Shoppers Stop Limited (SHOPERSTOP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '24 Earnings Conference Call of Shoppers Stop Limited. [Operator Instructions] Please note that this is being recorded. I now hand the conference over to Ms. Mamta Samat from Perfect Relations. Thank you, and over to you, Ms. Samat.

Thank you, Michelle. Good morning, and thank you all for joining us on the Shoppers Stop Q3 FY '24 Earnings Conference Call. Today, we have with us the senior management represented by Mr. Kavindra Mishra, Customer Care Associate, Executive Director and CEO; Mr. Karunakaran Mohanasundaram, Customer Care Associate, Chief Financial Officer. 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 performance and to strategic questions only. Housekeeping questions can be dealt with separately with the IR team. I would now request Mr. Kavindra Mishra for the opening remarks. Thank you, and over to you, sir.

Thank you, Mamta. I hope I am loud and clear. Good morning, friends. Thanks for joining us today to discuss Shoppers Stop financial results for our third quarter. I wish you and your family a very Happy New Year. As Mamta mentioned, I have Karuna, our CFO; and my colleague, Jaiprakash and Rohit from Finance. As always, I begin with the retail market update, and then we will cover our company's performance, strategic pillar and conclude with outlook for the year. We had begun the quarter with Pujo followed by Diwali in November. I'm happy to say that the festive sales were good. We had a 4% like-for-like growth and overall growth of 8%. We had signs of recovery during the festive season, particularly in the premium category. Post Diwali, we have witnessed a seesaw situation in the market. There has been a delay in winter this year. The temperatures were significantly higher than normal, which impacted our winter wear sales. Post Christmas, we have seen a recovery, but it's still not consistent. There are green shoots. But overall, the market remains muted. While the challenges continue in demand, our performance has been driven by engagement with our loyal members, our overall customer journey, our shift to premium and more importantly growth of non-apparel including home businesses. I will speak about the performance and then on our strategic pillars going forward. We delivered a sales of INR 1,484 crores with a 4% growth. As I said earlier, during the festive period, our sales grew by 9% with like-to-like sales growth of 4%. Our performance has been driven by brand, beauty and nonapparel business. During the quarter, 14 stores out of our 100-odd stores achieved the ever highest sales. On the non-apparel category, watches and fragrances has clocked the highest quarterly sales. Apparel continues to have a muted growth, particularly in women's custom wear and partly in men's wear. Having said this, we have the highest sales in women's Indian wear and in Kids wear, our private brand stock grew by 8%. Our gross margins declined by 70 bps due to onetime impact, which I will speak to you about. Just to recap, our private brand grew by 70% versus pre-COVID last year. While ordering the spring, summer, autumn, winter merchandise, we didn't anticipate the slowness as we are experiencing it now. We decided to clean up and provide for the obsolesce of inventory for -- which is worth around close to INR 9 crores. Due to this, our gross margins are impacted by 60 bps. EBITDA has also been impacted by the cost base, which are built for a much larger scale. Our rentals, which are largely fixed and that has a negative leverage if the sales are lower. In addition to this, we had investments in marketing and technology, which are critical and which we will continue to keep investing in. The new businesses, such as SSBeauty.in and Intune has costed to an EBITDA, with expenses largely fixed, it had a negative bearing on the overall profitability. On the income side, we did reverse the provision for interest on GST FY '23 for INR 20 crores. This was included in other income in FY '23. While speaking in the investor call and the results which we published, we have stated that. If I talk about the KPIs. Our ATV grew by 6% versus last year. While I have spoken to all of you last quarter, I said the penalization is on the rise, and we are facing a K-shaped recovery. There are a number of reports in the recent past to suggest that premium and premium plus goods are outlook in terms of -- outselling in terms of demand. At Shoppers Stop, we had built our store to cater to premium and premium plus products to our customers. We firmly believe that with the growth of market, our company is paused to reap the benefits as we have also become the preferred partner of choice for lot of brands. Our IPT, which is an important unit matrix which we drive, grew by 5% during the festive period. We also observed surge in the number of items bought by our customers. Let me speak about the operating cost now. So overall, our costs have increased by 10% versus last year. On a like-to-like basis, the cost increase is nearly 4%, which is largely inflation led. Our cost increases are due to the following: Our investors in tech which will continue for this year and going forward the next year as well. To enhance our customer journey besides investing in cybersecurity as well. We have opened 19 stores in the last 18 months we launched in Q2 quarters back. We launched SSBeauty.in again at the beginning of the year. Until the store matures scalabilities are build in Intune and conversion increases in SSBeauty.in we may have to continue to invest. As I mentioned, 14 of our stores achieved the ever higher sales in this quarter. Of the above, 8 stores we launched in FY '20 and FY '22. I am fairly confident these investments will disproportionately deliver results in the years to come. During the quarter, we opened 4 large departmental stores, 4 beauty stores, 4 Intune stores and 1 airport store at T2 Bangalore. We spoke in detail about the store openings for this fiscal and the next few years. We are in a target -- we are targeting to open 56 stores during the year, including 15 departmental stores and 24 Intune stores. We have opened state-of-the-art beauty store at T2 Bangalore BIAL last quarter, with added beauty services like nail bar, hair styling and treatment rooms. Our KPIs have improved in the last 11 quarters. Our 3Cs framework, which talks about customer centricity, consistency in growth and capital allocation is firing well. In terms of customer centricity, SSL has established a customer centric culture with a strong focus on providing exceptional service and creating a seamless shopping experience. This has led to increase customer loyalty. Also, our personalization campaigns working on consumer personas have started yielding wonderful results for us. Consistency in growth. We have been consistent in growth over the last 12 quarters, indicating stability and predictability in its performance. We have a well-defined strategy that outlines the company's long-term goals and the tactics to deliver them flexible enough to adapt to changing market conditions. Capital allocation. Our strategic allocation of capital from internal accruals to enhance both the physical and digital capabilities to lead long-term success continues to focus on. Let me talk about some operations about our strategic pillars. First Citizen. Our success has been our patented customer journey. Over the years, we have added many services to our customers such as personal shoppers, makeovers and several other initiatives, which are made to engage with them at the highest level. We were and are confident about such sustained investments, which will add disproportionate growth and success in our business. For the quarter ended our loyal customers contributed 78%, including 65% repeat contributions. Our membership grew to 9.7 million, and will be touching a 10 million number shortly. Our premium black and platinum customers contributed to 13% of sales and grew by 18%. We had 118 customer events on our -- across all our stores in the quarter, making it a memorable shopping experience for our customers. This also is a differentiating point which we have versus our other peers. Now I'm separately covering First Citizen contribution in beauty. Our First Citizen contribution in beauty has been steady. The contribution to beauty by the First Citizen customers have been 69%, a 12% Y-o-Y increase, driven by a strong 35% increase in the beauty sales. Overall, there has been a 5% growth in the First Citizen customers trying to beauty as a category for the first time, which we call them as a trialist. And repeat members shop in beauty category up by 8%. Now let me talk about private brands and Intune. The challenges in private brands continued for the second