Shoppers Stop Limited (SHOPERSTOP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of Shoppers Stop Limited. I must remind you that the discussion on 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. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Venugopal Nair, Managing Director and CEO. Thank you, and over to you.

Thank you, and good morning. Thanks for joining us today to discuss our financial results for the second -- for the third quarter of this fiscal year, which ended on the 31st of December 2021. We have shared our Q3 results in the investor deck and press release, and I hope you have had a chance to go through the same. I'll now talk to you about our Q3 performance, the progress on our strategic pillars and the way forward. At the very outset, I must say, we had an extremely strong quarter, and we saw big forward momentum carrying on from the recovery that started in the second quarter. Consumer confidence has rebounded sharply. And as a result of this, we recorded extremely strong sales. Our GAAP sales was INR 1,070 crores, a growth of 35% over Q3 of FY '21, with margins growing by 170 basis points. Our non-GAAP sales was INR 1,190 crores with a similar growth. The business was strong with the same-store sales driving the performance and was consistent throughout the quarter, seeing a high consumer -- seeing a high customer strength and a growth in the average transaction value. The growth in average transaction value has now been sustained over 7 quarters, which is a clear engagement of the customers coming in and it shows us that when they come to us, they spend a lot more, both offline and online. Apart from the strong sales in stores, our sales through the digital channels also continued to perform strongly and grew by 39% over FY '21. From a product point of view, ATHLEISURE and Activewear have been in demand for the last 18 to 20 months and has been well talked about. However, in the past quarter, consumers have rebooted their wardrobes for the post-pandemic life, buying in large quantiles of different categories of apparel and beauty. We realized this trend very early and our stores, having an assortment that is in sync with this consumer taste, we benefited from this wardrobe reboot that is being done by our customers. After a short gap, we are also back to opening of new stores. During the quarter, we opened 5 new stores, 3 department stores and 2 beauty stores. On operational costs, we continue to save versus the financial year 2020. In Q3, we saved INR 40 crores, and we are back to being a debt-free business. With the strong sales and tight control on costs, we reported an EBITDA of INR 197 crores as per GAAP financials, which is a growth of 57%. On non-GAAP reporting, the EBITDA was INR 100 crores, and our non-GAAP EBITDA grew by 5x of 380%. We continue to invest into our business. The investments are to grow our digital commerce capability and on new source, along with data, analytic and MarTech. We also refurbished some of our overall stores. Combination of all of this, so far, we have invested INR 55 crores during the year. I now move on to our strategic pillars. As always, I will take you through each of these strategic pillars one after the other. We continue to make good progress in each one of them. First Citizen, our loyalty customer program, continues to demonstrate a strong growth trajectory, with offline sales accounted 72% of its sales coming from our First Citizen customers. And online, this was 42%, which was up 160 basis points. The First Citizen Black Card customers, which is our annual subscription program, performed exceptionally well, with enrollments growing by 85% year-on-year in this quarter. This subscription service brought in a revenue of INR 4.5 crores in membership even as these customers bless us with a much larger share of their volumes illustrated by the fact that this segment of our customers visit us 4 times more than our core First Citizen customer. In the omnichannel, our contribution for First Citizen grew, as I mentioned before, and these are customers we are engaging very closely. Our unique service to our customers, personal shoppers and the contribution from personal shoppers has been consistent, contributing to 10% of our sales. The average ticket size of the customers shopping with us with the assistance of personal shoppers is 3x that of our core First Citizen customer. We also had styling festivals through our personal shoppers, both online and off-line. A big focus for us in our stores is to have varied experiences for our customers week in and week out, so that every time a customer comes in, they see something different that is something new for them to look forward to. The same we are doing on shoppersstop.com as well to make it a far more engaging, increasing the number of visits that we get from our customers. At this point, I am delighted to share that we have now achieved new Chief of Marketing Shwetal Basu. Shwetal joined us from Metro Brands where she contributed to the growth of their various brands. She has extensive experience of working with retail marketing, including a long experience with ABRL. she is spearheading our drive of customer engagement through the use of data and the information that we get through the spending CapEx of our First Citizen customers, enabling us to offer better service to them, both online and off-line. We have now started using propensity models to be able to bring them a much more curated offer on a regular basis. I'll now move on to our second pillar of private brands. Our strategy for growing our private brands in apparel continues to work well. Private brands contributed to 14% of the total business, with it being 18% online. Specifically in apparel, our private brands contributed to 18% of the total apparel sales, which is a growth of 185 basis points. Within private brands, in women's Indian wear, our private brands now account for nearly 50% of our total sales from this category through our brands of Kashish, Haute Curry and Stop. In kids wear, our private brands of Karrot, Stop and Life grew's by 98%, which is absolutely delightful and spectacular. In the last call, I had mentioned to you about the launch of our first B2C online brand Insense. I'm glad to share that this brand has now established an annual run rate of INR 5 crores and is growing strongly. Our first pillar is beauty and beauty grew by 41%. And the sales from this category accounted for 17% of total sales, a growth of 75 basis points in the quarter. The growth was across both off-line and online, with us having a record single-day sales on November 11, also known as Singles Day. This quarter, we launched 28 new brands in beauty. And so far in the year, we have now launched 70 new brands. Arcelia, our private brands in the beauty segment, launched 40 SKUs of perfumes, deodorants and sheet masks. This marks the entry of Arcelia into the fragrance and deo space. Another 75 SKUs of makeup and nails are to be launched in the fourth quarter this year. This would be our entry through this Arcelia into the Makeup category. Makeup accounts for 51% of the total beauty's sales mix. And hence, we expect this to be a big contributor going forward to our sales. In the last call, I had also mentioned about launching stand-alone beauty stores. Today, we are doing the launch of our first SS beauty store with the second one slated to open in the next 3 weeks. This is a segment we intent to grow aggressively, both offline and online. At this stage, I would also like to share the good news of us having appointed a Chief Beauty Officer to accelerate the growth in this category. Biju Kassim joined us earlier this week. Biju has over 27 years of experience in international brand management, distribution and retail operations in the luxury and lifestyle space. For the most part of his career, he has been based out of Dubai and Mumbai, working with businesses across various countries in Asia, Europe and Africa. He has held leadership positions at Integra, Baccarose and Beauty Italia in his past roles. His understanding of the business, expertise in strategic planning and operational excellence, along with his forward-thinking leadership, will add tremendous value as we look to grow aggressively in the beauty space. Finally, the fourth pillar of omnichannel. Business sales grew by 39% on FY '21 and continues to grow strongly quarter-on-quarter. Our sales on Amazon specifically saw a massive growth. We have transformed ourselves into an omnichannel retailer with shoppersstop.com firmly established as a shoppers destination for our customers. Consumers now have a metaverse mindset. Adapting to this consumer behavior, we are focusing on social shopping that gives our customers a seamless experience from discovery to checkout. As mentioned before, we have been working on improving the customer experience online. The first upgrade of our Shoppers Stop app was done in December, and you would be seeing a much better visualization from before. The page load speeds have improved significantly, and the combination of these improvements is being appreciated by our customers, as is demonstrated by the fact that the rating of our app has now moved out from 3.4 to 4.5. The next phase of the upgrade is due later this month. As you would appreciate, this is an area we are investing in. And part of -- a big part of our total investment is into digital to enhance the customer experience and to continue to drive our strategy of building a sustainable growth online. We have also been investing into data, analytics and personalization. And this is an area which continues to help us engage with our customers in a much more sharp manner. We have now started to use propensity models, which gives us -- which we are able to derive through the data that we have of our customers shopping, especially with the history that we have of our First Citizen customer. As you know, this is 8 million customers strong data. And these customers have been engaging with us consistently over the last many, many years, giving us a rich data for us to be able to use and mine. I'm confident this focus on data and analytics will help us to continue to reach our customers in a much more targeted manner online and also off-line where using the behavior that we are seeing of our customers, we are able to bring in much more sharper offer of brands that they are looking for and is more suited to their local needs. Finally, moving on to expansion. As I mentioned before, we opened 3 full-length stores and 2 beauty stores [indiscernible] in this quarter. We have another 5 stores, department stores, that are fully ready and will open once the malls that they are in are ready to open, most likely to happen in the third and fourth week of February. Majority of our new stores is in [ city ] and we have a strong pipeline for the next year, which will be a big contributor to our future growth. In summary, we had had an exceptionally strong quarter and are demonstrating sustainable growth. This is a result of the strategy that had been put in place over the last few years and is working very well. We have a strong team that is in place with able leadership and capitalizing on the high loyalty and great trust that our customers have, we expect to see continued growth on Shoppers Stop. Thank you all, and we'll open up for any questions.

