Go Fashion (India) Ltd
NSE:GOCOLORS
Earnings Call Analysis
Q2-2024 Analysis
Go Fashion (India) Ltd
Go Fashion (India) Limited has maintained a commendable level of growth, despite facing subdued retail sector performance and delayed seasonal demand. In the first half of FY '24, revenue climbed by 15% year-over-year (YoY) to INR 379 crores, while EBITDA rose 18% to INR 121 crores. These achievements can be credited to better sales realization and an impressive full price sales rate of 95%. Moreover, same store sales growth (SSG) remained flat, yet Exclusive Brand Outlets (EBOs) saw a substantial same store cumulative sales growth (SCSG) of 13% YoY. Such a solid performance in challenging times highlights the company's resilience and the strength of its unique business model, with the average selling price for EBOs also marking an increase, signifying robust brand recognition.
With the addition of 48 new stores with the aim to open 120 stores by the end of FY '24, Go Fashion is emphasizing its commitment to greater accessibility for customers and improved convenience. To ensure a cohesive shopping experience and widen their market presence, they are also venturing into omnichannel strategies which promise to connect the digital and brick-and-mortar realms seamlessly. This strategy is supported by the recent expansion of EBOs into more than 11 new cities, facilitating the growth of a larger customer base.
The company has shown a noteworthy improvement in cash flow from operations which stood at INR 63 crores on a pre-Ind AS 116 basis, marking a turnaround from the previous year's negative cash flow. Additionally, Go Fashion has successfully reduced its inventory duration by 21 days as of 30th September compared to 31st March. These improvements underscore the company's dedication to operational efficiency and indicate a positive shift towards sustainable, cash-driven growth.
The second quarter of FY '24 has seen a revenue increase of 15% YoY, reaching INR 189 crores, while the profit after tax saw a 4% YoY growth, resulting in a margin of 10.6%. Growth in this period is indicative of the company's ability to manage operational challenges effectively, maintaining profitability even in the face of external pressures.
The company attributes the slow growth in revenue and stagnant SSG to broader macroeconomic conditions, rather than increased competition. The Q3 forecast remains uncertain as the usual festive boost experienced by retailers has been pushed to November, delaying a critical comparison period and potentially affecting sales performance. However, past cash flow enhancements and inventory management efficiencies suggest a readiness to sustain and potentially improve performance going forward.
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Ladies and gentlemen, good day, and welcome to the Q2 FY '24 Earnings Conference Call of Go Fashion (India) Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not guarantees of the future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Gautam Saraogi. Thank you, and over to you, sir.
Yes. Thank you. Good evening and a warm welcome to everyone present the call. Along with me, I have Mr. R Mohan, our Chief Financial Officer; and SGA, our Investor Relations Advisers. I hope you all have received the investor that by now. For those who have not, you can review them on the stock exchange and on the company website. The retail sector in India has sustained a subdued performance during the second quarter of FY '24. Furthermore, the demand typically associated with the festive season has been delayed until Q3 this year, resulting in a relatively stagnant same store sales growth.
Despite the current operating environment, our company has demonstrated robust operational performance for both the quarter and the first half FY '24. We maintain our confidence that the company will successfully navigate through the short-term volatility and continue to outperform in the years to come.
The revenue for H1 FY '24 stood at INR 379 crores, registering a growth of 15% Y-o-Y. Our EBITDA also grew 18% to INR 121 crores. The growth can be attributed to the higher realization due to improving sales mix, our SSG was flat during the first half, while SCSG for EBOs grew by 13% Y-o-Y during the same period. 95% of our sales in H1 FY '24 were at full price.
The average selling price stood at the INR 752 for the first half year for the year for EBO, an increase from last year, which further reemphasizes and cements the brand recognition and the uniqueness of our business model.
During H1 FY '24, the company added a total number of 48 stores -- net 48 stores, in line with our commitment to the increasing accessibility and convenience for our customers. We aim to add 120 stores on a net basis for the full year in FY '24.
To further alleviate the customer experience, we are also exploring omnichannel strategies that leverage technology to seamlessly connect physical and online shopping experiences in turn expanding our reach to consumers in various cities. We had increased our EBO presence in more than 11 cities during the first half of the year, further aiming and improving reach and helping us build a large customer base.