quarter too, particularly in women's western wear and parts of Menswear. I've spoken at the beginning of my speech too our sales declined by 6% and overall contribution more than 13% and within a apparels at 19%. The silver lining is that our women's Indian wear grew by 7% during the quarter. So we are aware of the challenges and we are course-correcting including buying closer to the season, optimizing vendors and more importantly, streamlining the options to make it more relevant. I'm very confident that the corrective measures will show the impact on profitability in the coming fiscal. From private brand, let me talk about Intune our success story in the last 8 months. We have opened 11 stores and now dwell into the performance in the future plan for the same. We had opened 4 Intune stores during the quarter. In addition, 2 stores were delayed due to regulatory approvals, out of which we have opened one in January '24. Some of the key initiatives being put in place to track customer feedback and shopping experience in Intune are: We have analyzed the customer behavior basis on the shopping basket, that which are the best-performing categories, best performing merchandise points, stores, frequency of purchase and sorting the merchandise in each store. We're also reaching out to our customers having exit interviews to understand and analyze their shopping behavior and see how they shop versus the positioning which we had initially chosen off. We have engaged promoters immediately after launch of a new store to have the feedback of our new customers. Through our digital during the initial stages, we are also trying to get the NPS scores from our customers. And like this there are several initiatives to understand the consumer behavior as we are launching new stores. This will help us to improve the KPIs such as monthly traffic conversion and more quality of business. It will also help to improve our ATV. Needless to say, all this will lead to improvement in the business. I'm proud to say that within 8 month of operations we have positive EBITDA at the store level. Though we are away till the initial stages, there will be a learning as we go ahead. As we grow, we are learning too. As we commence the journey the learning curve has been steep. We continue to learn and I'm sure our customers will never let us down and our initial response and then their initial response to us has been -- has exceeded all expectations. Now let me speak about beauty. Shoppers Stop invested in premium and luxury beauty at the time beauty was literally non-existent in India. These investments have been yielding good outcome. Before I dwell in detail about beauty, some of the key achievements during the quarter are: Beauty achieved its highest ever quarterly sales at INR 262 crores, growing by 10%. Overall, beauty contribution increased to 18%. Our engagements with the customers were all-time high 266,000 makeovers and 130 Masterclasses. We had a fabulous campaign in the last quarter in the Diwali just ahead of the festive, Singles Day and Black Friday. We also had a PUIG Exclusive and PARTY EDIT in December. All these campaigns yielded excellent results with high efficiency. Our First Citizen contribution in beauty reached 72% with repeat customers of 60%. As I said earlier, we have opened 4 stores and a large SSBeauty store at T2 Bangalore Airport. In our recently launched exclusive website SSBeauty.in, our followers and engagement rate has been increasing. We have gained followers in YouTube and other social media. During the quarter, we launched 15 plus beauty brands and added 80 SKUs in our private brand Arcelia . Our Beauty distribution has also achieved its highest ever sale during the quarter, making profit in the first year of operation itself. India's beauty and personal care market is estimated to touch INR 30 billion by 2027, accounting for about 5% of the global market. The beauty market in India is currently underpenetrated versus the other Asian countries. Indian beauty and personal care market is growing at a rate twice as fast as FMCG-led brands, signaling the significance for specialized beauty and personal care focused players. With the investment made, I'm reasonably confident of bigger milestones which are yet to come in beauty business. Omni. Our omnichannel retail strategy is to improve the customer experience and provide an additional channel for customer purchase, whether it's on mobile, web or in stores. The availability of multiple purchasing channels leads to an increase in sales and traffic. Our sales shares was largely flat in Omni, though the overall trend seems to be that Omnichannel is slowing down. Our investment in Omni will continue. We are reasonably confident similarly to beauty Omni will be the leading channel in the next few years and we are fully prepared for that. Let me also talk about HomeStop. I briefly spoke about a revival of our HomeStop in the last 9 months. We have observed improving trends. During the quarter, our HomeStop contributed to INR 42 crores to overall sales. You may recall that I joined as the Chief Commercial Officer and CEO of HomeStop. With my team, I'm devising a new strategy to revamp the business. This will enable to optimize and improve productivity for each store. There are several brands which grew twice as that of last year and we have also introduced new products which are successful since its launch. As it will reach the scale, I will speak about our future plans on HomeStop going forward. From strategic pillars, I will move to capital expenditure, working capital and cash flow. During the quarter, we opened 4 large departmental stores, 4 Intune and 4 beauty stores and 1 state-of-the-art beauty store at the Bangalore T2 terminal. Our total investment during the quarter in CapEx and deposits for new stores were INR 51 crores. In the last quarter, we dealt in detail about our investments for the year and the subsequent years. Just to recap, we'll be opening 56 stores within this year, out of which 32 have already opened. On the balance, 24 stores, 14 are Intune and 7 are departmental stores. Our working capital, which was negative at INR 89 crores at the end of Q2 has reduced further to INR 173 crores negative at the end of quarter 3. We reduced INR 80 crores in our apparel inventory in private brands in the last 9 months, which I believe is a significant step. Without our inventory in beauty and Intune the business we're leading upon, our inventory in the last 9 months are reduced by INR 45 crores. As I look back at quarter 3, beauty, Intune, home business, the brand business and Indian women wear and private brand has fired really well for us and we had a good success in that. We have challenges in private brands in men's and women's western wear, which we are aware of, which we are course correcting and which will start reflecting in the coming fiscal. As I'm about to conclude my speech, we will lay our emphasis on our strategic pillars. The First Citizen loyalty customers, private brands, Intune, Beauty and Beauty distribution, store expansions and omnichannel payments. The broad outlook for Q4 will be as following. We'll continue to grow well in non-apparel, particularly the beauty business. There are number of events during the quarters such as the Valentine's Day, which will further help us to acquire new customers. The end of season sales started ahead of time. I expect some impact in Jan and Feb. Overall, we are expecting a mid-single-digit growth in Q4 similar to Q3. I'm confident that our investments in new stores will ease disproportionate growth in the years to come. As I said before, we are opening 56 stores this year and we expect to open 100 plus stores next year. We are excited about the success of Intune. We are building the team to ensure that we have sustained the success and resorted strongly. There has been a steady revise in share of wallets across the world. Customer preference for premium products have increased. We are at the final stages to have some leading international apparel brand in our stores who will be our exclusive partners. This will further enhance our premiumization journey and differentiated choice for and a -- differentiated choice for our customer deal. I'm very optimistic about the growth prospects of Shoppers Stop with the right investments we have made on our strategic pillar. I'm confident our next year would be another success story with our strategic pillars, including Intune firing on all cylinders. I will hand it over to the operator and happy to take questions from our participants. I also have with me Biju, who is the CEO of our Beauty business; and Devang, who is the business head of Intune business, as the team would be happy to answer any queries around the business. Thank you.

