Expanding Premium Brands And Beauty Offerings Will Strengthen Future Prospects

Key Takeaways

• Focus on premiumization and beauty sector expansion aims to drive higher revenue and improve margins due to high pricing and high-margin products.
  
• Strategic marketing and enhanced customer experience efforts are expected to boost sales, customer retention, and net revenue growth through INTUNE store expansion.
  
• Increased competition, store closures, and reliance on promotions amid challenging market conditions could negatively affect Shoppers Stop's revenue and profit margins.

Catalysts

Engages in the retail of various household and consumer products through retail and departmental stores in India.

• Shoppers Stop's focus on premiumization, with a significant increase in the share of premium brands in total revenue from 55% to 64%, is aimed at driving higher revenue and improving net margins due to the higher pricing associated with premium products.
  
• The company's strategic expansion in the Beauty sector, including opening high-end stores and increasing beauty offerings, is expected to continue growing revenue and contribute to better net margins given the high-margin nature of beauty products.
  
• The introduction of new marketing campaigns such as India Weds with Shoppers Stop is designed to attract more customers and boost sales, thereby potentially increasing overall revenue.
  
• Shoppers Stop's efforts in enhancing customer experience through mall renovations, personal shopper services, and an omnichannel journey are likely to improve customer retention and spending, supporting revenue growth.
  
• The planned aggressive expansion of INTUNE stores is expected to increase net revenue growth substantially over the next few years as these stores mature and achieve breakeven.

Shoppers Stop Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Shoppers Stop's revenue will grow by 12.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.7% today to 4.8% in 3 years time.
• Analysts expect earnings to reach ₹3.2 billion (and earnings per share of ₹23.32) by about February 2028, up from ₹321.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 40.5x on those 2028 earnings, down from 194.5x today. This future PE is greater than the current PE for the IN Multiline Retail industry at 33.2x.
• Analysts expect the number of shares outstanding to grow by 0.26% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.04%, as per the Simply Wall St company report.

Shoppers Stop Future Earnings Per Share Growth

Risks

• Inflation and lower discretionary spending have dampened consumer sentiment, impacting overall revenue growth.
  
• Slowness in consumer spending and market performance not reaching pre-COVID levels could affect future earnings.
  
• The increase in competition from online players, such as Nykaa, particularly in the Beauty segment, may erode market share and impact revenue.
  
• Store closures due to underperformance or relocation, along with regulatory restrictions, could lead to decreased revenue and increased costs.
  
• High reliance on promotional campaigns and premiumization might not guarantee consistent growth if market conditions remain challenging, affecting profit margins.

Valuation

• The analysts have a consensus price target of ₹769.6 for Shoppers Stop based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1016.0, and the most bearish reporting a price target of just ₹598.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹65.8 billion, earnings will come to ₹3.2 billion, and it would be trading on a PE ratio of 40.5x, assuming you use a discount rate of 15.0%.
  
• Given the current share price of ₹567.2, the analyst price target of ₹769.6 is 26.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.