Ladies and gentlemen, good day and welcome to the Q3 FY23 earnings conference call of Shoppers Stop Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then 0 on your touchtone phone. Today we have with us the senior management represented by Mr. Venu Nair, Customer Care Associate, Managing Director and Chief Executive Officer. Mr. Karunakaran Mohanasundaram, Customer Care Associate, Chief Financial Officer. Mr. Jaiprakash Maheshwari, Customer Care Associate, Vice President, Finance and Accounts. We will begin the call with the opening remarks from the management, after which we will have the forum open for an interactive Q&A session.
I must remind you that the decision in today's earnings call may include certain forward-looking statements and must be viewed, therefore, in conjunction with the risk 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. I will now request Mr. Venu Nair for the opening remarks. Over to you, sir.
Thank you, Rutuja, and good morning, friends. Thanks for joining us today to discuss the Shoppers Stop financial results for the third quarter of FY23. As Rutuja mentioned, along with me, I have Karuna, our CFO, and Jaiprakash, RFP and ALO. Our Q3 and the year-to-date results, investor deck, as well as the press release, have all now been shared on our website, BSE and NSE. I'm confident you have gone through this. For the last eight quarters, we have been growing consistently. For this quarter too, we have achieved our highest quarterly sale, EBITDA and PBT. Our success in the last eight quarters and the continuous improvement therein is the outcome of our well-thought-out strategy and of the judicious capital allocation that we have been doing. Let me now get into the details of our Q3 performance and the way ahead.
The strong momentum that started at the beginning of the year has been continuing, even though we witnessed a little bit of moderation on that immediately after Diwali. Fortunately, it did not last long. We had robust sales in the quarter, growing at 20%. Our gross margin improved by 20 basis points, our EBITDA by 27% and PBT by 44%. We had our highest ever EBITDA of INR 128 crores during this quarter. This did include a one-time income of INR 17 crores, which I will talk about a little later. Even excluding that, it was our highest ever quarterly profit on EBITDA and PBT. The run up to Diwali was strong, as I said, initially in the east up to Puja and then for the rest of the country. Post-Diwali, we did have a couple of weeks of muted sales.
Our focus on beauty through Singles Day and Black Friday helped to bring customers back to our stores and online. Subsequent to that, December sales were led by winter wear, wherein we had invested disproportionately this year. This again helped to bring customers back into our stores. On some of our other KPIs, our average transaction value grew by 10% versus last year due to the mix of our customers purchasing higher value-added products. Our average selling price grew by 10%. Our items per basket was flat, and our cash memo count increased by 11% last year. These significant improvement in KPIs indicate the strong undercurrent of the business and our ability to deliver results now for 9 quarters consecutively. Our average bill value has now been increasing for 11 quarters consecutively.
This is a clear indication of the fact that our customers are blessing us with more business. Let me now share some of the details on operational costs. On a like-to-like basis, our costs remain flat. Excluding lease rental escalations, our investment in eCom, refurbishing the store, et cetera, was an investment of INR 95 crores. We do believe these investments are critical for the future, and we will continue to invest. Last year, we did receive some rebates on lease rentals due to COVID, which helped us to lower our occupancy cost. Overall, the costs have gone up by 10%. It is purely due to the new stores and investment, as said above. With the strong sales and the tight control on costs, we reported an EBITDA of INR 128 crores. In non-GAAP, a growth of 27% and INR 24 crores as per GAAP financials.
Last time, we had briefly touched upon our plans to strengthen our beauty business. I would like to give more details on this now. We have now got into the distribution of beauty brands with exclusive rights for India. Our beauty strategy is to be the best beauty destination with leading engagement combined with great customer experience. In addition to this, we expect our company to become the priority retailer for all beauty brands internationally and in India, make the stores more interactive, educative and engaging, continue to make our website stronger with our own brand and distribution brands, and strengthen the SS Beauty brand across both the standalone and within our own Shoppers Stop stores. Our long-term objective is to distribute international luxury, bridge to luxury and premium brands in India, positioning these brands as experts within their categories, capitalizing on their history, strengths, and expertise.
This is to enable our brands and brand partners to create a strong distribution vertical across fragrance, skincare, and makeup categories. We will have exclusive launches and plan to capitalize on this. We are starting off this vertical launching 8 brands from the L'Oréal International Division, Clarins, and CeraVe. We expect this division to contribute more than INR 500 crores in the next couple of years and add a significant profit to the bottom line. This distribution business will be through our 100% subsidiary, Global SS Beauty. Our CapEx investments in new stores and refurbishments for the quarter was at INR 21 crores. I'm extremely happy to say that we opened 6 department stores and 5 beauty stores during the quarter. Needless to say, our CapEx has been funded through internal resources.
Our internal approval is also sufficient to fund our loan pre-repayments as on date this year. During the quarter, the working capital increased by INR 85 crores, primarily in our private brands and beauty. Both these verticals are recording healthy growth, we believe we need to invest in these verticals, particularly during the festive season such as Diwali and Puja, and also the End of Season. All of these have been funded by internal approvals. Having said that, we are monitoring the inventory levels very closely, you will observe a reduction in the absolute inventory numbers by the end of Q4. Last year, we had provided around INR 25 crores as interest in the previous years, particularly during COVID. However, the relevant sections in statutes have now been repealed, we've had a one-time benefit of reversing this provision of up to INR 20 crores.