[Operator Instructions] The first question is from the line of Rahul Jain from Phillip Capital.

I have a couple of questions from my side. With regards to Intune, what are the franchisee models that you are exploring currently? And could this be done for Shoppers Stop as well? That's my first question.

Good morning, Rahul. This is Kavi here. Intune, as we mentioned, we are just setting up the whole system of Intune in process. Right now, as we set our own stores, we will have a lot of learnings which we need to factor in the way we want to grow the business initially. So right now, the focus of the organization is more in terms of putting the company-owned stores and then taking the learnings from there. As we achieve a certain scale, definitely during FY '25, at some point of time, we will be also looking at getting into a franchisee model because it's about throughput of the store, it's about the optimizing of CapEx, about the working capital. So once we fix these things and when we have a consistent model, I think that's the time when we would like to go towards a partner. Because at the end of the day, it's the thing which we need to commit, right? So I think that's the process we have. In case of Shoppers, we are not looking at franchisee model as of now.

Understood. Sir, my second question is with regards to the revival of demand from FY '25 onwards that you mentioned in the presentation. What would be the key drivers of this revival going forward according to you?

So for us, there are 2 or 3 things which are very, very important and that the trends we are seeing. One is that the entire non-apparel piece, whether it's beauty or non-apps is doing really well. We also foresee that going forward the premium brands and the premiumization journey will keep on becoming stronger and stronger. And that is the journey which we believe that, that particular customer will keep on investing and buying in the experiences which he or she gets in the stores. So for us, those are the reasons why the revival in demand happen.

Understood. And lastly, sir, on private label, the contribution mix has been on the lower side for the last few quarters. So are you taking any additional measures to revive that and to improve the sales mix going forward? Could you just share a little bit of what you've been doing on the back end regarding this?

Yes, Rahul. So, if I -- as I mentioned, if I look at my private label, there is -- there are 4 parts to it. There is an Indian women's wear which is really firing well and which we keep on pushing as we speak. There is a kid's, which is doing fairly well. For us, the biggest struggle is in 2 categories, which is women's western wear, which actually as a market itself is a little bit of a turmoil now. And then we have got men's wear. So what we are trying to do is 2 things. One, getting the positioning right for our brands in these categories, ensuring that the customer gets a differentiated product from us because we are a house of brands. We have the best brand in the business sitting in that -- in those 4 walls and selling those products. So until and unless we are able to provide the differentiation, which our Indian wear does beautifully well we won't be able to get the traction and the kind of ambition which we have for the private label. So the desire is to get the positioning right, clear up the inventory which are there. So that's why we have taken those one-time hit sharing of the inventory and working on making the brand stronger. As we speak, that a lot of that work is happening, Rahul. We should start seeing the results next year.

The next question is from the line of Sameer Gupta from India Infoline.

Firstly, on private brands again. So this quarter it's in a 6% decline. And if you consider that INR 11 crores of the sales is Intune, it's actually 11% decline. You mentioned about the categories of women's western wear and men's wear. So just wanted to understand a little bit more in nitty-gritty. So is the decline in women's western wear also happening for you in your non-private brands? Or is it something to do with our private brands?

Sameer, just to clarify, Sameer. Intune is not a private brand. So when we say we have declined, it's a like-to-like comparison, and we have not included Intune in that.

Got it, sir. So INR 189 crores is excluding the INR 11 crores of Intune?

That's right. Absolutely right. And we are not planning to include Intune as a private brand in the future also.

Great, sir. That's great for clarity. Just -- but the question still remains.

Yes. So the question is that -- or the answer to the question is that we are seeing the stress in women's western wear across the base, whether it's national brand or private brand. Women's western wear has been under a little bit of our stress across. What we've also seen, Sameer, is that -- and when we were looking at the personas and we look at customer data in great detail, a lot of the women's western wear buyers, whether they are private brand buyers or national brand buyers they gravitated especially in the last quarter towards Indian wear. That is a trend we have seen across. So I think that is something which we are cognizant of. That's an industry phenomena, the sector phenomena. But coming back, I think there's a lot of work which we need to do at our end to ensure that the women's western wear often which we offer as a private brand becomes stronger, So whether it's putting the brand positioning and -- or putting the right set of merchandise, I think that work is happening.

Got it, sir. Switching on to Intune. Last quarter, you had mentioned about the sales per square feet number of INR 14,000 and store EBITDA of 10%. Just if you could give a corresponding number for this quarter as well? And secondly, 14 store openings in fourth quarter expected. Do you think there's a large chance of some spilling over happening over to the next year? Or you are still good to go to this 14 store additions in this year?

Thank you, Sameer. This is Devang here. First part to your question, the SPF and the EBITDA we sustained in Q3 over Q2. So I think all the numbers that we said in the last call will hold true and we're improving on them. Secondly, as far as your question on the 14 more stores in Q3, I think that's absolutely on track. We will definitely end the year with 24 stores.