Coming to our working capital and cash flow, the company has achieved a strong positive cash flow from operations of INR 63 crores on a pre-Ind AS 116 basis, a significant turnaround from negative cash flows recorded during the same time last year. This further aligns the company's commitment to sustainable growth by cash flow generation.
We strongly remain committed to operational efficiencies and continue to see several improvement on the working capital front. We have successfully reduced our inventory days by 21 days as on 30th September compared to 31st March, which is also an indicator of the cash flows the company has generated. ROCE and ROE for the business on an annualized basis stood at 16.5% and 17% respectively.
Our growing economy is leading to higher discretionary spending, rapid urbanization, coupled with evolving fashion preferences and an e-commerce boom with several structural improvements are going to be the major factors to contribute the growth of the Indian retail sector going forward.
We remain committed to introducing a wider range of designs, while expanding our customer base and market share through addition of new stores in multiple locations. This strategic approach will enable us to realize sustainable and cash flow-driven growth for our company for the years to come.
With this, I would like to hand over the call to our CFO, Mr. R Mohan, to update on the Q2, H1 FY '24 results and financials. Thank you.
Thank you, Gautam, and good evening, everyone. The company continues to maintain a strong operating performance despite the challenging business environment. First, I'll -- like to give you financial highlights of Q2 FY '24. Our revenues for the quarter stood at INR 189 crores as against INR 164 crores in Q2 FY '23, a growth of 15% Y-o-Y. Gross profit stood at INR 115 crores, a growth of 16% Y-o-Y, with a GP margin of 60.7% for the quarter.
Our EBITDA for the quarter stood at INR 57 crores as compared to the INR 50 crores in Q2 FY '23, a growth of 14% Y-o-Y. Our EBITDA margin stood at 30%.
Profit after tax for the quarter stood at INR 20 crores, a 4% Y-o-Y growth from Q2 FY '23. PAT margin stood at 10.6%.
Coming to the FY '24 performance, revenue stood at INR 379 crores in the H1 FY '24 as against INR 328 crores in H1 FY '23, so growth of 15% Y-o-Y. Gross profit stood at INR 231 crores, a growth of 16% Y-o-Y, and gross profit margins of 61% for the half year.
EBITDA for H1 FY '24 stood at INR 121 crores as compared to INR 103 crores in H1 FY '23, a growth of 18% Y-o-Y. Our EBITDA margin stood at 31.9%. PAT for H1 FY '20 was sold back INR 46 crores as compared to INR 44 crores in H1 FY '23, a growth of 6% Y-o-Y. PAT margin stood at 12.2%.
Our advertisement spend during H1 FY '24 stands at 1.45% of the revenue. Cash flow from operations pre-Ind AS for H1 FY '24 has turned positive, and stood INR 63 crores as compared to INR 2.5 crores -- negative INR 2.5 crores for H1 FY '23.
With this, now the floor is open for the questions.
[Operator Instructions] The first question is from the line of Devanshu Bansal from Emkay Global.
Congratulations on a very strong turnaround in cash flow generation. Sir, Gautam, we are seeing some sluggishness in our revenue growth, so wanted to check if this slowdown is entirely due to weak macros or there is some element of increase in competition as well?
See, I think it's largely driven by macro. From a competition perspective, I don't see too much of impact because of competition. Because what kind of competition we have today, we also saw it last year as well. There's no significant increase from last year in terms of competition presence. So this slowdown what we are seeing in overall revenue and flattish SSG is because of the overall macro conditions scenario. It's not pertaining to competition as such.
Okay. And aligned this, Gautam, what is the level of SSG or trends that you have seen so far into Q3 festive? If you could provide some color on this.
See, unfortunately, what has happened in the Q3 for everyone, for all the retailers, see last year Q3 in October, we had all the festivals like Diwali and all the festivals around Diwali in October itself. And this time, these set of festivals have actually moved in November. So when I'm comparing October, Y-o-Y -- October on a Y-o-Y basis with October last year, I'm not able to get the clear picture because of that.
So probably by the middle of November or end of November, we'll be able to know what growth levels we can achieve in Q3. As of now, we are comparing ourselves with the festive sales, which is not the case item because festivals are coming in November.
