Retailers have posted
The severe global economic decline late in 2008 continuedits impact on consumers spending well into the first quarter of 2009. Theapparel industry that was expected to be adversely impacted by this recessionfor most of 2008 and into early 2009 has now started improving with the overallimpact of the retail sales growing.
Powered by aggressive cost cutting and favourable terms,retailers have posted a healthy increase in operating profit margins (OPM) thisquarter ended September 2009. Sales of organised retail players have increased10% on a year-on-year(Y-o-Y) basis, against the 7% Y-o-Y increase in June 2009. With consciousemphasis on profitability and sustaining the business, the sector saw betterresults. Quarter-on-quarter (Q-o-Q) sales numbers are better at 17%, unlike theprevious quarter. The growing margins suggest that the belt tightening ispaying off.
Recently announced figures indicate that the Indian textileindustry has made a triumphal upswing and the textile and apparel industrynetted profits ended this quarter 2009 are projected as under as analyticalperspective to the readers. For example, the margins of Pantaloon Retail, thecountry's largest listed retailer, have gone up from June to September 2009.Others such as the Raheja-owned Shoppers Stop and Tata Group's Trent, RelianceRetail and Spencer's Retail, Arvind Limited, Provogue, S Kumars, Koutons arenot far behind.
Having moved from a growth orientation to profitability, thesector seems to be in a consolidation phase with lower rentals, tight check onemployee costs and better inventory management. Employee costs as a proportionof sales for the industry have come down to 4% in September 2009 from 6% in thecorresponding quarter a year ago. All retailers saw a 50-200 basis points (100basis points make a percentage point) improvement in their operation profitmargins (OPM) over the September 2009 quarter. New launches and brands, inparticular, have made changes and advancements in technology, adjusting theirproduct structure and enhancing market awareness.
Recently announced figures indicate that the Indian retailsector - formats and brands has made a triumphal upswing and the textileindustry netted profits ended this quarter 2009. Few excerpts projected asunder as analytical perspective to the reader.
Shoppers Stop's OPM went up to 5 per cent in the first quarter(April-June) of this financial year from 0.2 per cent in the year-ago period.The company's OPM now hovers around 7.5 per cent. In fact, Shoppers turnedaround handsomely in the first quarter after losses in the preceding quarters.
Says "Govind Shrikande, President & CEO, ShoppersStop "The total retail segment went through a downturn primarily from Q3-Q4in 2008 till Q1 in 2009 due to the economic downfall. We saw the sales graphgoing up from Q2 of 2009."
Shoppers Stop, President & CEO, Govind Shrikhande says"Costs are down from last year's levels and the extra sales due toimproving consumer sentiment are translating into better margins. Shoppers Stoprecorded a net profit of Rs.12.06 crore in the September quarter, ended 30,2009 as against a loss of Rs.11.02 crore in the year-ago, due to a change inits depreciation policy that came into effect at the beginning of the financialyear. The company gained 600 basis points from various cost reductions, includingpay cuts and did in neither vacancies nor retrench people. Its gross retailturnover rose 11 % to Rs.413.3 crore in the September quarter compared with Rs.372.5crore in the year-ago period.
Shoppers Stop took drastic steps to cut employee and administrativecosts. Its top management took a 15 per cent salary cut, while 300 floor-levelstaff was not replaced. The company shrank its office space 20 per cent, powerbill 12 per cent and corporate office expenses 40 per cent to cut losses. Thecompany has also changed its depreciation strategy. It will write off itsassets in seven to 10 years, depending on the products, instead of three tofive years until now, which has contributed to improving profits in the Junequarter. "Sales growth and margin growth are the top-up for ourcost-cutting measures".
PantaloonRetail (India) Ltd., numbers were in line with street expectations. India'slargest retailer's 'standalone' sales grew 26% as net profit increase by 12%;Revenues increased 17.5%, driven by higher contribution from the higher-marginlifestyle stores. Same-store sales for value retailing increased by around 7%and for lifestyle retailing by about 11%. Operating profit margins increased 45basis points to 10.7%. Operating performance improved on account of staff-costcontrol and marginally higher gross margins. Net profit increased 21 % to Rs.43.82crore, helped by other income.