Of the INR 20 crores, we have included INR 17 crores as other income and INR 3 crores reduced from the interest expense. As always, as a compliance-adhering company, we have provided interest on a conservative basis month-on-month. As these provisions are no longer required, we have now reversed them. We have obtained the expert's advice on the same and implemented the same accordingly. From operations, I will now move to the performance of our strategic pillars. As always, I'll focus on each of our strategic pillars. First Citizen is our first strategic pillar and a few notable features on our First Citizen program. We have always believed our customers are our success. The retail landscape is fast changing. Today's consumers seek personalization and demand experiences going beyond the typical shopping experiences.
Through experiential retail, we can give our customers unique and innovative experiences, both online and in live. Our ability to engage with our customers, and specifically our First Citizen customers, based on the information that they share with us and we have of them, gives us a unique advantage in the market. Of the total offline sales, our loyalty members contributed to 77%, and our online sales contributed to 38%. Our new enrollments have increased by over 2 lakh members compared to the previous quarter. Overall, for the year, we have now added over 7 lakh new members. Apart from the active members, we also focus on bringing back customers who have not come to us for over a year. I'm extremely happy to say that we converted 1 lakh 40,000 members from inactive to active.
This indicates the strong loyalty to our membership program and speaks volumes of the ability for us to engage with our loyalty members and make shopping a delight for them. Not only are we focusing on bringing back customers who have not shopped with us for over a year, we are focusing on ensuring that they come back a second time after we bring them back, ensuring that it is a sustainable return to our business. We started our HDFC co-branded loyalty card in April this year. I'm happy to say that we have added more than 30,000 co-branded members in the last three months. We also added a significant number of new Black Card loyalty members during the quarter.
For our Black Card loyalty members, and this is our unique subscription, annual subscription program, as you will remember from the previous calls, and we continue to focus on these customers by offering them experiences unique and different to what they would normally get. During the quarter, we had a special showing of Mughal-e-Azam for our for our Black Card First Citizen in Mumbai, had a golfing Sunday, and in the, in the east, we had specific Puja-related showing for them at the Westend Mall. This, the average spend of this Black Card customer is as much as 4 times of our normal members, and we will continue to focus on this segment. On private brands, which is our second strategic pillar, the private brands business grew by 23%.
We achieved INR 203 crores of sales for the quarter, an important milestone for our private brands. This is the highest quarterly sales that we have achieved in the history of the company. Year-to-date, we have grown our private brands business by 84% and sequentially quarter-on-quarter, our private brand sales have consistently grown. As a proportion of our total business, it now contributes to 20% of our total apparel business and 14% of our total business. Within the digital channels, our private brands contribution has increased to 16.5%. During the quarter, we had invested in Kashish, which is our Indian wear brand for women's, and on Bandeya, which is a menswear brand for men. Both of these had very strong growth.
Our focus on women's apparel has yielded very, very satisfactory results. In fact, in Indian wear, our private brands now contribute to almost 50% of our total business. Also worth mentioning that our own brand stock, which is the everyday workwear brand that we have, is the largest brand that we now have in apparels across from our own stores and online. Moving on to the third strategic pillar of beauty. Our beauty business grew by 18% with an all-time high mix of 16.2% to our total sales. This has been one of our best quarters for beauty in the history of Shoppers Stop. Engagement with customers is a key part of the beauty buying process. We did 112,000 makeups during the quarter, which led to strong engagement and higher sales.
It is worth mentioning that this 112,000 is against an original plan to do 100,000 makeovers in the full year. Compared to that target of 100,000 makeovers for the full year, we actually did more than that just in 1 quarter. We will now end up doing over 4 lakh makeovers in the full year, which illustrates the great traction that we have had with our beauty customers and gives us a strong platform to bring customers back into the stores. As you will understand, the whole engagement that comes in with makeovers gives us a unique opportunity as a retailer in this business. November is an important month in beauty. We had Black Friday and Singles Day with exciting offers on our beauty products and campaigns endorsed by Malaika Arora. We recorded our highest ever sales during this period as well.
We opened five beauty stores during this quarter and made considerable progress in our exclusive beauty website. The ssbeauty.in website as well as the SS Beauty app is expected to go live in the first week of March 2023. Currently, it is in the testing beta phase within a closed group. This brings me on to the next strategic pillar, which is omni-channel. As I explained before, we've had a great healthy growth in our offline business. During the fiscal, our customers have had the option of visiting our website, coming to our stores and buying the same. With a strong base in FY22, our overall sales through the digital channel remained flat. We do know that all customer journeys start, or majority of the customer journeys start online and then happen offline.
That's the reflection of the fact that we have got strong, healthy sales. We continue to offer personalized solutions to potential buyers based on their past search history, and we are gaining immensely from this. To make a truly omni-channel system perfect, it is essential that there is strong integration between our stores, warehouses, and having real-time inventory. I'm extremely proud to say that we are the first large retail business to be able to deliver this, offering products to our customers across the entire ecosystem that we have of the 250-plus stores and shopperstop.com on a real-time basis. Today, over 70% of what we ship to our customers is from our stores. Specifically on the numbers and our investments, we continue to invest into digital, and we invested in performance marketing, tech upgrades, and more importantly, the new website on ssbeauty.in.
Finally, moving on to expansion. I'm glad to say that we opened 6 new department stores and 5 new beauty stores during the quarter. Of the above, 2 are in tier one cities and 2 in tier two cities, where we continue to focus. As on date, during this financial year, we have now opened 9 department stores and 11 beauty stores. Apart from renovating 9 large stores, we have incurred a CapEx of INR 101 crores which includes technology and INR 6 crores as OpEx for renovating the stores. These are completely funded by our internal accrual, which signifies the strength of our balance sheet. In conclusion, I would say that we have been able to sustain the strong momentum on sales, both organically and inorganically.