Got it, Gautam. And secondly, I wanted to check on this cash flow generation. So H1, we have added about 50-odd stores, which would sort of led to increase in our inventory by about INR 10-odd crores. Despite of this, we have actually reduced by -- our inventory by about INR 12-odd crores in H1. So together, this is about INR 20-plus crores of efficiencies on this front. So I wanted to check again what are the drivers of this improvement as well as are these levels sustainable going ahead? Or there is some more improvement that can happen on this front?
See, the drivers are basically, like I had mentioned earlier, also, we are continuing to optimize our inventory at a warehouse [indiscernible]. So if I take our warehouse inventory, our raw material inventory, what we had in March, which was about INR 43.5 crores. Now we have got it down to INR 36.7 crores.
Finished goods what is there in the warehouse level in March was INR 99.9 crores, which we had got it down to INR 84 crores. So this significant -- there has been a significant reduction at the warehouse levels. At the store level, very rightly, you pointed out because the number of stores have increased, the absolute increase -- inventory at the store level has gone from INR 86 crores to INR 97 crores. So INR 11 crores of inventory has increased because of new stores also. So the major optimization what has happened is actually happened at a warehouse level. And from a future perspective, we are continuing to optimize. We want to go back to pre-COVID level. Currently, we are at about inventory days of about 105 days. Our eventual target is to take this 105 to 90.
And this further 15 days of reduction would also happen at the back-end level, so at the store level...
No, there will be a slight -- there will be a reduction at the store level, but majorly it is going to be back-end level.
[Operator Instructions] The next question is from the line of Sameer Gupta from India Infoline.
Firstly, if I look at the other expenses, excluding the ad spends, which you have reported in the presentation, if I just do that number, it is up sharply by 39% Y-o-Y. And even on a Q-o-Q basis, this is up some 20%. Just wanted to understand if there are any one-offs here? Have you taken any write-offs, one-offs or any payables write-offs, yes sorry.
Yes. So I'll explain Sameer. See the only 1 line item, which is slightly exceptional is and that we have shut certain number of stores and the write-off of the fixed assets for those certain stores comes to about INR 1 crore. Apart from that INR 1 crore, there is no real outlier. All the other items are relating to sale. They are all variable expenses which are relating to operating a store. So these expenses are more linked to revenue, but the only exceptional line item, which we can see here is only that INR 1 crore, which is relating to a write-off of [indiscernible] in the certain stores, which we have closed.
Got it, sir. And if you can quantify the number of stores that have been closed?
See, we have closed 9 stores in H1, and there are some 4 or 5 stores we have relocated for better opportunity. So it's the -- that INR 1 crore will be a combination of the 9 stores and the 4 or 5 stores which we relocated. But relocation in the due course of business we do, so I can't call it as an exceptional line item. The 9 sources you can consider as a exceptional line item.
Got it, sir. That's fair. Secondly, if I include the subcontracting expenses as a cost and then calculate the gross margin, I think that it is up 80 bps. Now cotton prices or raw material prices have seen a sharp reduction during the course of the year, and there was an expectation that some of this will flow into our gross margin, and we are carrying higher inventory of previous cost and that is why it has not flowed through. Is that still the understanding that it is going to flow through in coming quarters? Or are we largely done and this is what our gross margin needs to be even after this cotton price going down? Yes.
Yes. So Sameer, see on the GM part, you're comparing Q2 versus Q2. The right way of really seeing the gross margin with the H1 versus H1. So H1 versus H1, if we compare, there's a 40 bps increase in GM. In the coming quarters, there will be -- we will start seeing slight improvement because of the cotton price. We have also mentioned in my earlier call that because we had bought a lot of inventory at the higher price, and now since we are optimizing inventory and not buying at the lower price, the upside of the cotton prices in our cost will take some time for it to come.
So now we are seeing now -- we are seeing an improvement slowly. So you can see there's a 40 bps improvement. Over the next 2, 3 quarters, you will see little, little bit more improvement, and you see -- gradually, you will see a gross margin uptick.
Fair enough, sir, 2Q to Q2 is actually 80 bps is what I called out. Si it's...
Yes but Q2 to Q2, the reason is because -- in Q2 versus Q2, maybe this Q2, we had slightly lesser [ EOS's ] contribution to last year, maybe. So maybe because of that, the gap of the increase in gross margin higher in Q2 versus Q2. That's why I'm comparing H1 versus H1.
