Demonetisation shadows over profit margins of retail companies

Demonetisation has curbed the spending power of consumers in a big way and the results are visible with companies posting their financial performance. The September quarter results announced by Shoppers Stop, Titan and Bata India are indicating the impact. Titan’s revenue declined 1 per cent, year-on-year. It derived as much as 74 per cent revenue from jewellery, which saw a very marginal below 1 per cent revenue growth. Higher prices took a toll on gold demand. Jewellery sales volume fell 32 per cent. Shoppers Stop Ltd’s reported 2.2 per cent like-to-like sales growth in department stores while like-to-like sales volume declined 3.1 per cent. Like-to-like sales growth is the comparable sales growth of stores that have been operational for at least a year.

Bata India’s operating profit margin expanded 80 basis points to 9.2 per cent aided by a 5 per cent decline in other expenses. But revenue growth of a mere 1.5 per cent wasn’t up to the mark. High level of competition from multinationals as well as e-commerce firms adversely impacted revenue growth, according to an ICICI Direct report. One basis point is one-hundredth of a percentage point.

The outlook seems to be bleak as well. For Bata India, H2FY17 is expected to be hit on account of demonetisation resulting in a decline in footfalls, consequently leading to a fall in revenues for FY17, adds ICICI. Following a subdued quarter, Shoppers Stop has revised its like-to-like growth estimates downwards to 5-5.5 per cent (from 8 per cent) for fiscal 2017, said analysts from Emkay Global Financial Services. Demonetisation is expected to adversely affect near-term sales. That is a good enough reason to keep these stocks out of fashion till a sustainable sales recovery is visible.