Our success of the last eight quarters and the continuous improvement therein is an outcome of the well-thought-out strategy that we have in place and the judicious capital allocation that we have been doing. Retail has changed dramatically over the last couple of years, and we have adapted to that change, transforming ourselves into an omni-channel retailer, focusing on engaging with our customers and offering them a great experience whenever and however they interact with us. Our pristine balance sheet gives us the ability to invest in our growth areas. That's beauty, expansion, digital, data analytics, and private brands, w ith the sales growth we are planning for the next three years, we should be able to deliver significant cash. Our framework approach is customer experiential focus, engagement led, and community building, while remaining conscious of capital allocation.
This framework approach has guided us well in the last two years, and we believe this framework will serve us well in the coming quarters. I'm fairly confident our total sales growth should be able to maintain the mid-teen growth post opening of the new stores and the pipeline that we have. We have just begun our journey on distribution of beauty, and we should be the priority retailers for all international brands, particularly in the premium and lifestyle spaces. We will continue to deliver on our strategic pillars, and most importantly, our engagement with our customer will make Shoppers Stop the ultimate destination for their business and for their buying. Thanks for listening, and I'll now request the moderator to open the floor for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touchtone telephone. If you wish to withdraw yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Nihal Jham from Nuvama. Please go ahead.
Yes, sir. Thank you so much, and good morning to the management. Three questions from my side. First is, just require a couple of data points. One is pretty sure the like-to-like growth versus pre-COVID and the walk-ins excluding the online visits.
Okay, do you want to go through all three and then answer?
Sure, I'll just mention the other two also. The second one was that when you're speaking of this INR 500 crore for the B2B distribution business, could you give a sense of, you know, what are the kind of counters you're targeting to reach the roadmap for the same? Potentially there would be initial costs if you could quantify the same. The last question would be, are we contemplating any other format in the value segment? There have been certain press articles on it, if you could just give some more clarity.
Okay. On the first one, in terms of the walk-in growth, the year-to-date number, I'm sorry, the Q3 numbers, specifically we had an overall growth of 16% in total and a like-to-like growth of 1%.
Sir, the like-to-like growth was 1%, if I heard right?
Yeah. That's the pre-COVID.
Okay. That's all. On the walk-ins? Just for the offline, the store business?
Sure. On the offline business alone, over 3 years, it was largely flat at a total level and slight -7% on a like-for-like basis.
Is it possible to get the absolute number? We've given the customer entry of 39, which I think includes online. I was just looking at the offline entries specifically.
Yeah. Just one second.
Nihal, can I just message you separately on that? I mean, because we now track both online and offline together. I will message you separately what will be the offline business.
Sure. Sure. I'll wait for that. Thanks.
Okay. Now just coming back to your question on beauty. You did ask something. As you said the distribution business. You asked something about the cost. We could not hear fully.
Yes. What I'm referring to, you gave a target of INR 500 crores from this business, in the next couple of years. Is it possible to give a sense of, you know, what are the kind of doors we plan to reach for the distribution business and the cost that will also entail, given it's a new business that we are setting up, totally organically?
Yeah. See, in terms of cost, this should be largely breakeven from year two onwards. Even year one, it should be a very minimum loss. In terms of the doors, what we are approaching is Lifestyle, Parcos and, I mean, Sephora and other beauty companies, Nihal.
Just one thing, there won't be no targeting on GT. I know these brands are premium, but just to be sure of the fact that there won't be a focus on general trader trying to reach these counters. It will mainly be the premium beauty retailers.
Absolutely. Our focus will be on the premium organized retailers.
That makes it clear. That makes it clear. Sure.
Coming back to your question on walk-ins. Offline walk-ins grew by 14%.
Sure. Thank you.
Yeah.
The last bit on the value fashion?
That's, I mean, while it has something which has appeared in the press in the past, it's not. It is a very attractive segment and a segment that we continue to look at. At this point, we won't have anything concrete to be able to share, but as and when we crystallize our plans on that, we will come back on that.
Absolutely. Thank you so much, sir. I wish you all the best, and come back if we keep any further questions.
Thank you, Nihal.
Thank you. The next question is from the line of Bharat Chhoda from ICICI Securities Limited. Please go ahead.
Yeah, hi. basically, I just wanted to understand about this gross margins in the beauty business like that you are targeting.
Bharat, are you referring to the gross margin in the distribution business?
Yes, yes, distribution. Yeah.
Okay. It will be more or less same in the range what we are doing right now, between 30%-35%. That would be the range we are targeting the gross margins for our distribution business also.
Okay. Would we be spending anything on this or the brands would be spending for the brand visibility or how it is in this? Ideally, how... Anything that we are paying to them, specifically something like a royalty payment. How this model works best?
It does vary from brand to brand in terms of what the arrangements would be. Broadly, the investment into marketing and building the brand tends to be done by the brand itself.
Okay. Thanks, thanks for answering the question. Thank you so much.
Thank you. The next question is from the line of Percy Panthaki from IIFL Securities. Please go ahead.
Just continuing from the previous question on the distribution business, gross margin of 30%-35%, that is actually quite unheard of. I mean, Nykaa has a similar B2B distribution business, and they mentioned that they would be targeting a 10%-12% gross margin and a 5% kind of EBITDA margin. Just wanted to understand when there are two people in the value chain sharing the overall margins, how is it that the margins are so high in this business?
I mean, I cannot comment on what the others are doing. It is on the wholesale price that these margins are talked about, and it's probably the base which might be different. Happy to discuss it separately and get into more detail to explain that.
