Release Date: August 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Campus Activewear Ltd (BOM:543523, Financial) reported a volume growth of 3% year on year in Q1 FY25, amounting to 5.8 million pairs of footwear.
- The company maintained its gross margins at 53.3% despite a decline in revenue due to extreme summer conditions.
- Campus Activewear Ltd launched 78 new designs in Q1, showcasing its focus on innovation and consumer preferences.
- The company expanded its distribution network by adding a new LFS account and 13 new EBOs, increasing its total count to over 75 EBOs.
- Campus Activewear Ltd's extensive distribution network now includes over 23,100 retailers across India, enhancing its market reach.
Negative Points
- Revenue declined due to extreme summer conditions, resulting in fewer in-store footfalls and lower wedding dates.
- The increase in minimum wages mandated by the government impacted margins, and the company chose not to pass on these higher costs to consumers.
- The average selling price dropped to INR585 in Q1, driven by a higher saliency of open footwear.
- The EBITDA margin stood at 15.8% in Q1, affected by higher employee costs driven by headcount reduction and inflation.
- The company's B2B online business saw a decline, although this was partly mitigated by growth in the marketplace channel.
Q & A Highlights
Q: Hi, Nikhil. My first question is on channel wise growth. If you can highlight how has been the growth in trade distribution, D2C online, and D2C offline. And within D2C online, if you can also split the growth of marketplace as well as D2C online, I reckon that we had some challenges in B2B online, has that been -- the decline that we saw in B2B online has been arrested or not? That's my first question.
A: Hi, Priyansh. So we have seen actually all the channel getting back on track in terms of the volume. So let me give you an example, like for MBO for distribution, we have seen two consecutive quarters of 4.5%-plus volume growth. This is the second quarter consecutive one along with the distribution and store expansion, like I mentioned. In the online, again, we have seen our marketplace grew by almost 24% in this quarter one versus this is YoY. And of course, the oh two has declined. This is in line with the strategy of reducing the B2B business, the dependency on the B2B business. And the retail channels, the offline EBOs have also grown by 8% in quarter one. So this is very much in line with the strategies of having different strategy for each channel very clearly laid out, like distribution is our volume growth channel and EBO and a brand.com, and our own online channel are basically the ones to drive premiumization and so on. So Sanjay, you would like to add?
Q: Now the second question is on the traditional channel, right? So we have been adding the retail touch points a very aggressively, and it has to go back to say pre-IPOs or pre-COVID and where we had no sales, but that's going to be at around INR510,000 per year. It has fallen down to say almost around INR350,000 per year by the competition in the industry have higher than normal. Do you think that there is a scope to increase this pan-India throughput. I know that we are again slightly in the town as far as state channel presence. So how should we think the growth coming out of traditional channels in terms --
A: See our strategy is to continue to expand the touch points, and we have been doing that along with our distribution base. So the share per countered will also go up. This is just a seasonal effect. Like in quarter one, we've sold higher volumes because of open footwear, but the overall ASPs have dropped. So this was basically because we didn't -- we also didn't expect or so much heat waves across the country, which led to much higher than anticipated share of open category. Therefore, that led to an ASP drop and a lower realization per counter, like you mentioned. But this will normalize. This is just a seasonal effect and going forward, we see the share count is going up.
Q: My first question is on the channel inventory. So where does it stand as of date, given the muted consumption environment? Is it still elevated? Or has it largely normalized?
A: This is Sanjay. So channel inventory, if you see the way the quarter shaped up, it was more towards the open footwear, which eventually means that we did more query on the open front, open footwear and slightly lesser as far as the shoes is concerned, so which, by and large, indicates that the internal inventory is sort of coming to the levels or is at par with the demand in the market. Currently, we continue to hold around 60-odd days of inventory in the distribution channel, anywhere between 60 to 80 days, and that continues to be the norm considering the lead time for production of the MTDC.
Q: I wanted to ask what are your target markets and you are looking to expand your store count?
A: Sure, sure. So for EBOs, right? Yes. So EBOs, we are already present in 27 states as we speak. And like, for example, we've just opening a new store in Mangalore. So there are markets basically in South that we are actively pursuing. That is one space that has the least number of stores. So it's basically South and a bit of East -- West. West also and South and West in line with the company's strategy.
Q: A question on the BIS. I just wanted to understand what's the current status there? I understand almost 15%, 20% of industry were revenues or rather products in that, particularly sportswear, were coming from imports. And am I correct that from the August 1, that has been completely stopped. So if you could just share, I mean, whether that is true. And then how much inventory would be there in the system and how we should benefit with this policy?
A: Sure. So BIS is fully in effect now as of August 1. And the government has mandated time until end of June 2025 for everyone to liquidate the non-BI inventory. And we are seeing some changes in the market already.Like I know from the channels that the Chinese inventory and the fake being imported from China have reduced significantly. The imports have also been largely curtailed. So there is definitely a positive impact that we see in the market on account of that, at least in terms of imports, it's just a matter of the inventory that holding today, the -- all the channels of Chinese imports or the other imports from other countries. And we believe that they should be -- I believe the liquidating all of that by the season and get done with it.
Q: Sir, you spoke of open footwear doing exceedingly well in the quarter. While you didn't intend to have so much, I just wanted to know is the product expand very good that the consumers came to us for open footwear because competition could also be there. Secondly, there was so much demand from an inventory perspective, how could you meet this demand because you would have not thought of such unprecedented demand in open footwear?
A: Hi, Ankit. So we do have a very agile supply chain like we've mentioned in the past as well. So we did prepare for higher offtake. We expected a higher uptake offtake than the previous year-on-year quarter one in terms of open category. It was more than what we anticipated, but we were kind of prepared with it as we have a very agile supply chain, and we could manage it within lean season to be supplied, right? So that is what gave us a higher volume offtake in the open category.
Q: Nikhil, what would be our contribution from the sneakers as a category? And how has been the progress over here? Any growth numbers, any revenue contribution numbers that you would like to talk on this?
A: Sure, Priyank.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