While, there was a rise of 31 per cent in consolidated net income from Rs.58,405.4 million in 2007-08 to 76690.4 million in 2008-09, the growth in standalone net income was a bit lower at 25.60 per cent (from Rs.50,489.1 million in 2007-08 to Rs.63,417.0 million in 2008-09).
The standalone operating profit of the company went up by 1.4 per cent as margins grew up from 9.1 per cent in the previous year to 10.5 per cent, during the reporting year (2008-09). This resulted in operating profit leap frogging 46 per cent in 2008-09. Pantaloon Retail takes July-June period as its financial year, compared to most other Indian companies, who follow April-March period as their financial year. While the consolidate numbers incorporate pro-rata impact of performances of other group companies in which the reporting company has equity stake, standalone numbers relate specifically to individual performance of the reporting company. Standalone results of a company are more important than consolidated results for the purpose of analysing its performance during the reporting period. Thus, the announced consolidated net sale/income of Rs 76.69 billion (7,669.04 crore) for the year 2008-09 include Rs.1.327 billion (132.7 crore) in net sales of other Kishore Biyani-Ied Future group companies in which Pantaloon Retail holds financial interest.
Pantaloon's employee costs have dropped 133 basis points and operating costs 178 basis points year-on-year after the company adopted tight cost control measures over the last one year. Pantaloon has also pared its expansion - compared with 2.8 million square feet of space it added in 2007-08, it added just 1.8 million sq ft in FY 2009. Analysts endorse the strategies of retailers to boost profitability and margins. As said by Kishore Biyani, Managing Director of Pantaloon Retail that he is taking a number of steps to reduce costs in the areas such as office space, employee costs, rents and so on.
Trent's (WestSide) margins also went up to 3.1 per cent in the first quarter against 0.7 per cent in the same quarter of the previous financial year, after the company cut costs on raw materials, employees and inventories. Trent's net profit increased to Rs.5.26 crore from Rs.3.53 crore last year. Revenues increased 10.2%, driven by more than doubling of other operating income. Total expenditure grew at a relatively slower pace of 6%, as advertising and sales promotion costs increased by just 1.8% and total raw material costs grew 4.6%. Operating margins szood at 3.78% from almost nil last year.
Koutons Retail India Ltd., had a good quarter given the depth of the recession. While revenues were down quarter over quarter, they grew net sales of Rs.347.25 crore, for the quarter ended 30th September, 2009 as compared to Rs.282.39 crore in the corresponding quarter of last fiscal year. The profit after tax registered a growth of 20.55% to Rs.23.59 crore, as compared to Rs.19.57 crore in Q2FY09. EPS for Q2FY10 was at Rs.7.73, as compared to RS.6.41 in 02FY09. EBITDA Margin was at 17.82% for 02FY10 as compared to 17.36% in 02FY09. These results underline both the resilience of our business model and the ongoing potential of the web as users and advertisers shift online.
Net sales for six months ended September 30, 2009, was at Rs.548.57 crore, as compared to Rs.440.23 crore in corresponding period of last fiscal year, grown by 24.61%. Net Profit for H1FY10 was at Rs.35.09 crore, as compared to Rs.30.41 crore in corresponding period of last fiscal year, registered a growth of 15.39%. EPS for H 1 FY1 0 was at Rs.11.49, as compared to Rs.9.96 in H1 FY09. EBITDA Margin was at 20.09% for H1FY10, as compared to 18.46% in H1FY09.