[Operator Instructions]

One second, we've received a lot of questions as Venu was speaking and some of the questions we received this morning.

Should we take those first?

Yes. What we thought if we answer those questions, probably some of the questions would be automatically answered. I mean we have almost 20 questions, okay? Venu and I, we will it take through.

Okay. So I'll start with, the first one was, what are the key growth drivers for the top line? Expected like-to-like slow growth in the medium term? So I think that's 2 questions. Our growth has been across all our strategic pillars. The strong foundation that we have is of the brands, both national and international across apparel, beauty, watches, sunglasses holds and all of these categories have been put [indiscernible]. Apart from that, we -- specifically -- the growth engines, and we have really 2 big growth engines, which we have identified in the category space. One is beauty and the other one is our own private brands across apparel. And these 2 are growing well ahead of the average growth that we are seeing. The second part of the growth comes from the channels, which is omni as well as new store expansion. And again, as I touched upon, both of these areas, we have aggressive plans to grow. In terms of what would be expected like-for-like store sales, we expect to have high single-digit or low double-digit growth in the immediate future. I would say more double digit in most of the quarters. Second question is on way forward on private labels? Private brands is a strategic pillar, and it is outgrowing our departmental store sales consistently for the last 7 quarters now. We have -- we started off by trimming down the number of brands, making sure that each brand caters to a specific lifestyle, and there is a clear brand definition, which we'll continue to sharpen as we go along. Our latest additions, Bandeya and Infuse, as I mentioned, have had a very robust start and look very promising. And the way forward, our private labels will continue to grow by growing product categories and filling the gaps within product categories that we have under these plans, has also got increasing pace as the category starts to outperform productivity of the rest of the store. We will also invest strongly into building these brands through advertising and marketing and through sharply focusing on our specific customers who are buying our private brands. Of course, also private brands gives us a massive opportunity to grow our margin. The margins in private brands being significantly higher than what we made in our business. Next question is on margin profile for beauty center, especially do they have better margins and breakeven faster? We have opened 2 beauty stores and they are extremely profitable. As I said, we are opening 2 more in the next 3 weeks. And we have opened -- we intent to continue this drive over the next 12 months in key locations that we are -- where we are not present. We are very confident that we will continue to recover our investment, as we have seen in the stores that we have already opened. On margins, Beauty margins have always been higher and will continue to be higher. The 3- to 4-year growth strategy. I think I already outlined that in my speech. But if I were to just summarize that again, our growth is through our strategic pillars, our strategic pillars of First Citizen, private brands, beauty and omnichannel. Building on the strong base that we have of our existing business being the house of brand and the partnership that we have with our brand partners, both national and international aided by growth through expansion of stores apart from lifestyle space. Next question. Discussing how much of the pace takes place during the discount season? Have discount rates gone up? For this quarter, our sales during end of season was -- the end-of-season sale was actually lower, it was marginally lower than the previous year and -- as the window for end-of-season sale has been reduced. How is demand shaping up in the last fortnight of December and beginning of Jan? How have the footfall been year-to-date January '22? I think as we know, there is a slight slowdown because of Omicron and the third wave that has come. There are multiple restrictions that are applicable across sales within a few states, the stores being closed over the weekend, stores closing early during night curfews, et cetera. The good thing is that this time, there has been no complete closure anywhere. So the stores are trading, but with significantly lower footfall. So it has definitely impacted. However, because of the double vaccination and the fact that the actual severity of Omicron itself is much lesser than what has been seen in the past, we expect this to be a short period, and we expect the footfalls to come back fairly quickly. Next one's on what is the company's strategy for Infuse? As I said, Infuse is our B2C brand, hot fashion, young, trendy and targeting the young customer in the 18 to 25 age group. We will continue to grow this online and grow this by expanding the choice that our customer has, the number of options that the customer is able to see. And of course, I am delighted with the way the team has grown this category of -- grown this brand and having had a preview of what is to launch in February and March, it will be a very, very sharp increase that we expect for this brand. Any details the company can share on the INR 40 crores investment done for digital? I think I again touched upon it. It's been twofold. One is the investment into the customer experience, improving the UI/UX on our app. Also the data analytics and improving our capability to be able to analyze the trend and then using AI and ML to be able to retarget and reach our customers and engage with our customers in a much sharper way. Data is becoming a key part of what we do and fundamental to