Sir, lastly, if I can squeeze in. The LTL growth of 4% during festive, what would be that number during the quarter? And this guidance of mid-single-digit LTL that you have shared like in previous quarters, would it require a meaningful pickup in consumer sentiment to reach there, especially on the apparel side? Or are there some company-specific initiatives, including what you've shared in the private brands that you think can still power a meaningful recovery in your LTL or you are just dependent on the overall consumer sentiment picking up for this number to be achieved?

So there are 2 parts of this. One, I think the festive LTL, as you mentioned, was around 4%. The overall LTL for the quarter was minus 1%. That is the number which we have. If I look at the things which we are trying to do. So obviously, there's a base effect, which is -- which comes into play this quarter versus the last quarter at the same time, which was a little stressful quarter for all the businesses. Having said that, I think we -- I spoke about the personas and targeting the consumers in a very, very personalized way, ensuring that the throughputs come higher. We are trying to -- so if you look at our businesses, I think that the 1 business where we need to up the game is private brand. And I think that whole piece we are driving. Also, we believe that there is a lot of momentum which we have in Beauty and within Shoppers Stop as well, which we see as an important part of driving the business going forward. So while the market condition can be tough, we have charted out whether at the product level or the marketing level or the category level, launch of new brands. We will also see launch of some new brands within Shoppers Stop in the coming quarters. So I think there's a lot of work happening on the merchandise product marketing piece to drive the numbers.

Sameer, Karuna here, Sameer. When Kavi was concluding the speech, he said that mid-single-digit growth. That is the overall growth and not LTL. I just want to clarify that.

Yes, yes, that is for the fourth quarter, sir? Yes, I understand that.

The next question is from the line of Nihal Mahesh Jham from Nuvama.

Sir, my first question was, while you did highlight the fact about what could drive the improvement maybe in the coming quarters. Just taking a step back. During Q2, I think there was an expectation that with the spillover of Pujo and also with festive on-time performance was good, that we would see a decent quarter. But now at least on the commentary even Q4 is not looking good. I'm assuming based on the data that you're seeing for the first 20 days of Jan. Just to understand in your assessment of consumer sentiments, what is leading to this prolonged and delayed recovery where even after festive. Is it that the trends do not sustain for the rest of the quarter and even, say, going into Jan?

Yes. So we are seeing -- so Nihal, it's a great question. So we are definitely seeing a shift in the consumer spend, people spending more for the travel or experiences rather than only buying for the product. So I think that's a reality that we see at the industry level. Having said that, I think the important thing is, do -- are we able to engage our customers with experiences? And that's what where we spoke about doing 110 events. In our commentary, we spoke about more than 200,000 or 244,000-odd beauty makeover. So I think there are ways in which we can engage with the customer and drive it. Specifically coming to the Q3 performance, we had an inkling of -- the plans which we had was for a 4% to 5% LTL. I think that's the commentary which we had talked about when we spoke last and we met last. During the festive, actually, we were able to play on that piece. But I think December, where winter plays a very, very important part as a base, that is something which was very, very challenging for all of us, because winter is a big base in terms of layering, in terms of the ASPs which can grow higher. Having said that, while the market has been soft, when we speak to brands, I think the clarity is that we continue to outperform the market. So if we talk to brands and we see how we as Shoppers perform, as a chain or the [indiscernible] I think in a lot of cases we are hearing that the performance of us as a channel is far better way -- going. Also, if I look at I think on a data point and it's a good to share with the team here that the premium portfolio in Q3 grew by 6% like-for-like. And we will keep on doubling down and making an account of differentiation as a department store, which I think is something which is very, very unique to Shoppers and our customers. And this is premium is being done not only in 1 category, so you must have seen the number of launches, and I would love Biju to also to answer some part of it on what he is doing on the premium dilution bit. But talking about beauty pieces or non-apps or apparel, I think we are upping up the game there. And I would just ask Biju to also speak a little bit about what he are doing to business.

Yes, Nihal. This is Biju here. So just to complement what Kavi mentioned. Clearly, as a destination Shopper Stop is having some of the most powerful iconic brands. And particularly from a beauty standpoint, we've been able to introduce a very powerful brand such as NARS and Bath and Body into the ecosystem. And you will continue to see this journey. And engagement has been very, very central to our customer-specific approach. And that is something we did and we are doing it with a lot of mastery. We did 266,000 makeovers and Masterclass in the quarter, which is a significant number. So all these would really help us to continue the premiumization journey, which in turn is going to get us better numbers going forward.

Sure, that will help. My second question was on the private label itself, not Intune for the Shoppers Stop format itself. We mention that the reduction in inventory was primarily the priorities when you're talking about inventory. And a related question on the private label is that if we are going to premiumize our portfolio in terms of the kind of brands we get, does that in a way change the customer profile and actually put a lid in terms of the share of private labels in the future for Shoppers Stop as a format?

Nihal, are you talking about the reduction in inventory or you want to know? What is it like? I mean, your voice was not clear at the time?

I'm so sorry. I was asking that just to clarify, was the reduction in inventory that you mentioned from March, primarily in the private label business, I was not able to get that part.

That's right. We have reduced the private label inventory. What we bought for both the autumn winter and spring summer for this year, we have reduced it close to INR 75 crores to INR 80 crores, Nihal. You're right.

And just 1 final question on private labels was that with the effort of wanting to premiumize say the kind of brands that we get and assuming the customers that come and also change, is it that incrementally the share of private label actually gets a lift because the customer walking in is more premium and maybe that in a way limits the kind of accretion you could see on the private label side?

Nihal, it's a great question, but I think the answer lies in the success of our Indian wear. If private label has done well, one, it is not considered as a label, but it's considered as a brand. If the private brands have done well, we talk about it. We do the same thing which a brand needs to be done. We create a chemistry around it. We give a light to it. The moment you start doing that stuff, you will see that the private brands can have a better throughput in an environment where you have the best national brand fitting. We have done that in case of Kashish. And I see there's no reason why we can't replicate it in case of other brands if we position them well and execute them well. So I see totally there is no issue there.

The next question is from the line of Varun Singh from ICICI Securities.

