Release Date: January 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- VIP Industries Ltd (BOM:507880, Financial) recorded a revenue growth of 4% in Q3, with domestic sales growing by 6%.
- E-commerce sales saw a significant increase of 65%, indicating strong online performance.
- The company launched 37 new product ranges between December and March, with visible improvements in stores.
- VIP brand experienced double-digit growth for the first time in a long period, driven by premium launches.
- Gross margins have stabilized at 55-56%, showing improvement in profitability.
Negative Points
- The company faced a poor quarter with underperformance not meeting internal standards.
- Inventory levels have increased, leading to higher warehousing costs and concerns about inventory management.
- EBITDA saw a sharp reduction due to increased freight costs, investments in e-commerce, and professional fees.
- The tax rate was unusually high at 46% for the quarter, impacting net profitability.
- There were multiple resignations at the management level, raising concerns about leadership stability.
Q & A Highlights
Q: I have a question on our inventory. We were at about INR763 crores in 1H, and this quarter, we have added another INR122 crores. Why are we building more inventory instead of consuming the existing stock? How will this affect warehousing costs?
A: The increase in inventory is due to a slowdown in the soft luggage market. We have plans to reduce inventory levels to around INR600 crores over the next two quarters, which should also bring down warehousing costs.
Q: Is our revenue grossed up for the performance marketing fee towards e-commerce? If yes, can you share the quantum?
A: There is no change in the accounting for performance marketing fees. We did not gross up the revenue for this fee in the middle of the year.
Q: Can you explain the reason behind the higher freight costs and the 46% tax rate this quarter?
A: The higher freight costs are due to multiple movements of goods to liquidate soft luggage inventory. The high tax rate is mainly because of deferred tax assets created due to low profits. For the year, the tax rate should be around 27%.
Q: Are we selling uppercase in our retail outlets?
A: No, we are not selling uppercase in our retail stores. Uppercase is considered a new competitor in the market.
Q: What is your strategy to stem attrition at the management level, especially post Anindya's exit? Have you found replacements?
A: The resignations were planned and calculated. All positions are currently filled, and we expect our new CFO to join shortly.
Q: How do you plan to grow volumes from here on, given that growth has been mainly through higher realization?
A: Volume growth will come from our premiumization strategy. We are not taking any price increases this year, so any growth will be in volume terms.
Q: What is your strategy to liquidate slow-moving inventory?
A: We have a plan to reduce 50% of our slow-moving inventory by March. We can discuss the details in a one-on-one meeting.
Q: How do you plan to handle the competitive intensity in the market?
A: We aim for profitable growth through our premiumization strategy. Our strong brands, V.I.P. and Skybags, will show their strength in the market with better product lines and fill rates.
Q: What are the top three priorities for the management in your weekly, monthly, and quarterly reviews?
A: The top priorities are premiumization, fill rates, and inventory management. We track the new product development calendar and fill rates closely.
Q: What is your current store count, and what is the target for the year-end and next year?
A: We have added 25 stores this year, bringing the total to 541. We aim to reach 550 stores by year-end and 600 stores next year, with 80% being franchisee stores.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