Sure. Sure. Understood. Also, just to confirm, this INR 500 crore target is for FY26?
Across the next 2 years. By FY25, we should be getting close to that number.
Right. Right. Also, just like you have shared some idea on gross margin, once you achieve that scale of INR 500 crore, what kind of EBITDA margin would you target on this business?
Percy, as Venu said, this will be in a separate subsidiary called Global SS Beauty Brands Limited. EBITDA margins will be slightly higher than what our Shoppers Stop margins are. The initial years there'll be a breakeven on margin and loss. In year 3 and year 4 it will be more or less in line with Shoppers Stop.
Understood. How many brands have you tied up with for this distribution business?
We have currently tied up with over 12 brands, and this is obviously a business that we will continue to grow and we will be adding more brands as we go forward.
Right, sir. My last question is on the physical retailing part, your Shoppers Stop department stores. On a per square feet basis, this quarter more or less, you are in line with the similar quarter pre-COVID. Just wanted to understand now, in light of your store expansion targets, do we see this sales per store on an average being flat from here? Because even if you do see a same store sales growth, the new stores opening up at below system average will pull down the average sales per square feet. Just your thoughts on this topic, sir.
I think it's a fair assessment. In the short term, I reckon we would see a flattish sales per square foot. However, as we get into year two and year three from now, because of the overall percentage of new stores will start to shrink from the total mix, we would expect the over numbers to continue to grow. I mean, the sales per square foot to start growing. Also worth pointing out that a number of the new stores that we have now opened and are opening are smaller, which takes care of the productivity, so that the aim is we do start off with a strong sales per square foot in the new stores as well.
Right, sir. That's all for me. Thanks and all the best.
Thank you. The next question is from the line of Priyanka Trivedi from Antique Stock Broking. Please go ahead.
Yeah. Hi. Thank you, sir, for the reports. My first question is on what would be the square foot addition
Priyanka, your voice is not clear, Priyanka. Can you come closer to the mic. You, it's very difficult to hear you.
Yeah. Am I audible now?
Actually, Priyanka, your voice is breaking. Maybe you can shift to a better connectivity.
Now is it audible?
Yes. Is it better?
Yeah. My first question would be on what would be the square footage addition in the first, in the nine months that have gone by? If you could share the break up between the department stores and the beauty stores, and the CapEx break up also between these two?
We added nine department stores, which total to 3 lakh 8,000 square feet on a chargeable basis or on a carpet area it was 2 lakh 37,000 square feet. That's on the department store. On beauty specifically, I mean, it's 11 stores that we added in total. that would be circa around 10,000, no, about 15,000 square feet that we would have added.
Okay. In terms of the CapEx, now what should be the split, if that's possible?
Sorry, you're talking about the cash spent, Priyanka?
Yes. Yes. Yes.
We are close to INR 100 crores in the first nine months.
Oh, got you. Okay. My second question would be on if you could give us a sense on the contribution of the women's wear to our overall basket and the split between the western wear and the ethnic wear within that basket?
Broadly within women's wear, I mean, the two put together contribute to 21% of our total business, with western women's wear being at around 21% and Indian wear being at 7%.
Got it. That is all my side. Thank you.
Thank you. The next question is from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas. Please go ahead.
Yeah. Good morning, sir. Thanks for giving me the opportunity. My question is on demand front, as you mentioned that festive was good, but post festive there was some moderation in demand. or For our case, I guess beauty was the one which helped us to mitigate, you know, the pressure to some extent. Just want to understand from demand per se, you know, what do you expect, you know, how much time it will take, you know, to, for things to, you know, rebound? Because again, there is a strong wedding season which is coming up. In that context, can you provide some view?
I mean, if we take our current trends, the kind of momentum that we had in December has continued into January. February is a strong wedding month, and hence we expect that to move up a bit more. Overall, if you look at the fundamentals. Especially in the segment that we operate in, which is in the premium lifestyle space, it has been quite robust, and that's what we expect to continue.
Thank you. What was the contribution of the online omni-channel business this quarter and what was the growth on YOY basis, if you could give that number?
On a year-on-year basis, it was flat. The contribution to the overall business from our digital channel was at 4.4%. Now, I must underline this with what we have been saying now for a few quarters. As an omni-channel business, what gets registered or where the final purchase is happening, digitally is not just the only way we should be looking at it, because especially given that we operate in the premium space and the ASPs are high, for a number of products, customers would start the journey digitally but finish offline. Hence, a lot of the business that we generate offline does start online, that's the way it should be looked at. That's also the reason we have stopped separating it out as online and offline.
Being a true omni-channel retailer, the right way to do it is to look at it together.
Right. One last one on the CapEx. How many stores you are planning to add over the next two years, and what could be the CapEx for the same, and whether we will be comfortable doing it through internal accruals over the next two years?
We have budgeted to do between 12 to 15 stores every year, which we will do this year. We've opened 9, we've got another 5 that are under fit-out, so we will end up between 12 to 14 department stores this year. We will do a similar number next year. On beauty we would do between 10 to 15 doors again. All of these would be entirely through internal accruals.
Okay. CapEx would be around similar, around INR 120-130 crores kind of per annum?
Including refurbishments, yes.
Including refurbishments. Okay. Okay. Thank you. Thanks for that understanding. All the best for it.
Thank you.
Thank you. The next question is from the line of Rahil Shroff, an Individual Investor. Please go ahead.
Hello, sir. Just your guidance, overall for the EBITDA and revenue margins outlook for the last quarter this year, so quarter four and financial year 2024, if you have any target in mind and which area of business are you expecting the most growth in?
