Future Retail margin improves as co sheds unprofitable outlets

Future Retail, the country’s largest brick-and-mortal retailer with over 1,100 stores, reported an overall improvement in its profits margins in the Apr-June quarter.

The improvement was largely the result of a slight dip in operating expenses, even as sales fell as the company shut unprofitable outlets. Excluding such stores, sales improved 7.1% on year.

Net profit for the three months came in at Rs 153 cr, versus 148 cr last year.

EBITDA, or profit from operations (net of non-operating costs like finance charges) improved by Rs 12 cr (6%) on year to Rs 224 cr.

Revenue from operations fell by Rs 166 cr to Rs 4,539 cr due to the demerger of its ‘Home Town’ furniture chain and the continued shut down of unprofitable large-format electronics stores known as eZones.

The company shut down 1 more eZone in the three months, bringing their number down to just 12.

Interestingly, the coverage of Big Bazaar large-format stores increased to 137 cities by the end of June from 135 cities three months earlier, even as the total number of stores remained static at 285, suggesting that it also shut down unprofitable Big Bazaars even as it opened new ones in new places.

The highest growth was seen in Easy Day stores that were acquired from Bharti Retail.

It opened 83 new small stores in three months under the Easy Day brand, taking the total to 749, despite such stores being less profitable compared to large-format outlets.

The operating profit (EBITDA) margin for large format stores improved to 7.9% from 6.2% last year, while the overall EBITDA margin of the company was lower at 5.8%, though that was an improvement over 4.8% recorded last year.

Large format stores contributed 85% of the revenue.

Future Retail said that operating profit at Hyper City, a large format chain acquired from the Shoppers Stop group, continued to fall. However, it said, the year-on-year decline was lower at Rs 22 cr compared to Rs 38 cr in the preceding (Jan-Mar) quarter.

“In the next 6 – 9 months, we expect Hypercity stores to be at an EBITDA of over 5%,” said Future Retail, adding that renovations and upgradations at the nearly 20 stores continued until 30th June.

Among the small stores, there was an improvement of around 1.3 percentage points in the gross margin (which does not take into account fixed operating costs such as staff salaries).

It said the fall in prices of staples and staple connected category, such as veggies, grains and pulses, were lower by around 20-25% this year, which affected revenue  in the small store category. Staples contribute about 35% of the revenue at such outlets.

Despite this, it continues to build the small store chain as a ‘long term strategic fit’, it added.