Consumption (both staples and discretionary) slowdown across the board is likely to result in lower-than-anticipated revenue growth.
The retail sector is not yet out of the woods as brokerage firms are not too optimistic about the first quarter (Apr-June 2019-20) earnings of retail companies.
According to research reports from brokerage houses, most analysts expect moderation in sales growth and flat demand across apparel segment.
According to brokerages, consumption (both staples and discretionary) slowdown across the board is likely to result in lower-than-anticipated revenue growth, particularly in case of apparel.
Furthermore, there is no festive season push this time around either. Extended end-of-season-sale, coupled with sluggish same-store sales, could impact margins.
However, within the apparel space, Emkay in its recent retail preview report, expects Future Lifestyle Fashions and Aditya Birla Fashion & Retail to sustain healthy top-line momentum on the back of strong expansion of retail formats, while expects subdued sales growth for Shoppers Stop and Raymond in the April-June quarter.
Aditya Birla Fashion & Retail will announce its first quarter numbers on August 6 while Future Lifestyle Fashion, Shoppers Stop, and Raymond are yet to inform the exchanges on the result date.
For instance, Titan’s stock witnessed a sharp downfall in recent days owing to a subdued management commentary (on the Q1 FY20 performance).
IIFL stated that high gold prices in June and weak macros hurt demand for jewellery, which constitutes roughly 80 percent of revenue and happens to contribute towards operating leverage. In this parlance, it is pertinent to note that elevated valuations of retail stocks may be hard to sustain if earnings growth doesn’t pick up pace as the fiscal progresses.
Titan will annpounce its quarterly numbers on August 6.
Phillip Capital believes that retail companies may outpace staples companies in terms of volume growth, as the larger theme of formalization remains intact.
Notwithstanding the short-term roadblocks that lie along the path, analysts expect the long-term outlook for this sector (in terms of revenue accruals) should remain promising considering India's large population base.