The EBITDA, if you're asking for next year, it will be higher than this year in terms of overall margin. If you're aware, we don't give any specific guidance on any of the margins, but all I can tell you is it will be higher than this year, Rahil.
Okay. Where are you seeing the most growth from? I know you mentioned the FPD segment is same down the distribution channel. Any other business segment you're thinking to entering?
Our growth will come from our strategic pillars. We are a house of brands and that's the foundation on which our business is. The disproportionate growth would come through beauty, private brands, and through expansion of our physical stores as well as online. The distribution business on beauty would support the growth within beauty.
Okay, okay. As for revenue margins also you would say within the same lines as current growth for the next year?
Yes.
Okay. Okay, that's it from me. Thank you, and all the best.
Thank you.
Thank you. The next question is from the line of Ankit Kedia from PhillipCapital. Please go ahead.
My first question is regarding the private label. you know, you'll be touching around INR 100 crore revenue from private label this year. Out of the, you know, brands you have, how many brands have crossed INR 150 crore? Shoppers Stop would have multiple categories where they are present across, you know. if you can give subcategory-wise Shoppers Stop, if any of them have become sizable in nature today for us, and what is the growth plan for, you know, these brands to grow further?
I wouldn't want to break down the individual brand numbers because obviously it's, that's more internal. What I would say is that of the 9 brands that we have, two of them would be INR 100 crores plus plus individually. The other three would cross the INR 100 crore in the next 12 to 18 months.
Given that the discounting this time in private label, would have been slightly higher, the EOSS was much earlier for the industry, are we seeing gross margins under pressure, lately? Are we comfortable with the inventory in the system we have for private label?
Firstly, the End of Season Sale for us actually was slightly later than earlier in the previous year. To that extent, the overall level of discounting that we have had to do was in line with what we had expected.
Sure. The last question is, you know, regarding the beauty business, ssbeauty.in is already launched. We can see the beta version live. We also seen the app, what you mentioned there. What is the marketing plan, you know, regarding this launch? Are we expected to spend higher in A&P in coming quarters? Also on the INR 500 crore B2B run rate, you know, some part of this will also be in our Shoppers Stop, right? Every, some part of the revenue would also book in the standalone entity. If you can just say how much are we looking from our own entity on in Shoppers Stop departmental stores vis-a-vis third party.
On the ssbeauty.in, we plan to launch it formally in March, and it would be accompanied with a strong marketing program where we would give it a, I mean, focus and bring attention of customers to this new platform. Obviously, it takes time to build the customer acquire customers onto a new platform, and hence the investment that is needed for it. It will be for both the ssbeauty.in website, the app, as well as for the SS Beauty stores, because what we are creating is a whole ecosystem for beauty as SS Beauty.
In terms of the revenue that comes in through that, it is incremental to the extent that these are new stores and would be over and above what we get through Shoppers Stop or through the department stores where we have the beauty brands.
Sir, my question was from the B2B business, the INR 500 crores which you mentioned. The business of, you know, that some part, a big chunk could also be through Shoppers Stop. Is that number over and above the INR 500 crores?
No, that would be included within that. That would be within Shoppers Stop. As Karunakaran had clarified, the distribution business itself would be under a separate subsidiary called Global SS Beauty, and, the revenue on, from that distribution business will be under that vertical.
Ankit, just to clarify, whatever Shoppers Stop sells to the end customer, it will be included in Shoppers Stop sales. Whatever Global sells it to Shoppers Stop and other companies will be in Global SS Beauty company. On consolidation, the intercompany sales will be eliminated.
Sure. Talking about the investments which we have done in the subsidies, through CCPS, do you think the working capital requirement is sufficient, currently for that? Do you think as the size increases to INR 300 crores over the next two years, we need to invest further in the subsidies?
Ankit, you, I already answered that question. We have already invested INR 5 crores. We are planning to invest another INR 25 crores in this month. In addition to that, we will have some temporary borrowings to take care of the working capital. Net, net, we expect INR 50 crores in the next 4-5 months. What we have also informed the board is, I mean, as we increase the business and if there is a need for the capital, it will be a combination of preference shares plus bank borrowings.
That's helpful, Karuna. Thank you so much.
Thank you. The next question is from the line of Varun Singh from ICICI Securities. Please go ahead. Mr. Varun Singh, please go ahead with your question. Your line is unmuted.
Yeah. Am I audible now?
Yes, please go ahead, sir.
Okay, yeah. Thanks for the opportunity. My question is on the beauty, the B2B beauty business. Sir, I just wanted to understand what is the need of entering into this business given that we already have enough on our plate with regards to revising the private brands and achieving high growth opportunity in small tier cities through led by the success of incremental effort that we are putting in revising the private label brands? How are you thinking with regards to, like, why to change growth opportunity in the B2B space?
I think, what I would like to emphasize is that the reason for getting into the distribution business is to strengthen our beauty pillar. Beauty, as you would appreciate, is an important strategic pillar for us. To make the supply strong in that area is why we are getting into this. As most of, or the majority of what we sell in our beauty business is international brands and the big national brands that we have. By having exclusive partnerships, we are able to bring in brands which are, I mean, we have the right of first refusal onto them.
Depending on the strength of the brand and what we would, how we would like to take it forward, it gives us the ability to be able to take it much deeper within our own stores across both Shoppers Stop and Department.
Okay.
The key factor, of course, which I would like to add is that it gives us the ability to get higher margins and better inventory control because of the fact that we have the end-to-end margin available with us.
Okay. Are we saying that the operating business economics of this segment of business will be superior or at least in line with the existing beauty business that we exist with?