all our decision-making. And this is being aided by the analytic's ability that we are now being able to get through the investment that has been done in this area. The second part of the investment in the digital is also in marketing and especially social commerce, which I mentioned. The whole metaverse mindset of our consumer and how we are able to adapt to that. And again, we are able to do that digitally, which is where our investment is going at. The next one, I think, again, relates to a similar one on Omicron. Do you see a further -- threat of further delay in recovery for the retail industry? Overall, I think if you look at what we saw, the customer sentiment is extremely strong and buoyant. And So I expect the Omicron slowdown to be short and sharp. It'll be short-lived is what we expect. Next question is on the omnichannel contribution in city environment comes to around 6%. What are the plans to increase the contribution in the next 4 to 5 years? Over the next -- this is an area we continue to invest in, and we continue to grow. Again, as a private brand omnichannel sales has seen consistent growth quarter-on-quarter for the last 7 quarters now. The growth here is coming with better engagement with our customers by being able to bring them back on to our app as also through Amazon and mac.in and [indiscernible] which are the other platforms that we operate. Specifically on shoppersstop.com, the First Citizen customer base that we have is extremely valuable. And I touched upon the -- our ability to now use the shopping behavior, the wise behavior that we have of our customers to develop propensity models, which then gives to us a working that we are able to do that. The growth in omni sales will also come by adding more brands, and we now have a number of brands which are present only online and not in our stores. And this gives an additional opportunity for our customers to get products and brands that they don't get in stores. And also by offering them, it becomes -- as an omnichannel retailer, it gives customers an option of being able to shop at any point and do it as a competition [indiscernible] to us, where and let's take example of a watch that they have seen online and being a high-ticket purchase, many customers would like to actually feel the product before they buy it and the ability for us to be able to offer that experience is quite unique. Or if I take beauty as an offer, and we have grown online beauty very strongly, as I mentioned. But then makeup is an experience that can -- I mean it's an experience, which we have to see, and it's something only we offer. And that's the point of difference which we have, which again helps customers to be able to start the journey online, come to the stores, experience it, see the color or feel the product before they actually buy it. So multiple ways by which we expect our omni sales to go up: improvements in the customer service, I mean I am just summarizing that. First one is improvement in the customer service. Second is the wider offer of brands and products. Third is convenience and the ability to experience the product, seeing the product before they buy, making it truly omni. Next question. I think the next set of questions, I'll request my colleague, Karuna, to take.

Thanks, Venu. Thank you so much. The next question is revenues have increased by 34 percentage, while employee costs have increased by only 3 percentage. Any reason for the same? We have been talking in the last 4 or 5 quarters. We have commenced our zero-based budgeting on cost and that has yielded a significant result, not only in employee cost and overall the other cost also. In addition to that, we have closed almost 8 loss-making stores. To say combination of these two have kept not only the employee costs, the other costs also in check. So that's the reason you can see the cost overall increase is much lower than the revenue increase. The next question is, what are the efficiency pockets we are targeting to drive up our operating margins? Three or four things. One, we have been continuously talking to the brands to improve the overall margin. Second, we just spoke about -- at least other strategy both on private brand and the beauty, both are going to outgrow our normal departmental sales. And both Beauty and the Private Brands have a significantly higher margins as compared to our brands. So that will improve the overall gross margin. Of course, there will be a blip due to omni. But yes, just a small one. So overall, we expect the mix to be better. I just spoke about zero-based budgeting and costing. So the cost savings will also help us to improve the overall EBITDA margins. The next question is any impact on GST rate increase from 5 to 12 percentage? What percentage of the sales are priced below INR 1,000? Let me answer the first one. The impact would be very deep if at all it gets implemented as we have seen the government has deferred already 3 times. So if at all it gets implemented, the impact is very very intense. We are working on 2-plan strategy here. One, we are renegotiating the cost with the suppliers. And we will also take selective price increase on our apparels. Say, of course, on the footwear, the GST is increased from 5 percentage, but that's very, very insignificant for -- an overall basket. The next question is the gross margin continues to be at below pre-COVID levels. What could be the reason for the same? In fact, compared with pre-COVID, our off-line gross margin has increased by 110 basis points. Because of the significant increase in reform, there is some adverse impact. But overall, our gross margin remains flat as compared to the pre-COVID. We have published the results both for FY '20 and FY '21. If you still have, I mean, any questions, we have yet to answer that. The ASP has increased sharply by 20 percentage over last year. Venu, you want to take that?