My first question is on private brands. Would we say that in women's western wear and men's wear, we are getting positioning right in this segment. So I mean, sir, if you can give more clarity with regards to what exactly do we mean by getting positioning right? Is it getting pricing right? Is it about the customer segment? Is it about narrowing down the categories in women's western wear where we are present? So what exactly we are in terms of positioning getting right in these 2 segments?

Yes, great question. Just to give you a sense and it's a question where I can actually, we can engage and discuss this over for the next 3, 4 hours. But let me take you through 1 example so that it gives a sense of what we are looking and let me talk about men's wear, I think that's something which is very natural to talk about. Let's look at when the entire men's wear category positioning happened there used to be part of the business, there is to be a denim part of the business, there used to be a casual part of the business and there is to be a formal part of the business. That's how initially in India men's wear brand got structured. Now if you look at us, we have a Life [ Casual ] and a Life Jeans. But in today's world, if you go and reach out to the customers.

Sorry, sir, can you repeat your last line, please? The voice broke.

I'm saying in today's world, if you will go -- so -- okay, so let me just go back. If you look at our portfolio, we have got a Life Jeans and a Life Casual. And I'm taking this 1 example to show that how -- what is the direction of our thinking. Do you actually think that the customers differentiate between Life Jeans and Life Casual? Or jeans is now part of the casual lifestyle. That's what I was trying to tell Varun, that we are trying to answer these basic questions and put that whole structure right. Can we make a casual brand which also has jeans as a part of it? So that is one. Second, it becomes a casual brand, which has jeans a part of it. What is that brand? Is that brand, for example, for sake or better name? Is it Jack & Jones? Is It Pepe? What is it? So I think that is the kind of discussion and work we are doing as we speak on that, Varun. And then what kind of persona who comes to our store gets attracted to this brand. So that's why I'm saying the way that these brands were structured versus how the consumers have changed, we need to be in line with that and that is the work we are trying to do. And when we define the positioning, then we also talk about, we don't need to do a 180 days buying cycle. We can actually do a 60 days, there's a learning which even with a smaller business of Intune we have. So we don't need to do a 180 days [Foreign Language] buying cycle. Can we have more frequent drops? Can we do the freshness? Can we put the supply chain in a certain way that we actually talk about freshening up the merchandise every 45 days? So I think those are the kind of things which we are working on, Varun. It's something which is at 2 levels. One is strategic, other is operational. As we speak, the correction is happening and you will see the full impact of it in fall winter.

Got it. So if I understood it correctly, maybe we are trying to do something with regards to the category itself. I mean, as you mentioned about Life jeans and Life Casual as maybe making -- I mean not making it more sharper with regards to definition and maybe not be present into too many categories. So is that understanding correct?

So for example, Varun, when as a customer, what are the usage occasions you want to shop for, right? And do we have the specific brand to drive only that product usage for those occasions? That is the challenge, and that is the problem we are solving for.

So right, I understand. I mean, why I'm asking this question is because it has been multiple years since we would have as a company invested money, resources, time, et cetera, to get the private label positioning correct. And rightfully, like as an analyst, I was also observing all the incremental steps that we would have executed to get the strategy part of it right. But many a times, I would wonder that what exactly we are getting wrong, maybe since so many quarters, years, et cetera. So I mean that makes me a little bit more worried with it. I mean I would think that is this more of inventory regionalization as a problem? Or is it because of the choice of maybe not so rightful category where maybe brand has a larger role to play compared to a private label. So I mean this absence of understanding creates a little bit of confusion with regards to get the, basically, the question itself correct. That what exactly are we missing on? Or what are we trying to fix to get the segment right?

Yes. So Varun, in our minds, we are very clear what we are trying to do. For every business and any kind of category, if your positioning is right, then the next steps become. So first is the strategy and then is the execution for -- and I'm just giving an example of men's wear again. As long as your strategy is right and it's not something which you're talking which is very different from what we have not done in the part of our business. For example, in our kid's wear and especially in our Indian women's wear, those positionings are really, really good. So if they're really good, they show in terms of the throughputs. I think the same exercise a little bit of sharpening we have to do for men's wear. And as I said, this is something which cannot be -- this is something which is -- which we can spend a lot of time discussing this point. For us, the starting piece is the positioning, which we are fixing. Once that is fixed, everything else because easier. And that's what I'm working on, Varun, with my team.

Got it, sir. And my second question is on Intune. On the PPT you mentioned 65% full price sales. So just wanted to understand that given this is a new format, how are we thinking about the end of season sale strategy per se with regards to how to discount the product, et cetera, discounting window, percent of products that we need to sell on discount compared to fresh? So how have we thought about the EOSS of ongoing season? That's my second question.

Thank you, Varun. I think to start with the number of full price sell through that we gave, that gives us a lot of confidence that in our first ever season, we've beaten our targets and full price sell-through so much so that right now -- yes, right now, you will find us to be possibly to be the only fashion player not on EOSS. Our products are also not very prone to obsolescence, right? I mean you will find that there are more casual locations. So as of now, we will not go very heavy on EOSS. We may have some liquidation as is the nature of the business and everyone needs to. But we don't see the need for a very aggressive EOSS in Intune as of now.

Sir, my question is on the policy front that end of season sale, what kind of strategy we want to live with in this format itself? A little bit long-term question not related to just what we are doing right now.

So as a policy, there will be some liquidation that will definitely happen. And in the long term also, we are not shying away from EOSS. Beyond that, I mean not -- Yes, it's a little early for us as a brand to have a very, very well-defined long-term strategy, right? I mean all I can say is that early signs are we don't need to be aggressive and we will definitely have liquidation. And we will -- Kavi already mentioned this a while back that our focus will move beyond frequent drops and ensuring that there's always freshness on the floor. I don't think I can be more specific on long-term EOSS strategy at this stage.

[Operator Instructions] We'll take the next question from the line of Gautam Rathi from CWC.

I just have 1 question. Am I audible now.

You are audible now. Go ahead.

I just have 1 question with regards to the member base, right, loyalty member base which we have. So we have about 9.5 million, 9.7 million member base. But last time, I remember you mentioned in a call like last quarter's call or before that is about 25% of them are active, right? First of all, can you help us understand how do you calculate this member base as these are the whole life, like which is last 20 years base? Or is it just like the active ones, 9.7 million? And on top of that, if I just calculate 25% member base, which is about 2.5 million customers, this would mean that the customers which are buying are buying 4x, but the other customers are not buying at all, because you said 78% of the revenue comes from that. Can you just help us understand this a bit better?

