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Spencer’s – Financials + Business Verticals Insight

July 6, 2010


You are Reading this First HereWe would like to Present to you a Detailed Study on the Financial Matrix of Spencers Retail and the Managements View on the business and how it managed to cut losses and sail the 2008 storm.

Financials of Spencers Retail:
In FY10, our pre-tax losses have reduced by 50% YoY. The cash losses have also halved to Rs2bn (excluding Rs200m incurred by Music World). There are several adjustments to reported FY10 numbers. For instance, in FY10, they have taken a onetime non-cash charge of Rs1bn, comprising store closure, inventory write-down, etc. If we adjust FY09 numbers for one-time gains, then the financial performance has improved considerably.

The Balance Sheet of Spencers Retail is as below,

Retail Operations:
In FY10, they closed 37 stores (net), which were either loss making, or had a sales run rate below the breakeven point despite being operational for a considerable time. From an aggregate retail area of 1.2m sq ft in April 2008, they are now below 0.9m sq ft. Monthly lease rentals are down to Rs55/sq ft from almost Rs70/sq ft. Business from large-format stores has increased to ~60% now as compared to 40% in FY08. Retail revenue per square feet/month pushed to ~Rs800 from Rs700 a year ago.

In a slew of other measures, cut corporate as well as store-level overheads by 20- 25%. They consolidated our distribution channels, rationalised manpower costs, and also had stringent cost controls on other expenditure such as travel, communication and advertisements. Store shrinkages down to 1.5% from 2.5% earlier. They are confident that over the next 6-8 months, the shrinkages would reduce to below 1%.

Revenue Mix of Spencers Retail:
They derive ~75% revenues from FMCG, staples, fruits and vegetables. On a YoY basis, this has largely remained unchanged, and we think that going ahead, these segments would continue to account for majority of the revenues. Apparels currently account for 5%

Spencers Retail – Apparel Segment:
Their strategy is to focus on “everyday” wear rather than “Fashion”. They have have 11 speciality stores in apparels, six of Beverly Hills Polo Club (BHPC), one of Ladybird (kid’s apparel), and four of Marck Ecko. Each store has retailing area of ~1,500 sq ft. Revenue / SFT / Month is ~ RS 1025. They want to Sell Branded Labels through different stores. The Best Store in this segment has a monthly revenue per sq ft is approximately Rs1400, and the store earns gross margins of 22%, which are set to expand in the next 12 months.

Bright days ahead for the company as they hope to get their Balance Sheet into Black very soon. What say ?

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