Yes. I think this is a combination of 2 things. As I mentioned before, this time, we have had a shorter end-of-season sale period and this has resulted in lesser discounting as compared to last year. And in the last year itself, it was after the second wave and there was a much sharper drive to clear inventory and hence, a higher level of discounting had happened. And it's the combination of the two that has massively impacted overall ASP growth. And this is something which we have seen with our brand partners as well as with our own brands, the lower level of discounting this year versus last year. The second factor is also the product mix. And one of the factors which helped us in our growth in the last quarter was the marriage season, which came back very, very strongly given that marriages have been postponed from the earlier quarters, and there was a big rise in shopping, specifically for weddings and festivities. And this leads to a product mix, which is of a higher value, which again led to the higher price increase and the growth in the ASP.

Okay. The next question is how the investment in omni and technology of INR 55 crores has been capitalized or expensed out? Yes, let me clarify, we update close to INR 100 crores or slightly more than INR 100 crores investments as of year-to-date, out of which INR 66 crores is on account of the [ physical resource ] a combination of other CapEx and deposits. The CapEx will be capitalized. The deposit will be treated as deposits, and it will be [indiscernible] . In addition to that, we also spent INR 40 crores on omni which, again, Venu spoke in his detailed speech. Of this INR 40 crores, INR 20 crores is in marketing and the balance is in technology. Both the expenses in marketing as well as in technology, we have expensed off. The next question is, is the company in talks for the rent waivers? Of course, yes. With the lower footfall, the entire retail industry has been talking with the landlords for the rental waivers. We are at the beginning stage. So yes, we have been discussing with the landlords and probably when we meet next, we can come back with these. The next question is on the -- what is the scope for further margin improvement? I just answered that. A combination of how we are going to grow private brands Beauty and the cost savings. So I just answered that. The last question is why depreciation is low end on a year-to-year basis? Two reasons, rather 3 reasons. One, we took a onetime impact on depreciation in FY '20 for almost INR 20 crores. Second, in the last 2 years, we have closed almost 11 stores, and that has resulted in lower depreciation. What has also happened is, I'm sure we're following a straight-line method. And when we do a straight-line method, at some point of time, the assets get automatically retired. I mean there will be not be any further depreciation because we have those assets that have been fully depreciated. So these are the 3 reasons why our depreciation is [indiscernible] lower on a year-by-year basis.

Just one more question, which is on Arcelia's run rate. So Arcelia is our private brand in beauty, which I talked about in my speech. The current run rate on is Arcelia is INR 1 crores per month. And this is only with just the bath and body range and for 3 weeks in the quarter we had fragrance and deodorants, as I elaborate it. This is a brand which we expect to see massive growth. And with makeup getting launched during the quarter, as I said, we are launching 75 SKU's of makeup and nails in the fourth quarter and with more to come in the following quarters. This will become a large part of our city offers. That completes the questions that we have. We can now take questions from people on the call.

[Operator Instructions] The first question is from the line of Aliasgar Shakir from Motilal Oswal.

Yes. I had a question on your cost while you did give some indication. When I compare your cost with 3Q FY '20 numbers I see with the revenue recovery, your margins are actually nearly about 60, 70 bps below. So yes, well, employee cost is obviously lower, but rest of the costs are higher. And of course, omnichannel cost is actually something I see INR 40 crore increase. So I just want to understand, I mean, whatever cost savings you have mentioned, should we expect this to now be utilized more towards our omni investment and therefore, the overall level, cost should remain where they were at pre-COVID level? Or I mean, how should your overall cost structure trend now?

Thanks a lot, Aliasgar. See, actually, the costs have come down as compared to FY '20. In FY '20, we had a total cost of INR 345 crores. And as of now, we have INR 305 crores. If you remember what we said at an annual level, we will continue to save INR 200 crores. And we did save INR 40 crores in this quarter. And we also said that INR 200 crores is excluding the investments what we make on omni or any other marketing investments we will be making on a strategic pillars. So as you rightly said, I mean, both Venu and I touched about, we invested close to INR 40 crores in omni. And in spite of that INR 40 crores for year-to-date, we could save close to INR 40 crores for the quarter. So to answer the question, the cost savings should be -- we should be able to sustain this cost savings, Aliasgar.

Okay. Could you quantify because when I'm seeing 3Q like-to-like there is about 70 bps lower margin. So I mean, I'm just thinking, well it is called, it is a large part got in, I mean [indiscernible] into this quarter, if that is the reason that if you could quantify from that level, what kind of margin saving do you expect to continue from FY '20 level?

Our margins have increased as compared to FY '20 level, Aliasgar. What I can do is, I mean, like I can give you breakup [indiscernible]. See, we saved almost INR 17 crores in employment and occupation, every -- in across all the lines we saved the cost. Probably, it should be discussed offline. I mean you know my number, and I know your number. Yes, why can't we take it off-line and then -- I am not pretty clear about, I have to see the numbers. So we can take it off-line and then we can take it definitely [indiscernible].

Sure. But can you just share some outlook in terms of from FY '20 levels, what kind of margins saving post omnichannel investments do we expect net of that?

See, our investment normally continues to be dynamic, okay? And similarly your marketing cost. So while we would definitely save INR 200 crores, probably, if we're going to invest INR 30 crores to INR 40 crores in omni as well as in other marketing, so our net cost savings should be between INR 150 crores to INR 160 crores. As I said, Aliasgar, I mean, like these are basis of dynamics. And it's difficult to expect -- these are investments broadly, we are discussing internally.

The next question is from the line of Nihal Jham from Edelweiss.