Absolutely.
Is my understanding right?
Yes, absolutely.
Okay, right. My second question is on the offline business. Sir, so we have been, I think, on strategy front, we have done almost every all right things with regards to accelerating store renovation rate and optimizing store sizes, et cetera. Still, walk-ins numbers does not look so very much encouraging. Like how are you looking at this number or a gradual improvement? Also, I mean, the reason that I'm asking this question is because when we look at revenue growth from 3-year figures perspective, it still continues to be a low single-digit number. Like, when or how are you looking at improvement in this number?
Of course, I think the current quarter number is, I understand is very much encouraging. Any thoughts on this, that will be really helpful.
It's an interesting point. Over a period of time, what we focus on is looking at the total engagement that we have with our customers across offline and online. As you would appreciate, majority of the customer journey start digitally today and eventually end up with an actual purchase. The fact that we have seen consistent increase in our average basket size is indicative of the fact that customers who are walking into our stores are the most serious customers, and that's what's helping us to generate the growth that we have. Having said that, coming specifically to customer entry, where we have now got into the drop, which we used to see four, five years back, has been arrested, that is something which we are pleased about.
What we are seeing is that customers are now coming in small. I mean, earlier you used to see large groups of customers coming in, and that's changed. That's the change that we are seeing across the country, where you've got smaller individual families coming in and individuals coming in. That's partly why you don't see the total number not being high. At the same time, when we look at the specific stores which are our large stores, the customer numbers are growing and very encouraging. We have a few large small stores in catchments which have now become less dominant. While these are still large stores, it is into these specific stores where we see a drop in sales. That could be one of the reasons for that is because we have expanded within that city itself.
Got it, sir. Got it. That's very much helpful. Thank you very, very much.
Thank you. The next question is from the line of Devanshu Bansal from Emkay Global. Please go ahead.
Yes, sir. Hi, thanks for the opportunity. There are multiple tailwinds for Q4 this year, in the form of delayed winters, higher number of weddings, as well as no Omicron-led disruption as well. Can you help us understand how this Q4 can be different versus the historical Q4s, based on the trends that we have seen so far in January?
We expect the Q4 numbers to continue the momentum that we've had in the first three quarters. should be significant in March because of the comparison versus last year where there was a level of Omicron, et cetera. To that extent, it might not be directly comparable. If we just look at the momentum that we have had and the absolute numbers that we have been getting in Q1, Q2, Q3, we expect that to continue.
Got it, sir. Typically, versus historical trends in Q4 versus Q3, how has that been shaping up so far in January? Are we seeing better results or is it largely in line?
It's large. I mean, I would say it's slightly better than what we had expected so far.
Got it. The second question is on margin. If we exclude the other income in both the quarters, it's 50 basis points decline. What explains that?
We could not hear you properly. Can you please repeat the question again? You said some decline in margins.
Ex of other income in both this quarter as well as base quarter, there is a 50 basis points of decline. What explains that?
This is last year you're talking about?
Yeah, versus last year Q3.
Last year Q3, we had significant concession on rent, and overall expenses were lower. As we see, it's more or less in line with the numbers. I mean, I could not see a drop in margins. Where are you picking this up from? Because we actually have an increase in the margin.
I'm talking about the pre-Ind AS numbers. If we exclude other income from both the quarters, then we are getting a 50 basis points number decline.
Okay, now we got it. See, that's I think Venu said in his speech. Last year, we had significant concession on the lease rental because it was impacted by COVID. What also happened last year was some of the concessions for Q1 and Q2 came in Q3, and we don't account unless until those concession happens. We accounted that. That's one of the main reason. We have also opened close to nine stores this year. The productivity will improve as we progress, but some of the cost will be there. These are the two large reasons where the EBITDA margin is 50 basis points lower than the last year.
Sir, I was coming from that point. This store expansion is going to continue going ahead as well. Will this sort of materially impact our margin improvement going ahead, or we should be able to sort of negate this impact with the kind of investments we are doing on private labels, as well as on the beauty front?
We would be able to negate the impact of the higher lease costs with the growth in business that we would see across each of our strategic pillars.
Got it, sir. Thank you. That's it from my end.
Thank you. The next question is from the line of Vignesh Iyer from Sequent Investments. Please go ahead.
Hello. Yeah. I just wanted to know what is the ASP for the company in quarter two if you remember?
Our average selling price for the quarter was INR 1,627.
Okay.
That was a 10% growth over last year.
I mean, Q2 to the earlier Q2, that way.
Q3.
Yeah, Q3.
Yeah.
Right. What is the total CapEx we are planning for, I mean, how much we have spent for the current year in total, and what is the plan for Q4?
We have spent INR 101 crores on the CapEx. INR 81-82 crores is on account of stores, and the balance on account of technology and other things. For this quarter, Q4, we expect anywhere between INR 25-30 crores CapEx in line with what we normally spend per quarter.
Okay. Your spends on the distribution, the new business, right, the beauty, SS Beauty, right? Excluding that, what would be the CapEx for the next year, rough estimate?
Again, let me just now clarify. On the new stores plus refurbishments, it will be anywhere between INR 120-150 crores, because we also have some plans on tech, which we are working out right now. I mean, if I have to give a ballpark number, it will be between INR 150-200 crores next year.
Okay. including SS Beauty, right?
The SS Beauty CapEx is very, very small. I mean, probably it will be less than INR 10 crores next year.
Okay, fine. Thank you. Thank you. That's all from me.
Thank you. The next question is from the line of Aliasgar Shakir from Motilal Oswal. Go ahead.
