Spencer's Retail to shut loss-making stores

Informist, Thursday, Feb 22, 2024

--Source: Spencer's Retail to shut down all loss-making stores

--Source: Spencer's Retail to focus only on Delhi, Kolkata, Hyderabad

--Source: Spencer's Retail to shut stores due to accumulated losses

--CONTEXT: Spencer's Retail consol net worth (-)5.1 bln rupees end-Dec

--Source: Spencer's Retail to right-size ops at corporate level

By Avishek Rakshit

KOLKATA – Aiming to bounce back to the black and reduce at least 10% of its operating costs, Spencer's Retail Ltd has decided to shut down all of its loss-making stores over the coming months. The company will also not enter any new cities in the next 12 months, a source aware of the company's plans told Informist.

Questions sent to Spencer's Retail remained unanswered and the company's Managing Director and Chief Executive Officer Anuj Singh declined comments over the phone.

During the first nine months of the current financial year, the listed arm of the diversified RP-Sanjiv Goenka Group has already closed a total of 22 stores, including some Nature's Basket brand of retail outlets, and exited Tamil Nadu and Kerala which were unremunerative. At the same time, it opened two new stores--a Nature's Basket outlet in Mumbai and a Spencer's Retail store in Kolkata.

Currently, Spencer's Retail operates 167 stores in 41 cities, of which 32 are under the Nature's Basket brand. The store count is down from a total of 189 stores it had in April 2023.

The net trading area, or the area which Spencer's Retail uses to showcase and sell products and generates revenue for the company, has been reduced as well. During the nine months ended December, the net trading area fell by nearly 5% to 1.4 mln sqft. Gross sales per square foot of trading area also declined by a marginal 400 rupees to 16,400 rupees.

Years of accumulated losses have eroded the company's net worth, which is now negative. According to the company's financial results for the Apr-Dec period, its consolidated current liabilities exceed current assets by 5.1 bln rupees. Ratings firm CareEdge reasoned that the negative net worth is on account of the increasing accumulated losses and no equity infusion in the company. In December, the ratings' agency downgraded ratings to "BBB negative" from "BBB".

CareEdge said that underperformance at the stores, together with rising costs and increased competitive intensity in the retail industry, is the primary reason for the company's losses. Since 2019-20 (Apr-Mar), the company has been in the red.

For Apr-Dec, Spencer's Retail posted a consolidated net loss of 1.9 bln rupees, as against a near 1.5-bln-rupee loss in the year-ago period. During 2022-23, its losses were at 2.1 bln rupees and in the prior financial year, the net loss was 1.2 bln rupees.

The company has also been funding the cash deficit through loans, which has resulted in increased debt, CareEdge said. As on Dec 31, Spencer's Retail's total debt was 78.5 bln rupees, which includes debt of around 10 bln rupees from its subsidiary Nature's Basket Ltd. In the first nine months of the current financial year, its consolidated revenue fell by 5.8% to nearly 18 bln rupees, and finance costs increased by 29.8% to 1.1 bln rupees.

An analyst tracking the stock said that Spencer's Retail was on an expansion spree before the outbreak of the COVID-19 pandemic, which stretched its finances. Just before the pandemic started, its total store count was 191 across 42 cities. This included the Nature's Basket stores as well, which Spencer's Retail had acquired from the Godrej Group for 3 bln rupees in 2019.

While the company is set to vacate several markets via store closures, it will focus on expanding its presence in three clusters which are remunerative. The first cluster is centred around West Bengal and eastern Uttar Pradesh, which accounts for 54% of its revenue. The second cluster is the Delhi National Capital Region, its surrounding areas, and western Uttar Pradesh, which account for 24% revenue. The third cluster is Telengana and coastal Andhra Pradesh, accounting for the remaining 22% of Spencer's Retail's topline. The cities of Mumbai and Bengaluru will remain the focus areas for the Nature's Basket brand of gourmet retail stores.

"Only after the existing clusters start generating enough cash flow and improvement in profitability and revenue is seen, will the company focus on other clusters," the source said. "Primarily, the focus is to make sure that all the operating stores are EBITDA positive (earnings before interest, tax, depreciation, and amortisation positive) and the company can post some profit at least."

In a call with investors after its Oct-Dec earnings, Managing Director and Chief Executive Officer Anuj Singh indicated that the RP-Sanjiv Goenka Group could consider divesting some stake in the business at a later date. "When it comes to stake sale, and looking at this thing, these are premature kind of conjectures. And we will, at the right time, we will keep evaluating and doing it, but nothing concrete at the moment," Singh had then said in the call.

In 2018, investors believed that Amazon India was interested in acquiring a stake in Spencer's Retail, but a deal could not be worked out then.

The source said the retailer will also be focussing on increasing its topline in the coming months and has identified fresh meat and fish and liquor retailing in east India as revenue growth verticals.

"There will be some right-sizing at the corporate level as well," the source said.

Nearly a year ago, the company appointed former country head of General Mills India Anuj Singh as its chief executive officer and managing director after the then chief executive Devendra Chawla resigned. Its chief financial officer, Neelesh Bothra, resigned on Jan 20 this year citing personal reasons.

At 1308 IST, shares of Spencer's Retail were up 2.3% at 120.50 rupees on the National Stock Exchange. End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Aditya Sakorkar

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