Congratulations on the performance, sir. Given it's one question, the key question I wanted to check with you is that you're incrementally targeting majority of our store openings in Tier 2 and 3 city. And looking at the ASP, it is, I guess, a little higher than what a lot of the other retailers generally work at. So when you move into these cities other than, say, having a smaller store format, are you targeting a change in assortment also to maybe align to those regions? Or just your thoughts on how do you see yourself succeeding in those regions? What are the changes you plan to make?

Absolutely. I think you have nailed it when you say it's a combination of either stores and also our ability to -- first as a house of brands, we have the ability to play up or pay down depending on the [ attachment plan and location.] For starters in a number of -- most of these stores, we would have a higher percentage of private brands because private brands in the hierarchy cater to the good and better segment of our customers and are more attuned for our Tier 2 customers. The second factor is, again, by being able to look at the data of our First Citizen customers who are shopping with us online from some of these places, we are able to get a better sense of which brands would be more suited for these -- for the [ attachment ] and accordingly bring those in. And the third is also the split between categories itself because unlike a number of our competition, we have had a good mix of apparel, beauty, watches, sunglasses, travel. So we are also able to reach the category based on the attachment and the need of the customer in those places.

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

Venu, my question is for you. It's been more than a year now that you are in the system. I just wanted to know, is the top management team, according to now fully set? Because last 2 or 3 quarters, we have seen some replacements, some -- a lot of new joinees at the top level now. So are you confident? And which areas do you see, still need some leadership team members to join, which will take you through the next 5 years?

Thanks for that question. So firstly, our leadership team is now fully in place, and we have had, I would say, additions rather than replacement, filling into key areas. This year, we are driving growth and our strategic pillars first. As I mentioned, Shwetal joined us and looked after our strategic pillar of course and customer and customer engagements. It's an area Shoppers Stop has always excelled in and we continue to be ahead in that area. Biju joined us on Beauty. And again, he is a strategic pillar and would help us grow aggressively in this area. The other new members who joined the team in the previous quarters were who Sandeep who had joined us as the Head of Retail. And this was a gap which we had in our leadership. And the fourth new member who had joined us earlier this year was Sreekanth and Sreekanth joined us as the Chief of E-commerce, which again is our strategic pillar, and hence, having clear leadership in this area. So as you can see from the additions that we had, it is to spearhead each of our strategic pillars and make sure that we have good leadership for us to be able to grow in these categories. So other than that, our team is complete. We have an excellent team in place. The team, has settled apart from the 2 new members who joined recently, all the others have settled in well and these 2 new members who joined have also blended into this the team very well. And I'm absolutely delighted with the way that we are working as a team. And this is clearly illustrated in the mojo that there is within the team, the confidence, and the [ move ] that is present within the team.

Sure. If I can just squeeze in a couple of questions from Karuna's side. Karuna, on the cost savings, while you alluded INR 200 crores would be on FY '20 base. With the current inflation we are seeing across, [ curbings ] on the manpower cost or be it in other areas as well, about 3 years out with the aggressive store opening as well, do you see from FY '22 base cost growing in line with our top line growth or you see the cost growing -- we can see some margins apart from private label beauty and stuff, but broadly, the cost growing in line?

Ankit, thanks for the question, Ankit. From what we said even at that time is INR 200 crores on a like-to-like basis. Of course, if we open -- say, we are opening close to 8 to 10 stores this year, and we are planning to open 10 stores next year. So all those inorganic expansion will definitely drive the cost, okay? So that's one. Second, again, I repeat once more. We are investing in omni and that we should have significantly good results. And we are being extremely conservative even with our technology investment, we do capitalize, but we write-off as and when we invest. So all those for investments are very -- take some of the cost savings what we make. But I mean if it is on a like-for-like basis, we should be able to save close to INR 200 crores. And plus, yes, whatever the investments we are making and probably, we may make -- INR 30 crores to INR 40 crores on omni. And some investments are on the new stores. Yes, those things will reduce the overall cost savings. But on the like-to-like basis, we will still meet and we will save INR 200 crores.

And my last question is on the ASP increase. While, Venu alluded on the two parts, one shorter EOS and second product mix. Are you seeing raw material pressure being there with the way land prices are? And in the next season, industry as a whole needs to take a double-digit price increase given the way the inflation is in raw materials?

Yes, definitely. We are seeing cost price pressures, especially in the apparel category and also to some extent on beauty where bulk of the product tends to be imported. And given the pressures on raw material and the input costs, there is a price increase that we have already taken. What we do believe is that because of the strong offering that we have, this is something which will still keep us very, very competitive in the market. We have -- I wouldn't say it's a double-digit increase, but it is a high single digit increase.

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

I was looking at your gross margin. And for the quarter versus 2 years ago, they have dipped by about 200 basis points. Just wanted to understand the reasons behind the same.

Percy, probably, that could be the -- see, we have given both the non-GAAP results and the GAAP results. On the GAAP results, our margins -- I'm just talking, on the off-line, we have increased significantly, but that has been offset by the omni. But overall, our gross margins remained the same as we were in FY '20 in the non-GAAP. In the GAAP, what would be -- what could have happened is because of AS115, the revenue recognition is based on consignment sales and non-consignment sales. So that could be one of the reasons where the GAAP margin would have come down. But in my request would be, take the non-GAAP and then the margins are absolutely remained the same.

Okay. Okay. So basically, I'm just trying to reconcile the EBITDA margin fall, and I'm looking at the EBITDA pre-Ind AS 116. So you have -- you mentioned earlier that you have actually saved some costs between the gross profit and EBITDA. So if the EBITDA margin has fallen despite the cost savings, that would mean that there is a gross margin compression? Or am I missing something here?

No. You are -- let me -- I'm not sure from where you're getting the numbers. I mean we have our non-GAAP thing, okay? So our margins have remained flat. The cost savings is around about INR 40-odd crores. And our EBITDA margin decreased by 55 basis points, which is a [ fixed thing ].

