I'm aware of a number of efforts that is being made, both by the industry associations as well as by the government to reduce the overall impact and improve the supply so that the prices come down.

So what we are hoping is that the overall prices will not go. And if they do continue to stay, we will have to work with our partners to see how we can mitigate some of that to be able to not pass it on with our customers.

Operator

The next question is from the line of Binoy Jariwala from Sunidhi Securities & Finance Limited.

B
Binoy Jariwala
analyst

My question is on the omnichannel CapEx. So we've -- if you could just correct me, that number that you shared for FY '23 is about INR 50 crores. And I would like to know if this number is going to be recurring in nature or is there a sunset here?

K
Karunakaran Mohanasundaram
executive

So Binoy, we don't have any CapEx for omni either for FY '22 or FY '23.

B
Binoy Jariwala
analyst

No, I meant OpEx.

K
Karunakaran Mohanasundaram
executive

OpEx, yes, we do have. This year, we invested close to INR 60-odd crores. So next year, also, we will invest close to that because we do expect a significant jump in normally.

B
Binoy Jariwala
analyst

And is this going to be a recurring year after year? Or there is a sunset year by which we will not have to invest behind only? Or maybe we have to invest a very marginal from behind only?

V
Venugopal Nair
executive

Binoy, I'll take that. At the moment, it is an investment. And I've talked to you about the Phase 1, Phase 2, Phase 3, and we did it. And that was something which was more of a onetime. Going forward, and we have, I would say, the heavy lifting on customer experience for shoppersstop.com. However, we are moving on to SS Beauty, as I had mentioned before, there will be some [ part of it ] into that.

Overall, these [indiscernible] all accounts to [indiscernible] and won't expect it to be very near. That's the first point. Second point, at the same time, what I would say is that technology for only will need upgradation every 1.5 to 2 years because of the pace at which tech changes, something which we will continue to do to ensure that the [ front ] that we offer to our customers and our ability to personalize and communicate to them at a one-to-one level remains absolutely robust.

B
Binoy Jariwala
analyst

Understood. My next question is on the gross margin. You've seen gross margin hovering around 31%, 32% odd levels. Is there scope to improve this gross margin? Because the thing is being a premium player, we are at the lower end of the gross margin amongst the retailers. So -- and 200 odd basis point -- 100, 200 basis points improvement in gross margins will be a big flow through to the bottom line.

K
Karunakaran Mohanasundaram
executive

So Binoy, there's no doubt about it. So we have 15% private brand and the balance, 80% to 85% each of the brands, where we have an agreed margins. So as we increase the private brand because of the mix, the overall margin will increase.

B
Binoy Jariwala
analyst

But there's no scope to renegotiate the margins that you have with the branded players, right?

V
Venugopal Nair
executive

There is scope, and that is an ongoing activity, which is our business vision, which we keep also when we introduced newer brand, they tend to be at higher margins, which would again have. So that's a constant activity.

B
Binoy Jariwala
analyst

Okay. Where do you see your gross margins to be once you hit, let's say, a private label share of 25% in the next 4, 5 years? Where do you think the gross margins can be?

V
Venugopal Nair
executive

I mean that's something we wouldn't want to give a guidance on at this stage, Binoy.

B
Binoy Jariwala
analyst

Okay. My last question is on the CapEx. We shared that some of the CapEx is also shared by the landlord. What is the -- what is -- how much of the CapEx is shared by the landlord? And the 12 special stores that we plan to open, how much would be on this shared model?

V
Venugopal Nair
executive

It varies quite significantly Binoy from a property-to-property basis and from an location-to-location basis. So there is no one fixed number that I can -- I would be able to share on that. I mean there are instances where the entire CapEx is borne by the landlord or the developer as the case may be. And in some cases, it is a percentage of the total. Obviously, our aim is to try and get as much investment from the developer as possible.

B
Binoy Jariwala
analyst

Understood. But this would, in turn, also lead to a higher rental outflow, right? Because landlord would want to recover this amount somehow or the other, right?

