DMart Q4 takeaways: 80% stores hit, excess inventory & likely slow store openings ahead

NEW DELHI: Avenue Supermarts ()’s 53 per cent jump in March quarter profits met analyst projections. But, like others, June has been a difficult quarter for the Radhakishan Damani-led company with 80 per cent of its stores being impacted by the second wave of Covid. Unlike last year, when the company faced supply disruption, the company is bracing for excess inventory this time, as it had become quite optimistic after the last two quarters. Store openings are at risk, but the company is optimistic. A revival hinges on the government’s vaccination drive, it said: Key takeaways:

80% stores impacted

DMart said it has seen significant disruptions since March onwards. The restrictions and local level enforcements have become much stricter, it said, adding that restrictions vary from store closures on certain days or for extended periods, to restricted store operating hours and selling only essential goods in most cities and towns.

“In general, more than 80 per cent of our stores are operating for a significantly lower number of hours (not exceeding four hours per day) or are even shut for operations for one to weeks or shut on weekends. These shutdowns are having an adverse and severe impact on our revenues,” it said.

Excess inventory likely

DMart said that unlike the last year, it has continued receiving regular supply of goods from its suppliers.

“However, this time we may have a problem of excess inventory. The receding threat of the pandemic and consequent sales surge in Q3 and most of Q4, followed by the oncoming summer and back to school season made us plan more optimistically,” it said.

The company said it could have a longer-term impact on inventory to sales ratio as we could take comparatively longer time to liquidate the excess inventory,” it said.

Slow store openings likely

The company said it is witnessing significant restrictions for construction activity across towns and cities. It said it is unable to forecast the impact of the current lockdowns on the store opening pipeline for the year.

“However, we remain optimistic here as migration of construction workers is not visible like the first time. It is quite evident that confidence is far better this time due to vaccination drives, appropriate medical knowledge to deal with the pandemic and probably better herd immunity amongst the blue collared workers,” it said.

The company noted that construction activity also impacted during the first half of the year,. but it ended up opening 22 new stores during the year. The company added 13 stores during the March quarter.

Revival in discretionary spends
The company said that its sales from general merchandise and apparel formed 22.90 per cent of total revenue for FY21 compared with 27.31 per cent in the previous year, and that its sales mix also shifted towards grocery and FMCG products.

This was a result of consumer preference of need-based shopping for a significant period during the year, reduced discretionary spending and significant restrictions on selling non-essentials during the early part of the year.

That also impacted the company’s margins during the year. That said, the company said Q4 margins did indicate revival of discretionary spends not seen in previous three quarters.


Vaccination drive key to revival

A key difference between last year and this year, DMart said, is that the healthcare fraternity and government authorities have better knowledge to tackle the pandemic. Additionally, India now has the benefit of multiple vaccines being available for all adults in the country, it said.

“However, we expect more frequent lockdowns across cities and towns. This trend is likely to continue until a large part of the population is vaccinated and new infections reduce significantly and remain like that for a long period of time,” it said.