Okay. I'll probably take this off-line with you.

Just take it off-line -- yes, we can discuss off-line. And then I can take you through the entire numbers.

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

Sir, my question is on your store expansion wherein you clearly mentioned that you will be adding another 5 stores -- departmental stores and these stores will be largely in the Tier 2 town. So in terms of size, should we expect the size of the stores to be lower compared to what it was earlier for you? And second question, and it is -- now you're focusing more on your omnichannel -- in the channel and digital platform. So considering that even your departmental size growth would be lesser in the coming years compared to what it was earlier?

Thanks for the question. So our store sizes earlier used to be in the range of 40,000 to 50,000 square feet. As we go into Tier 2s and as you rightly picked up, most of our expansions and focus even to the last year is where we are not present or even where we are present where we have the opportunity to grow a second one. And I'll elaborate on that in a minute. But the reduced store size is definitely a set formula that we are now using. And typically, it is 25,000 to 30,000 square feet that we are now going with versus 40,000 to 50,000 square feet. We -- and what we are seeing in these places is the productivity and profitability both are significantly better. Examples of Siliguri, Ranchi, where we have opened tighter stores and extremely profitable with a very high productivity. In fact, Ranchi, which I mentioned, where we already have 1 store, we are actually going with the second store in the Tier 2 city itself given the adaptability that we have seen and the acceptance from our customers of these places. Similarly, there are a number of other cities where we are expanding into, there's Jaipur, Jodhpur, there's Guwahati, Bhubaneswar, all of these places where we are going into. The second question, sorry, I forgot your second question. Could you please repeat?

Yes. So now since we are focusing more on the omnichannel...

Yes, yes. I remember now. On omni. I mean, see, if you look at the market penetration of retail. And if I just step back and look at the macro number, in retail, organized retail today is 29% of the total retail market. A large part of the growth that is being seen in online is unorganized retail moving into organized. And a number of this migration from unorganized to organized also would benefit the organized physical retail. Hence, the opportunity for both online and offline. Second, the future of retail is omni. It's neither online or off-line. Customers will choose to start their journey online and then get into the store or vice versa as per their convenience. And hence, retailers will need to be present, both off-line and online to be able to fully service and cater to our customers. And that is the journey that we are on. And we are seeing that increasingly that whole engagement on the app and in the store going up. And this data and analytics, we are able to service and cater to that customer in a much better form.

Right, right, right. And just one question on the consumer sentiment. As you mentioned that this continued despite the fact that there is emergence of third wave, the consumers' sentiment have been strong. So considering that even though you are going to see some kind of a temporary blip on Q4 numbers because of the restrictions on various [indiscernible]. But whatever the small blip would be, should we expect that to [ dead ] recovery speed. One, because the pent-up demand would be there. And again, the marriage season is expected to be postponed. So continuing that and the overall improvement in the mobility, should we expect the quarter 1 sales to be better than -- if there is some kind of blip in Q4.

You're absolutely right. I think there is a pent-up demand, which we saw come out after the second wave, and we expect the third wave to be much sharper, shorter and the recovery to be equally strong and quick. As I said, there is -- I believe, we believe there is a wardrobe reboot that is happening where customers are gearing up for post-pandemic life, buying large quantiles and different categories across apparel and beauty. And we were able to realize this trend early, and it's something that we will continue to review and make sure that we are offering the right product to our customers. And that's something which plays to our advantage because of the large portfolio of products and categories that we carry and our ability to we weave in and out based on what the consumer demand is. So actually, the wardrobe reboot, combined with the availability of data and the agility that we have now to be able to cater to that stands us in good step and would be able to help us grow our business strongly and sharply.

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

Sir, just I wanted to understand first on the other income side. Now -- so how much of the other income reported of about INR 40 crores would be from maybe rent waiver or those sort of income? And what's the sustainable other income going forward?

You were talking about the GAAP numbers for Q3?

Yes, sir, the INR 41 crores number.

That includes some of the consignment sales, what -- where we account only the margin income. So the -- other than that -- I mean, that fluctuates depending upon the contracts what we have with our suppliers. So I'm sure you know the AS115. Other than that -- see, there is nothing but what we said and how these being treated in accounting for the purpose of GAAP. Other than that, we do expect the other income of anywhere between INR 10 crores to INR 15 crores this year third quarter, and it should marginally go up as we move on. See, the other income comprises of 2 large things. One, we [indiscernible] what we get it from our retailers. The second one is the subscription money what we get it for the loyal customer base. It has both, the normal loyal customers as well as the Black Card customers. We have been seeing a significant increase on the subscription from our Black Card customers. In fact, Venu in his speech has also said that the Black Card customer's subscriptions have almost doubled in the last one year. So yes, as we go through, I mean, as we do expect a significant increase on this income.

Okay. But going forward INR 10 crores to INR 15 crores per quarter is what -- is a normalized level?

Yes, it should be slightly more than that, probably INR 10 crores to INR 15 crores is right now, it should be slightly more than that.

Okay. Okay. Fair enough. Understood. And sir, in the past, like on a little medium term, maybe 4 years, we have spoken about doubling over maybe the revenue from FY '20 base, which is about INR 3,500 crores. So FY '25, our vision would be to have INR 7,000 crores kind of a top line target. So any comments on that?

Yes. I think our -- and as we have stated in one of the earlier calls, our aim is to double our business over the next 4 to 5 years. And I would expect it to be slightly higher than that. So INR 7,000 crores on GAAP sales is what we have put up, which is pretty much a thing where we would end up. On a non-GAAP, it will be slightly higher. And the engine for this growth is, as I said before, the growth of omnichannel, new stores and from a category point of view, the strategic pillars of private brands, beauty and First Citizen.