K
Karunakaran Mohanasundaram
executive

May and may not be, Binoy. I mean, it all depends on what do we negotiate at the end of this period. Sometimes where we are going for a new city and Shoppers Stop stock being a premium store, it has its own advantages, and we can able to negotiate better with the landlords.

I mean there is -- as Venu said, there is no fixed. It all depends on [indiscernible] , what is the average weekly [indiscernible] what is the landlord willing to offer? What is the competitors around bring? I mean, there are many factors which determine that.

Operator

The next question is from the line of Pawan from Renaissance Portfolio Management.

P
Pawan Parakh
analyst

Just one clarification. The 6%, 7% margin number that was stated in the call, that is like the adjusted margin for this quarter adjusted for these one-off expenses and omnichannel-related costs. Is that the right understanding what was that number actually, 6%, 7% margin?

V
Venugopal Nair
executive

The first question was, if I take all the one-off and if I have a normalized January sale, and if I exclude the big investments of omni, will our margins be between 7% to 8% range. Yes. I mean if I exclude all those things, we have to exclude the sales of omni so many other factors. That's what we said. I mean, in a normalized environment of our margins, particularly in Q4 being one of the big quarters would be in the range of 7% to 8% range.

P
Pawan Parakh
analyst

Okay. And going ahead, I mean, next year, we are seeing decent double-digit growth. Anyway, FY '22 had several issues for retailing industry. So obviously, this margin should -- so it should increase, right, going ahead on an annualized basis?

V
Venugopal Nair
executive

Yes. We -- I mean, internally, we have planned for an increase on it. That's right.

Operator

The next question is from the line of Ankit Kedia from PhillipCapital.

A
Ankit Kedia
analyst

Sir, 2 questions from my side. First is on the cost savings. Do you think there are any cost savings left for us by FY '23 or broadly, we have exhausted and now in the inflationary environment, we will see significant inflation now versus FY '20?

K
Karunakaran Mohanasundaram
executive

Ankit, we discussed in the past. On -- there are cost savings that will continue even in FY '22. For example, the employment cost or some of the operating costs. So all these things, what we did in FY '21 when we implemented 0-based budgeting. These costs will not be done, and we will continue to save. What we have been seeing in the income statement is a lot of new stores have opened, a lot of normal costs that has come in right now. That's the reason the savings get camouflage, Ankit.

A
Ankit Kedia
analyst

So I was asking for FY '23 perspective going forward.

K
Karunakaran Mohanasundaram
executive

Yes, we will still see. That's what I meant. We will still see.

A
Ankit Kedia
analyst

And sir, my second question was in the initial question-and-answer session, you mentioned that we have actually planned effect for 2022 departmental stores. So just wanted to understand why we are guiding for 12 stores, the planned CapEx is for 2022 stores. So I didn't get that lesson. So for next year's plan, our CWIP this year is what we will invest in. Is that the right understanding?

K
Karunakaran Mohanasundaram
executive

You are right, Ankit. See, what happens is when we make investments, department store normally takes 90 to 120 days to complete the store from the time we signed the agreement. Sometimes it takes slightly longer because landlord may have what we call statutory approvals that has not come in so or and so forth.

So our guidance on new sources, we will open 12 to 15 stores. And we may have almost 5 to 8 stores in the pipeline to be opened in Q1 and Q2 of next year. So the investments, what that is appearing or what Venu has said, includes all the CapEx investments of 20-odd stores.

Operator

Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.

V
Venugopal Nair
executive

Thank you, Mamta, and thanks for -- to all the participants and for the questions. I think in summary, what I would like to say is that we have strong growth, and our growth trajectory is very good, and that's something we are very pleased about. Our strategic pillars are firing on all cylinders. And we are seeing the benefit of the wardrobe reboot and the office reboot, combined with occasions of weddings and postponed marriages, et cetera, that are helping us.

Our store expansion strategy continues to be strong. And overall, we are investing into talent to fill the new age skills that are required for our organization as we move to being a strong omnichannel retailer.

K
Karunakaran Mohanasundaram
executive

Thank you.

Operator

Thank you. On behalf of Shoppers Stop Limited [Audio Gap]

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