Marks & Spencer, in its first-half financial results for 200910, said it was on track to open 10 stores with Reliance Retail over the next two years, spread over 200,000 sq ft. Two retail outlets were opened during the first half of this financial year. On March 31, Marks and Spencer Reliance India Pvt Limited, a 51 per cent subsidiary of the group, completed the acquisition of 100 per cent of the issued share capital of Supreme Tradelinks Pvt Ltd, which up until that date was the group's franchisee in India, for cash consideration of 6.1 million and transaction costs of' 0.8m, it said. The acquisition contributed 2.9 million to sales and a 1 million loss to operating profit in the period since acquisition.
Provogue India, the garment maker too records net profit back. Provogue's revenues increased 9%, primarily led by discount sales, even as same-store sales got back on the growth track. Provogue added three stores in the quarter. Operating performance was good and margins expanded by 191 basis points to 9.78% last year. Other expenditure declined 6.8% as lease rentals of some properties were revised downwards, which boosted operating performance. Net profit increased 12%.
Arvind Limited registers their Q2 net profit as Rs.151.9 Mn. One of the largest integrated textile apparel and branded apparel players in India, the brand earned net profit at Rs.151.9 mn for the 2nd quarter of current year as against net profit of Rs 16.4 mn in the corresponding quarter of the previous year on account of volume growth, higher price realization and lower energy cost. Some of its newest measures to this success were their aggressive Initiatives including New Customer Acquisition in Export Markets, Retail Thrust in Domestic Market, Productivity Improvements and Cost Rationalization.
During the quarter ended, the company completed the demerger of its Brands & Retail business to separate 100 % owned subsidiary companies, effective 01 April 2009. Excluding the figures of now demerged brands & retail businesses, the revenue for the quarter are up by 25% at Rs.6 bn as against Rs.4.79 bn in the corresponding quarter of the previous year. At the operating level, EBIDTA increased by 44 % at Rs.840 mn as against Rs.580 mn for the corresponding quarter of the previous year. Under review, the Denim fabrics session registered a growth of 25% in volumes over the corresponding quarter of previous year, following 17% growth in export volume and 31% growth in domestic volume because of company's aggressive market share acquisition plan in domestic market with the domestic volume now constituting 52% of the total volume of denim fabric.
As far as shirting fabric of the brand is concerned, the twin approach of product differentiation & price competitiveness has led to 35 % growth in the domestic branded apparel and retail market. The brand has set-up 500 shop-in-shop counters for retaining functional & performance fabrics called "intellifabrix" across the country. The brand & its retail businesses also grew by 24 % during the quarter.
SKNL, (S Kumars Nationwide Ltd) a leading brand-led conglomerate involved in design, marketing and distribution of high quality fabrics and ready-to-wear garments also reported a strong growth in operating profits in its international operations that were offset by tough market conditions and start-up losses in its India and China business. SKNL demonstrated an ability to deliver improving and sustained performances through variable and often challenging environments demonstrating the strength and diversity of its business model, its net sales, driven by volume enhancement across product offerings grew 69.7% to Rs 951.4 crores from Rs.560.5 crores. Revenues have also been positively affected by a Rs.243.5 crores sales contribution from its overseas operations. EBIDTA for the quarter stood at Rs.183.2 crores compared to Rs.1,33.3 crores, an increase of 37.5%. Margins for the quarter under review stood approximately at 19.2%. In 02 FY2010, PBT increased to Rs.100.1 crores versus Rs.89.1 crores in the corresponding period last year. Net profit after minority interest for the period under review stood at Rs.58.4 crores compared to Rs.57.8 crores.
Hartmarx is also EBIDTA positive, though this is first quarter of the acquisition. The retail group today reported an international operating profit before property disposals at 65.9 million. SKNL now has access to a whole array of leading international brands including Hickey Freeman, Bobby Jones, Hart Schaffner Marx, Exclusively Misook, Austin Reed amongst others. For the rest of this year, the brand expects to progressively improve its performance led by increased festive season sales, higher consumer confidence, and efficient cost management.
Originally published in "Inside Fashion: The Magazine on Fashion & Retailing;" Vol 9: No. 8
Comments