Yes, yes. The pillars that you had spoken about. Yes. And my final query is on your margins. So how do we see margins going forward now. 19% margins that we reported, how sustainable that one should look at?

Q3 is exceptionally good because of 2 reasons. One, our Q3 has always been the best quarter not only for Shoppers Stop but all the retail. So the Q3 margins are always right. But again, let we discuss the non-EBITDA margins. Our non-EBITDA margin should be close to high single digit in the next 1 to 2 years. And then -- yes, like because [indiscernible] from the private brand in beauty it may be [indiscernible] low double-digit 3 years from now.

The non-GAAP, right?

Yes. The non-GAAP, yes.

The next question is from the line of Prateek Poddar from Nippon India Mutual Fund.

Yes. Sir, just one observation. When I see within the private label, the mix of beauty is much lower than apparels. And with you launching the new category, which you just spoke about in the initial remarks and covering the entire category, is it fair to say that the mix of beauty within private labels will increase from hereof?

Yes. Currently, the mix of beauty is extremely small. I mean -- because it started only a couple of quarters back, and it's -- so far, it's only bath and body and three weeks [indiscernible]. So this is a category, as a percentage to the total in the private brand place, beauty will play a much bigger role in the next 4 quarters because we have a strong lineup of new launches, which are likely [indiscernible] there.

And can you just help me understand the gross margin differential between Beauty, Private Brands versus third party?

It is significantly higher. I wouldn't want to put an absolute number in there, but what I can say is that it's significantly higher double digits.

Okay. So just to then add these 2 together with the share of Beauty increase -- in Private Brands Beauty increasing and that really talked about gross margin differential in the next 2 quarters, we could see -- I think Karuna was also mentioning, higher gross margins coming into the business on a structural basis?

Yes.

The next question is from the line of Devanshu Bansal from Emkay Global Financial Services.

Congrats on a good set of numbers. Sir, I wanted to check on how these growth investments are going to be funded going ahead? So would the internal accruals suffice or we may have to raise external capital as well?

As you would have seen, we are completely debt-free and the internal accruals that we have are more than enough to be able to fund these.

Sir, on a net basis, I guess, our cash reserves are at about INR 10 crores to INR 12 crores. So...

Right. See, this is a year in which the first quarter has been completely washed out. The second quarter, we had almost 50% range. Third quarter, we came close to pre-COVID. From next year onwards, if there are -- I mean, we do think there will not be any COVID and our investments, as you have seen in 2018-'19, 2019-'20, all were completely internally funded and they will continue to be internally for that the investments what we're doing.

Sure. Secondly, I wanted to check on, you mentioned about increasing margins from the brands. So is this specifically for new brands that we will be associating with or with existing brands as well? And also if you can indicate any ballpark numbers for the increase, that would be helpful?

See, we've been continuously negotiating with all of our trade partners for increasing margins. And particularly [indiscernible] found that there are specific reasons why we have to take a margins [indiscernible] we have been doing that. So it's bit difficult to give up to the number saying that what would be the margin increase from the brands next year. But yes, that's ongoing, and there has been an increase of, say, 10, 20 basis points or sometimes slightly more than that on year-to-year basis.

Also just to add to what Karuna said, there are 2 other levers which help us. One is by jointly looking at and working with our brand partners to reduce logistics costs, which can be a significant portion. I mean if I give a specific example that one of our large brand partners, what we did was to relook at our entire supply chain and by moving it to a warehouse based model, we've been able to increase our overall margin and at the same time, reduce the inventory. So that's one reason. The other one is that we also are continuously looking at the performance of the brands within our stores and brand stores that don't perform, we have the ability and flexibility to be able to replace them with better brand. And as we bring in newer brands, we are also able to negotiate a higher margin with some of these. And the -- I mean I said 2, of course, common one, which is the third one is also consistently working on better buying and hence, lower discounting, a better sell-through and being able to sell at a full price is something that we pride in ourselves and our able buyers and merchandisers together are constantly looking at this to make sure that we are able to sell at a much higher sell price and hence, a much lower level of discounting that we need to do, which leads to a final higher margin.

Sure. Sir, last call, you mentioned about a slower pickup in some categories like ethnic and all, how has been the pickup during Q3?

Q3, -- I mean Indian wear has had a lower sales for a few quarters. However, in Q3, it picked up very sharply, aided by the festive season of -- that we have in the normal quarter. Plus, as we mentioned, the number of revenues, which have got postponed, et cetera, coming back. And obviously, all of these cater specifically to the ethnic wear and Indian wear. And we saw a very, very sharp growth in both -- in the categories, both across women's and men's. Bandeya, which is our newly launched men's brand, contributed to 5% of the total men's wear sales. Similarly, in Indian wear, our private labels of Kashish, Stop and Haute Curry contributed to nearly 50% of our overall sales. And if I look at absolute growth that we saw in women's Indian wear, it was disproportionately higher than the rest of the category.

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

A couple of questions for corona and one for you, Venu. First, the second corona, can you give me the carryforward tax losses that are available to us as of date?

I will -- it should be close to INR 350 crores to INR 400 crores, Binoy.

Understood. And by when do we expect this to be able to set off this completely?

See, we are, I mean, working on the plans. So in the next 2 to 3 years, we should be able to completely replace these tax loss.

Understood. Okay. Last one for you is on the omnichannel OpEx that we plan to do about INR 40 crores in FY '23. Will this be ongoing at the rate of INR 40 crores, INR 50 crores a year or FY '23 is the last year?

So we have spent INR 40 crores as of now, okay? And we expect the omni share to increase from 6 to [ 10 ] percentage over a period of time. So if we want to increase our omni share to double digits, we have to continue to reinvest. I don't think without investing, we can get a 10 percentage. So INR 40 crores is what has happened as of today, probably for the full year, it will be higher than INR 40 crores, which will be primarily in marketing and technology. And if you ask me whether we will have it for next year? Yes, we will definitely have so for the next year also.