This is the base almost from beginning of the Shoppers Stop. So that's 9.7 million, that's the base.

The last -- so the last 3 years, Gautam, 33% of them have shopped during the last 3 years. And if we talk only about the last 1 year, [ 22% ] of them have been active and shopped, to give you a sense.

Right. So basically it's 35%, 33%. So logically, 33% is the actual number base. And then you were also trying to...

Your voice is not clear, Gautam.

Your voice is muffled.

Sorry, I'm sorry, maybe if this is right now?

Yes.

So the only other thing is you were trying to run programs around reactivating this member base, which are inactive, right, with the personalized programs. Can you help us understand like where are we reached on this? How are you turning out? What is the kind of contribution we are seeing from those in active member baSE3?

So we are actually as a pilot doing a CLTV model, which we started in Q3 of this year. As our POC, we have taken 2 cities, which are Bombay and Delhi. I think the initial response has been significant. And what we are trying to do, Gautam, is that going forward we are validating that instead of a regular RFM, can we move into this kind of models only, which is a CLTV model. So as we speak, the programs are running. We'll be able to share more because the programs have got a life in terms of the cycle which is running. So I think maybe in the next call when we meet, we'll be able to give you a target versus achievement and where we are on that. But I think the whole work is happening on the CLTV models, where we are trying to reactivate this base. And we're looking at the base which is not only for the last 1 year, but in the last 6 years workshop.

So if I'm not wrong, this 9 million customers, a lot of them had come through the Citibank Shopper Stop First Season -- First Citizen card right? And so credit card was a very important part of it. So how many of those credit cards are -- all these customers who are there are all active with the credit card? Or are you looking at reactivating that strategy again, right? Because that was one of the biggest draw of that membership, right?

You are right, Gautam. I mean just to give you the numbers, Citibank when they sold the business to Axis, they had 107,000 members active and they are continuing to remain active. They do buy between INR 250 crores to INR 300 crores within Shoppers Stop and the overall credit card level they still buy at a significantly higher amount. These are all private numbers and I can't share anything beyond that. But to answer your question. Yes, out of this 100,000, I'm reasonably confident that more than 2/3 are active with Shoppers Stop and they are there right now. The cards are now shifted to Axis. We are working with Axis to now issue the Axis Bank co-brand card for these customers, Gautam.

So out of -- is my understanding right that out of 9 million, there is 33% who shopped in the last 3 years, 25% who shopped in the last 1 year and only 100,000 are coming through that Citibank credit card, right? That's the way to think about it.

Absolutely right. It may not be exactly 100,000. It can be slightly smaller than that, but you are right.

Sure. Okay. And that is a much bigger ticket spend. So that is an option we are trying to explore in nature right now.

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

My first question is with regards to the beauty distribution business. So we have already achieved INR 77-odd crores sales for now. If you can also highlight what kind of profitability margins and the EBITDA level we are making and some plans for the same going ahead.

The beauty distribution has started off quite well. As you can imagine, to start with some powerful brands it talks about the potential of the partnership and the confidence that beauty brands globally had in Shoppers Stop. And as we speak, our EBITDA margins, we are already profitable and we are looking at decent margins to come through. And that what we focus now is to bring the best of the expression of the brand for the discerning beauty customers in India. So we're also disproportionately investing in the experience part. And I'm sure you would start to see significant amount of representation of our brands in the markets to come.

Just to answer the question, right now, we do have a single-digit EBITDA margins. Just remember that this is the first year of operation. And we also have a decent gross margin. So the [indiscernible] , as we move along, we are reasonably confident we will not only sustain this and probably increase the EBITDA margins and the volume that comes along.

Sir, just a follow-up on this. Is there a possibility in the future if not now, but 2 years hence, to clock at low double-digit or high single-digit EBITDA margins as you scale up? So that is one. And other thing, as I mentioned about the experience that the beauty discerning. So what our understanding was that you will be catering to the people who are selling these beauty brands across the country. So if you can answer on both of these aspects.

Yes, absolutely. Your understanding is absolutely right. On the first part of it, we will definitely deliver the type of margins that you spoke about. With regards to the second part of the question, yes, again, we are distributors, so we import the brand and we make the brand available across every retailer in the country. So we talk about distribution into Nykaa, into Sephora, into Tira, into Lifestyle, into Shopper Stop and whoever qualifies to represent the brand in the manner that the brand owners deem fit, we will be engaging them and making it available across the country for all the customers.

And sir, my next question is with regards to the Intune's bid. I mean, Intune, we do understand that the sales per square feet would be somewhere around that INR 14,000-odd per square feet. Now where we compare to some other player like Zudio and all, who do INR 20,000-plus per square feet. So as you scale up, do you see you also reaching in that area? Or given that our price points are at INR 450-odd levels, probably we could remain in that INR 15,000, INR 16,000 per square feet mark. And also if you can guide in terms of the margins that maybe 2 years, 3 years down the line, you are looking into this format?

Thank you, Gaurav. First of all, I think the SPF numbers that we've clocked right now is only a starting point. If you ask me whether we have the confidence of going to a certain number that's already delivered in the industry, I think I will do better than that in the long term. So I think there is nothing that stops us from doing better. Kavi did mention that it's early days and we are still learning from our customers, all those channels that we spoke of in the initial commentary. We are listening to our customers and we tailoring our assortment to meet their needs. I'm sure we will do better in SPF in the season to come. That was the first point. You mentioned about margins. I think in the last investor call between Karuna and Kavi, they did mention about the fact that there is a gradual ramp-up of margin that we will achieve as we scale. That merit still holds true, and that's a constant endeavor for us. Where exactly we land, I think once we are more mature in terms of the network, we will come back to you with more tangible numbers.

And sir, one last bit if I can squeeze. I mean store addition has been really good for us over the past couple of years. We've been adding around 10, 12 departmental stores and a good number of beauty stores as well. However, if you see the overall top line growth, the top line growth has been in that mid-single-digit kind of a number. So where are -- where is the miss exactly? And how do you see this improving ahead given that we used to guide a mid-single-digit kind of an SSG, 7%, 8% kind of a growth from these store openings. So where is the miss in the entire mix of?