Yeah, thanks for the opportunity. I had a question on the growth over the next 2, 3 years. You know, slightly longer question. If, you know, Venu had mentioned that we are planning, we would double our revenues, right, over the 3-year period, and I think that was resolved for a 20 number. As of now, if we see the, you know, from FY20 numbers have, you know, if I see the GAAP numbers, then, you know, our growth is relatively tepid. You know, you also mentioned SSG versus pre-COVID is about 1%. How should you see over the next 2 years, you know, this growth being?
One is that, is renovation, renovated store going to have a, you know, a reasonable jump from here that should, you know, help drive growth for you? Secondly, what proportion of, you know, growth can come from the new store addition? I know the number you have mentioned, but incremental revenue that can come from their beauty, and, you know, probably margin improvement from private label. If you could just stack it down and, you know, explain that, you know, guidance on doubling of revenue, how are we placed there?
If I break that down and how we are looking at it, the growth from our current business would be from two engines, the like-for-like growth and growth from new store addition. These two combined together, we expect a CAGR of 20% every year. The distribution business would add on to that. Apart from that, we do have a couple of other plans which we will bring in the subsequent quarters as we crystallize onto that.
Okay. The 20% growth that you mentioned, if you could break it down, the new store addition, the, if you're building about close to 12, 14 stores from departmental and, you know, even in beauty, that should be about 10%, 12% growth and maybe high single-year SSG. Is that what you are hinting?
Absolutely. We would be looking to mid to high single digits like-for-like, the rest coming in from new store additions.
Okay. That will be about 20% growth. Even with a 20% growth, we will not touch doubling of revenue. I mean, the contribution from these new engines of growth that you hinted will be very, you know, meaningful, you know, in the range of about probably 20%+ or they would be, you know, I mean, relatively lower.
The new engines of growth would lead to substantial numbers coming in the year 2 and year 3, as we have just touched upon. That would definitely help us to add to the existing numbers that we just talked about.
Okay. One, of course, is the B2B and the other, we have not disclosed the plans yet, right?
We also have the SS Beauty, which we just talked about.
Got it. What about the margin improvement? You know, how meaningful that should come by? I'm just asking from 2 point of view. One is renovated stores, what should be the contribution from them in revenue? I understand, you know, from margin it should be significant given that new store typically do much higher SSSG. F rom any other of these levers of growth that you are hinting in terms of, you know, SSSG improvement, how should that play out in terms of margin?
Yes, that's Karuna here. I think we discussed. Normally, we don't give guidance on the margin. I can give you overall number. See, our margin should improve for number of reasons. One, the private brand mix should be improved. Second, as you rightly said, the new stores have a, what we call a smaller space, that should deliver higher margin. What we expect is probably a high single digit in the next two years, from a third year from now, it should be close to a low double-digit number. These are the margins, what we are internally targeting.
Okay, understood. This is very helpful. Thank you.
Thank you. Next question is from the line of Disha Sheth from Anvil Wealth. Please go ahead.
Hello.
Yeah, Disha.
Yeah. sir, when you mentioned that, with the like-to-like growth was 1%, and you also mentioned that the December momentum was strong. How are we getting the 18% growth since the like-to-like is just 1%?
The like-to-like 1% was pre-COVID, which Venu said. If you are comparing the like-to-like growth versus last year, we are around about in mid-double digits, close to 15%-16%, and the overall growth is 20%.
Okay, okay. Sorry, missed on that pre-COVID part. Secondly, sir, on the margin front, sorry, I missed one line of what you said on the improvement of margins. What are the levers? First, I heard the beauty distribution business, but that would be on the subsidiary. On standalone basis, what can help in margin?
What we said was our overall strategic pillars, the private brand with higher margin should improve the overall mix, and that should give us, that's one lever. Second, our new stores being smaller in size will have a higher throughput, and that should also increase the overall margins. Plus, our fixed cost will not be linear to sale. That will also be fixed.
Okay.
These three things will help us to improve the overall margins.
Okay. Thank you, sir. That's it from my side.
Thanks, Disha.
Thank you. The next question is from the line of Gaurav Jogani from Axis Capital. Please go ahead.
Thank you for the opportunity, sir. My first question is with regards to the SSSG. If you can, sir, please clarify. I think there is a lot of confusion between the walk-in and the SSG numbers. If you can just highlight what has been the SSG growth on a YOY basis and versus the pre-COVID levels.
Gaurav, I'll just clarify. The SSG growth versus last year is 16%, versus pre-COVID is 1%.
Sure. My next question is with regards to the gross margin. If you see typically in, you know, Q3, we generally have a higher gross margin due to the better sales mix and, you know, the festival season coming in. This time around, if you see our gross margins haven't expanded to that extent. It's largely actually been declining on a QOQ basis. If you can explain the reasons for the same, and in this light, how do we see Q4? Because Q4 being a season where we typically see some discounts coming in.
I am not sure from where you got this number because, even, this is last year or even pre-COVID, our gross margin remained more or less constant. Probably here and there, 10 or 20 basis points. That's it. Other than that, it remained largely constant. This is the pre-COVID or even this is last year.
I'm sorry, Q2. Basically in Q2, FY23, if you see our gross margins on the non-GAAP basis was around 32.7%. I'm excluding the other income here. If you see for this quarter, it's 32.3% to that extent. Hence, you know, it's a QOQ comparison because Q2 generally we see a gross margin expansion usually.
I am not getting that number. We're having a different number. Probably, Gaurav, what we can do is we can discuss with you offline. I mean.
Sure, sure.
You know my number, and I have your number.
Yeah.