However, also want to add to what Karuna said, important to note that when it comes to omni, especially the technology investment, we -- most of our investment is an OpEx rather than a CapEx, while -- so the benefits of the investment would last much longer. And hence, the absolute spend overall will start to taper down after a period. But currently, we are in the investment phase there.

Understood. Understood. And the last question, which is specifically for you, Venu. As you have reiterated on this call as well that we plan to double sales to about INR 7,000 crores on the GAAP numbers over the next 4 to 5 years. This means that we are targeting -- we should be targeting close to 20% sales here for this period, right? When I look at the disclosure that you've made for retail area addition in FY '20, that amounts to roughly 7-odd percent of the total area, right? So 20 minus 7, 13% has to come from same-store sales growth ballpark, right? So first question is that would you -- do you see the need to revisit the time lines? And if not, then what is giving you the confidence of being able to deliver double-digit same-store sales growth, over the next 4 to 5 years consequently?

Yes. So Binoy, a couple of factors here. One same-store sales and as I touched upon, we expect it to be high single digit, low double digit is what we would expect year-on-year. The second is the expansion that we have taken of new stores. We expect to add around 10 to 12 stores every year. So it would be slightly higher than the 7% that we are factoring in because -- I mean, today, we have 86 stores and 10 stores on that is around 11% to 12%. And I appreciate that even if we were to maintain that same trajectory and the absolute percentage to the overall; when taper out, then it will be broadly around 10%. And the third factor is online growth as we talked about extensively during the call. A big part of our expansion on growth will also come from online sales and digital sales. So those 3 factors is what would help us, and this is something that has been [ tickled ] out, and we expect to be able to achieve that.

Understood. So I was actually saying retail area addition in terms of square footage. So in the presentation, you have mentioned that you plan to add roughly about 0.3 million square feet in F '23, and we have a base of 4.2 million, 4.3 million square feet as of now. So that's how I got the number of 6%, 7%, but I understand. I understood.

It needs to be taken along with the statement that the productivity in these stores tend to be higher.

Understood. Understood. And my last question, if I may? This question is on gross margin. So when I look at the cost structure, you pretty much sorted now you are in the mode of expanding retail area of footprint as well, right? So all in all, this gives us the confidence in the business model. But when I look at the gross margin, you're operating -- on a non-GAAP basis, you are operating at [ 20% ] to 33% gross margin. And operating at such thin margin, the flow-through benefits that you have on to the bottom line is limited as well, right? And you have a CapEx plan of roughly about INR 100 crores a year that you want to fund it through internal accruals. So do you feel that there is a need to improve upon our gross margins? This 200 basis points improvement on INR 3,500 crores turnover or INR 3,000 crore turnover would mean a lot, right? So 100 to 200 basis points even would mean a lot.

Yes. So I think on the first point, absolutely agree. One of our 3 focus areas is to grow our overall margin. And the tools that we are having to deal with these, first and foremost, of course, private brands, which is obvious. And also within private brands, it is the growth of the total sales as well as the overall margins within private brand as well through better buying and lower risk [indiscernible] That's the first one. The second one, we talked about beauty and the growth of private brands in beauty and also the mix of beauty itself because the overall margin that we get in beauty tends to be higher. And these marginal increase also coming in from national brands and within national brands, who are the specific categories where we are making a sharp increase in the share of private brands within them.

Understood. Understood. So can I expect that the gross margin could look up to closer to 34-odd percent or do you think 32%, 33% is a steady state for the business?

Binoy, normally, we don't give any guidance on the gross margins. But we are -- in fact, both Venu and I have addressed separately. There are 3 or 4 levers where we are working on gross margins. One, we are discussing with the brands. Second, Venu has probably reiterated more than 3 times that across both of our Private Brand and Beauty the margin will increase. So overall, the mix should increase. Of course the omni -- the mix -- the margins are low. Yes, partly it will offset, yes. But our plan is to increase the gross margins to the levels of whatever you are saying about there.

[Operator Instructions] The next question is from the line of Vivek Gautam from [ GF Investments.]

Sir, I would like to know about the sustainability of growth in the current quarter? And is it -- are there really one-offs like inventory adjustment and exceptional gains contributing to a good numbers here?

So firstly, the growth that we saw in Q3 is based on strong consumer demand, based on the performance of each of our strategic pillars as well as the core foundation of national brands that we have. And each of this is on very firm footing, and we expect this to be consistent and sustainable. Over and above that, the new areas where we are growing into, especially omnichannel and also in private brand and beauty, these are areas where we have got very high headroom for us to grow as we have detailed out earlier. And given the investments that we are making into each of these areas, and also the strong offers that we have in terms of growth for the customer as well as the product portfolio that we are offering. It's something which will definitely sustain in the medium to long term. Lastly, I talked about the investment into data. And this is something which we are going to double down on constantly going forward with moving and transforming ourselves into a data-led business using AI and ML to be able to derive the benefits of the vast amount of data that is available with us. So all of this makes it extremely sustainable going forward. And we are very, very confident of the growth.

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Venugopal Nair for closing comments.

Thank you very much. I would just like to once again thank everyone for their participation, for the questions and the active engagements that we had. Just to summarize, once again, delighted with the strong quarter that we have had. And we are now demonstrating sustainable growth. This is a result of the strategy that we had put in place over the last 18 to 24 months, and we are delighted that it is working very well. We have a strong team in place with able leadership for each of our key areas. And as we continue to capitalize on the high loyalty and the great trust that our customers place in us and on the Shopper top brand, we expect to see good growth in the coming quarters. Thank you very much, everyone.

Thank you very much, sir. Ladies and gentlemen, on behalf of Shoppers Stop Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.

Thank you.

Thank you.