See, if you have seen there is an overall slowdown in the retail industry, which Kavi spoke in detail at the beginning of the conversation. So the LTL itself is flat. And whatever growth we had during the quarter and whatever growth we expect in Q4 is primarily because of the store additions. So these are the -- I mean, once the retail sales picks up, we are reasonably confident of clocking the mid-single-digit growth for the like-for-like stores and also deliver the other KPIs. Just to inform you, most of the new stores what we have opened is as per the financial feasibility and delivering the ROCE what we internally measure.

Sir, the only question given the store number addition is also pretty good. I mean, if we look on a base of 100 departmental odd stores, we are adding around 10, 12 stores every year. So that itself is 10% addition. Though I understand in the first year, they will be not operating in the full capacity. But in the following years, they should also contribute. So the question was more in that context that is that the throughput per store is not reaching to the system average right now? And probably, once you see the recovery, even that should scale up along with the LTL recovery?

So Gaurav, I mean let me answer address this question. So I think there are 2 parts of it. One is there's obviously the annualization impact. And as you rightly said, the stores in the first year don't perform the same way and the next year, store that sees the full year, the second full year, obviously, has a growth impact. That's one. Secondly, what we have also done, Gaurav, is the sizes of the stores which we are opening now are very different from the initial basis which we used to have. So I typically look at it as a 25,000 to 30,000 we have. That's the zone in which we are opening stores now. So the earlier size stores, so even if you -- I open 10 more stores we didn't mean 10% growth because of the sizing or the size at which we are trying to open is not the same. That's the second thing. Third, I think there is a very strong focus on shift on profitability, open better quality of stores, tighter stores. And I think that's the way we are also changing our entity as well. So strictly for 10% kind of a thing is what we wanted to say. So typically, as Karuna pointed, are doing expert feasibility. And more importantly the ROCE which we expect them to do, they are delivering.

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

I have a couple of questions on Intune. So we have quite a strong target on the store addition and we will do something about 165-odd store and FY '26 level. The current transit, should this contribute, in my understanding, close to about upwards of INR 1,500 crores based on the current revenue per square feet that we are clocking? Discussion is coming more from the point of view that, I mean, Shoppers Stop historically, the company has not added such an aggressive store. So what is your perspective in terms of the revenue growth? And also in terms of the opportunity and competition. This is now a space where we have seen all the large retailers quite aggressively growing. So how will the competition pan out and your sense on the opportunity? That's the first question. And I'll just have 1 more question here is in terms of the merchandise. Some of the players -- other players in this value fashion space have some legacy in terms of a very large portfolio of private labels. We have typically been a company which is mostly operated through the third-party brands, except for our own Shoppers Stop label, which has been a very small contributor. And that, too, as you mentioned, in the recent past is we're working around the positioning of the product and so on and so forth. So I mean, what is the capability we have internally built in Intune to, I mean, create that private label merchandise? While I know that your private label doesn't include this, but that capability in terms of designing everything so that we could give a unique and expedite the customer and drive business over there. Those are my 2 questions.

Thank you, Aliasgar. Let me not put a stress on my memory and take the last part of your question first, right? In terms of how I am coexisting with all tough competition that exists in the market. I think last investor call, we didn't mention about how Intune's positioning is finding a sort of a niche in the entire space, right? We are family centric. We are kids first. Our first 2 quarters have given us very, very strong confidence that the customers are reacting very favorably to our family orientation and active presentation, right? We are matching the sharpest price points and we are upping the game on quality. So I think between these 2 factors, we have found our space, we are building on that space and I don't see a reason for us to fight with anyone else in terms of market share. I think the market is very, very sub-penetrated, and I think we will all grow. Intune for sure will, is the confidence we all have on the table. So that's the part on competition and how we will grow within the competition, right? You asked your last question, which is on how are we building the capability of delivering private label. I think I'll latch on to one point that Kavi said a while back. This is not charitable. This is a brand and the brand itself is doing its own merchandise. We also mentioned in our investor call before that the entire customer-facing team of Intune is separate. And even as we speak, once we've seen the success in the first 10 stores, we are gearing up very strongly in terms of our team structure needed to go on to the next year. I think Kavi did mention that in his ending notes. A large part of that is being able to deliver the merchandise that our customers want. I think in the interest of time, I won't be able to go into finer details on how we are doing it. But I think it suffices to say that from spring summer '24, we will have freshness every month, right? And given our product sell-through that I spoke on a while back, I think there's a lot of acceptance on what merchandise we'll put on the floor. So I think both of these things put together, we should be doing well in terms of building that merchandise capability, right? That is the last part of your question. Now I'll jog my memory on the first, right? You mentioned about long-term sales growth and where we will -- where Intune will go. I think we are 8 months old for the time being for us to comment on a 3-, 4-year horizon would be a little premature. I will echo what Kavi has said in his introductory note that the confidence levels on Intune scaling up faster than the company's expectations are very high. And we think we will keep on upping the game on the numbers quarter-on-quarter. I'm not even looking at year-on-year right now. We are too small to look at year-on-year. I think I'll stay there. Have I missed on something, can I?

No, I think that was quite useful in detail.

The next question is from the line of Tejash Shah from Avendus Spark.

Just a couple of questions. Sir, full price sales through of 65% for retail. How should we see this number? Like in our understanding fast fashion brands should have or -- should have higher number of full price sales through or is this a very competitive number as per your expectations?

Okay. Tejash, thank you for the question. I think fashion in itself, 65% full price sell through is a good number. I think over the years anyone who's worked long-term in fashion industry will tell you that's kind of a magical number. 65% is where you achieve the balance of profitability and avoiding loss of sales. And the minute you go very high in full price sell through you can be assured that there is demand which is not being met. Having said that, 65% is a starting point. This was also with the staggered launch of the stores that we had with all the early learnings that we will have, right? I mean in the first season, we will not get all customer expectations right. So in my mind 65% is fairly out there at the top. It also echoed in my comment to one of the previous questions. We are not on sales in the first month. I think that resonates with the kind of confidence we have on this number being good and we will keep building on it.

