Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Arvind Fashions Ltd (BOM:542484, Financial) reported double-digit revenue growth and a 1.5% like-for-like retail growth in Q1 FY25.
- EBITDA increased by 100 basis points, with a value growth of nearly 20%, reaching INR123 crores.
- The company saw growth across all brands and channels, with a significant 15% growth in wholesale channels.
- Online direct-to-consumer business grew more than 60% year-on-year, contributing to higher channel profitability.
- Gross Profit (GP) improved by 80 basis points to 55.2%, driven by better price realization and efficient product costs.
Negative Points
- Market conditions were challenging due to elections, a peak heat wave, and fewer wedding dates, impacting traffic across offline and online channels.
- Like-for-like retail sales growth was subdued at 1.5%, below the company's normal expectation of above 5%.
- The company delayed its End of Season Sale (EOSS), which impacted short-term revenue.
- Arrow and Flying Machine brands are still in the process of re-energization, with Arrow at low single-digit EBITDA and Flying Machine close to breakeven.
- The company's net debt stood at INR225 crores, with expectations of a slight increase in the next quarter due to inventory build-up for the season.
Q & A Highlights
Q: What explains the subdued same-store sales growth (SSG) of 1.5% despite healthy formal expansions?
A: The current market conditions, including elections, peak heat, and delayed end-of-season sales (EOSS), impacted walk-ins. Despite these challenges, achieving 1.5% SSG is satisfying as many competitors reported negative numbers. Our efforts in store renovations, product stories, and premiumization contributed to this growth. (Shailesh Chaturvedi, CEO)
Q: How do you balance the gains in gross margins with the subdued sales due to delayed discounting?
A: Early discounting is not a solution. We focus on upgrading products, storytelling, and retail experiences to encourage full-price purchases. Our strategy is to grow profitably, which has led to an 80 basis point increase in gross profit (GP). We align our discounting with other premium brands to maintain margins and sell-through rates. (Shailesh Chaturvedi, CEO)
Q: Can you provide insights into the profitability and future outlook for the Arrow brand?
A: Arrow has undergone significant changes, including new product lines and retail identity. Despite current market challenges, Arrow remains a low single-digit EBITDA brand. We aim to achieve mid-single-digit EBITDA as market conditions improve, particularly with more wedding dates in the second half of the year. (Shailesh Chaturvedi, CEO)
Q: What is the outlook for the online channel, and how does its profitability compare to other channels?
A: The online channel has shown healthy growth, with a 60% increase in direct-to-consumer business. We have pivoted from wholesale to direct approaches, improving both revenue and channel profitability. The margins in the online channel are competitive and contribute positively to overall profitability. (Shailesh Chaturvedi, CEO)
Q: What are the key growth drivers for Arvind Fashions in FY25?
A: Our focus is on revenue growth through retail expansion, like-to-like store growth, premiumization, online direct B2C business, and growth of adjacent categories. We aim to add 15% net retail space and open flagship stores in key locations. Adjacent categories like footwear, womenswear, kidswear, and innerwear have grown double digits and now contribute over 20% of revenue. (Shailesh Chaturvedi, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