Let me understand what are your numbers, and then we can probably discuss that. Only something I would add, the GAAP numbers also include consignment sales treated in a different way. Let me understand what is it, and then I can talk to you.
Sure. Thank you, Venu. Yeah.
Thank you. The next question is from the line of Shalini Gupta from East India Securities. Please go ahead.
Yeah. Good morning, sir. I have just one question on the other income.
We can hear you, Ms. Shalini, but we are unable to hear you, ma'am. Can you speak a bit louder?
Okay. One sec. Can you hear me now?
Yeah. We can hear you, Shalini.
Sir, I have just one question on the other income. This quarter, the other income is up 68% YOY, including the course of his presentation, sir had mentioned that there was INR 17 crore adjustment or something he was saying, which if he could just repeat that.
Okay. Let me give you what is the other income includes. In our non-GAAP income, our other income includes space on hire, plus our income from the loyal members. It can be the normal loyal members and the Black Card members. These are the three large items. Y ou said during the speech, we had provided interest in the previous years, which now that particular section has been repeating, because of which we have reversed INR 20 crores, out of which INR 17 crores has been included in other income. That comes to around about INR 32-33 crores. That's the breakup of other income, Shalini, for Q3.
Okay. Sir, my second question is like, Arcelia was a private brand for beauty for Shoppers Stop. What is happening to Arcelia now? What are your plans?
On Arcelia, we launched in this quarter, we've now launched, lips and nails, and, as you would see, the range is now largely in place, and it is about building scale into that. Currently, within the Shoppers Stop ecosystem, it is within the top three in each of the categories that it operates in. We would look to take this further and beyond the Shoppers Stop ecosystem as well, so that it grows the brand as a whole.
Sir, could you just quantify how much, how big Arcelia is?
Again, we don't really break down individual brands, Shalini.
Sure. Yes, sir. Okay. Thank you. That's all from my side.
Thank you.
Thank you. Participants who wishes to ask a question may press star and one. The next question is from the line of Jignesh Kamani from GMO. Please go ahead. As the participant left the queue, we'll move to the next participant, which is Tejas Shah from Avendus Spark. Please go ahead.
Hi. Thanks for the opportunity. First question pertains to our B2B business. If I understood correctly, we are targeting INR 500 crore turnover by FY25. Is that a correct understanding?
Yes.
This will be at wholesale price you said, right?
This would be at the retail price.
Retail. Okay. Okay. Sir, how much capital-
Sorry. When you say wholesale, this is the price at which we, the subsidiary business would sell. That's what I meant.
Yes. As a customer, there'll be at MRP, it will be at least 40% higher, I'm assuming.
Roughly, yes.
Okay. Okay. Sir, to kind of create that kind of business, how much capital we'll have to infuse in near-term, including what we have done now?
Tejas, sorry, Vignesh, I just said that what we are doing is we have infused INR 5 crores. We are planning to infuse another INR 25 crores as preference shares, probably either this month or beginning next month. We are also planning to buy INR 20 crores. As we expand the business, we will do a combination of issuing preference shares as well as borrowing from the bank for the working capital.
Sure. Sir this capital would largely go in creating logistics or warehouse capabilities or are there any other plans also?
See, we have an existing warehouse which that's sufficient for us to cater the demand. This capital will be largely for the working capital, which is inventory as well as the receivables because we are also targeting other than Shoppers Stop to sell these products.
Sure. Sir, just to understand this business better, let's say I'm a dealer on, in beauty products. I have a shop. What will be my incentive or what will be my reason to switch from existing distributor to Shoppers Stop or SS Beauty?
As, I think what I would clarify and emphasize is that each of these brands that we are getting into, we would have the exclusive rights in the country. You are not switching distributors. The Global SS Beauty will be the only opportunity for you to get that brand into your store.
Sure. Sir are we making any minimum investment guarantee for these brands to do marketing activity? Because we'll have to create markets for this brand.
The investments required for building the brand would be done jointly or by the brand itself and would be a part of the total commercial agreement that we would have with them. There is definitely an investment that is factored in, but that is something which is in agreement with the brand itself.
Got it. Got it. So you spoke about financial capital, but what kind of manageable capital will you need? Because this is slightly out of our comfort zone kind of business, which is what we have done as a company. Will we need a talent pool, perhaps, if you can elaborate on that as well.
Yeah. The talent pool required for this, we already have started building the team, and we do have a good team already in place. It is set up as a different vertical and a different business and operates on a different floor, and that's the way we are building it.
Got it. Lastly, sir, do we see ONDC as an option to kind of bypass the stage of, like, creating a direct D2C consumer franchise without getting into this? At a certain level, ONDC is kind of trying to create the disruption by empowering all the stores to go direct to consumers. Are we kind of even thinking on that line, how to kind of think out of the box and leverage some of these opportunities which are coming at the peripheral of the ecosystem today?
We have engaged with ONDC. We've had initial discussions with the ONDC team. It's certainly an exciting opportunity that we see to be able to expand our reach. We would, as we are creating our own shopperstop.com, ONDC would certainly be one of the platforms that we would be looking at.
Got it. That's also mindset. Thanks a million.
Thanks.
Thank you.
One last, Rucha Amar from Nippon is here. He has sent questions to us. We believe by and large, we have answered the questions. If Amar is still there and if he has any further questions, we can take that.
Mr. Amar, if you have further questions, you may press star and one.
Probably what we will do is we will connect with Amar when I'm also breaking for him.
Shall we move to the...
Yes, please.
Thank you. Ladies and gentlemen, that was the last question for today. On behalf of Shoppers Stop Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.