Sure. And sir, second, on your observation on consumer behavior where they are spending more on travel. Now I'm assuming the people who are spending on travel are essentially our customer base. They must be spending on more luggage, more holiday apparels, more beauty products while they are traveling. So for this cohort, we should be the most relevant brand. So I'm just like not able to reconcile that why if the sale cohort is spending somewhere else and associated categories are housed under our brand, why are we not participating in that? Or not kind of reflecting that kind of numbers?

So Tejash a lot of those categories are actually doing well for us. So beauty, we spoke about fragrance doing well. Non-apparel, we spoke about the non-apparel business, the hand bags, those categories, make up, Indian wear. So I think a lot of those categories are doing well for us. Where the industry has struggled and that's what we are seeing across are part of western women's wear and that can also be a function of the quarter from which we are coming out from. And men's wear has also been a little tepid. But we have seen, for example, men's wear apparel casual doing better. Kids and girls doing better. Indian wear doing better, hand bags. So all those categories are doing well for us.

And if I may squeeze in one last. Whenever we -- so we have data of last many years, whenever we kind of get into such cycle and the consumer sentiment feels for us, usually how much time does it take to turn it around?

So literally, if you see -- and not refer only about Shoppers as an industry. It is now, I think, the fourth or fifth quarter when we are seeing a slowdown, right? So I think we are seeing a completion of that entire cycle. We are quite hopeful that it should start picking up from FY '25. In fact, a case in point, festive -- I mean, we spoke about 4% LTL growth during festive. Actually, if I exclude the match days and the non-match days and I didn't want it to go into that math. On the non-match days, which was basically all the Sundays, we actually were going with 8% LTL . So they are a really, really strong. So, I think, somewhere when the user location comes in, the demand picks up. We're also seeing that there are a lot of marriages in the coming months. So hopefully that should trigger the revival pickup.

The next question is from the line of Shalini Gupta from East India Securities.

I have 2 questions. One, you had spoken about the deduction in gross margins in the quarter briefly. Can you touch upon that? And secondly, why is the other income so low? This again, you touched upon if you can talk about these 2.

Okay. Thanks, Shalini. That's a great question. I will answer the last question. The other income is lower because last year we had a onetime GST interest reversal, which we have included in other income of approximately INR 17 crores. And that's the reason, if you exclude this INR 17 crores, our other income has increased this quarter. That's a one-time income. When we spoke last time, we have qualified that. And when we publish the results also, we have qualified that. Coming back to this year, the gross margins are lower because again, Kavi spoke in detail, we have provided between INR 9 crores to INR 10 crores on private brand obsolescence. That took away almost 60 basis points on the gross margins. In addition to that, we also had higher offers in private brands that also impacted the overall gross margins. Other than the private brand, our gross margins versus last year have been higher.

Okay. Sir, can you just repeat your reason why your gross margins were lower, please?

Yes. I said that we have made INR 9 crores to INR 10 crores provision for obsolescence this quarter on private brand, that almost contributed 63 basis points on the gross margin. Plus, we had higher discounts and offers on private brand for both festive and end-of-season sales. That also impacted the overall margin because our gross margin realization in private brand has been lower than last year.

[Operator Instructions] The next question is from the line of Sameer Gupta from India Infoline.

On the beauty distribution portion, firstly, out of the total brands on board, are all of them on exclusive arrangements with Shoppers Stop to distribute in India? Or they can be nonexclusive and find other partners also? And specifically on the distribution part, do we have any medium-term targets in terms of sales profitability? I understand you mentioned low single digit to high double digit. But any number that you can put currently? I think you've clocked the INR 2 crore EBITDA, if I do a consol minus standalone. So that's a pretty impressive number. But just going forward, any targets you can share on this?

Absolutely. Let me take one by one. Yes, we do have exclusive distribution as of now on all the products we are distributing in global SSBeauty. The large 3 products are L'Oreal International division, which we call LID, Clarins and of course, there are smaller brands also. So to answer your question, we have an exclusive distribution within India. And just now Biju spoke about like who are the retailers, how we are distributing and other things. Second, again, we spoke about the sales and the profitability. During the quarter, we recorded INR 39 crores and for the year-to-date we recorded INR 77 crores. And as I said, we are at a single-digit EBITDA. Please remember that this is the first year of operation. And in the first year of operation, including all the cost, that is the employee cost, our SO cost and everything put together we're still profitable. And to answer your last question, do we have a strategy? Yes, we have a strategy. Do we have internally the numbers what's going to be for the next 2, 3 years? Yes, we do have. And do we have the margins, both gross margin and EBITDA margins? Of course, we have. So we do have all these numbers, Sameer.

Can you share whatever is possible, sir?

No, not right now. I mean, because we are internally -- let's -- you know pretty well we don't give guidance for the future years. But we did mention to that, right? The global distribution business will have a disproportionate growth next year. I mean, to give a broad number, we should clock anywhere between INR 300 crores to INR 400 crores revenue next year and we should have a high single-digit EBITDA margin.

Great, sir. That is helpful. Just 1 more question, if I can squeeze in. So this LTL of minus 1% this quarter, can you see any material difference between, let's say, the LTL of new and recently renovated stores in the system versus the rest of the system? Is there anything you can call out, not maybe specific to the quarter, but over a period of time, has there been a broad divergence in these 2 cohorts?

So see, if you look at the LTL, of course, the board, obviously, the stores which have opened and have not been completely analyzed. So I think those are the ones which have done better. So if we -- if x is the baseline, the newer stores has grown by more than 5% of that in terms of LTL, just to give you a number.

And the renovated ones?

Yes. So it's more or less the trend is very similar.

Sir, just to understand this more. If let's say we were to renovate the whole of the system, let's say, over a phased manner in 3, 4 years, can that be a decent kicker for LTL going forward?

So we are doing that as we speak. Every -- so we are in the process of forming of the plan for the coming year. And we are looking at renovating close to 7 to 8 stores in the coming years. So I think that process is on as we -- because what's happening is that as markets mature and you need to also, as we are premiumizing, we are getting newer brand, the look and the feel has to become better. So that process is on. And Sameer, we are very, very buoyant on that. And that by 2000 -- by FY '25, 75% of our stores will be the next gen stores, which we are working on.

75% in by FY '25?

Ladies and gentlemen, with that, we conclude our question-and-answer session. Thank you, members of the management. On behalf of Shoppers Stop Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.

Thank you.

Thanks, Michelle. Thanks, Mamta. Thank you.