Got it, sir. If -- One last question, if I may squeeze in. So 2.5% SSS growth last quarter to minus 1% this quarter, and there is an element of festive mismatch, which I understand. So if I have to understand this difference of 3.5 percentage points, can you attribute this entirely to the festive mismatch? Or there is an element of slowdown -- further slowdown versus 1Q...
It's a combination of both. it's a combination of both. I think the slowdown continued into Q2, the festive mismatch has kind of made it worse.
The slowdown has worsened if I have to believe then versus 1Q?
I wouldn't say, necessarily. I think this 2.5% going to minus, I think it's a combination of both. It's very hard to say whether the slowdown has increased or whether the festive mismatch has caused the 2.5% to become minus, it's very hard to articulate. It's a combination of both reasons.
Fair enough, sir. And just a follow-up to this. I mean, I understand you said October Y-o-Y, it is difficult to compare, but we can still compare Puja to Puja or start of the festive last year to this -- to the element we are this year on a Y-o-Y basis to get a trend, that would be helpful.
Very hard to comment right now because what upside we see within festivals around Diwali. And this time Diwali is not in October. So we are unable to compare. As far as Puja is concerned, Puja when we compare on a Y-o-Y basis because this time Puja came in October, not in September. Puja we have seen decent amount of sales. So our each SSG, if I compare to Puja versus Puja it has been in around 4%, 5%.
Got it, sir. That is very helpful. I'll come back in the queue. If I have any follow-up.
But again, Sameer, on that Puja is a very difficult number to compare because our presence in East also is very [indiscernible] only for a particular window. So I wouldn't use that as a comparable for Diwali.
[Operator Instructions] The next question is from the line of Sabyasachi Mukerji from Bajaj Finserv Asset Management Company.
My first question is, what has been the volume decline, SSG volume decline in 2Q?
Yes, it is -- in Q2, it is -- just a minute, just give me a second -- it is -- in Q2, volume decline is minus 6%.
Minus 6%?
Yes. And in Q1, it was -- Q1, it was around if I'm not wrong about minus 3, minus 4 -- minus 3%, minus 4%, it must have been around that.
Right. So last time in 1Q call, you mentioned that the immediate priority would be to address this decline -- volume decline, right? And I believe it has kind of worsened. One part of -- obviously, the festive shift, but what steps probably are you taking to address this decline? And how do you see the H2 panning out?
See, I think, look, we are definitely trying to ensure that our sales executives are well trained. We are ensuring right inventory there across all the channels. I mean, at that front, we are trying our best, but these kind of things of SSG going negative is largely macro-related. So we just have to wait out til the environment -- overall selling environment gets better. So there is very little we can do during this time. [indiscernible] this time, our management, what we can put focuses on important line items that like optimizing inventory, keeping costs low. These are the things we can focus on.
As far as pushing the revenue numbers concern, is very macro-related. But having said that, we have taken this time as an opportunity to also increase our omnichannel, trying to shift some of our omnichannel dispatches from the store so that -- that will, in the long run, push the SSG number.
On the H2 part, like I mentioned, because October Y-o-Y, we are unable to compare, it is very difficult for us to give approximate idea of how H2 will look out. But I think closer to middle of November or November end we'll have a better clarity.
Okay. And the last time the revenue guidance was probably somewhere around INR 800 crores to INR 820 crores for entire full year '24 -- FY '24. Do you stick to that? Or do you want to change that number?
No. Currently, I'm sticking to the same number we have guided. Because right now, we don't know how festive will go. If festive goes well, follow with Q4 does well then we can get to the INR 800 crores number. So right now, I'm not really changing the guidance. I'll be in a better position to ascertain H2 after middle of November.
Okay. And last question from my side is, so you have done a net store addition of 48 stores in H1 to reach -- so to reach 120 net addition roughly around 70-odd 70, 72 stores. Are you confident that it'll kind of add 120? Or is there...
No, we should reach. I don't see any reason why we should not reach. Some of the projects which we have signed had actually got delayed and they didn't open in H1, some of the malls, some of the high street projects, which were newly under construction, they got delayed. That's why our H1 number is slightly lesser than what we usually do. So we are quite confident that we'll get to the 120 net number by the end of year.
And for the next year, your guidance would be around 150 to 170?
Yes. As of now, we are sticking to the guidance because we are continuing to strengthen our B2B.
The next question is from the line of Mythili Balakrishnan from Alchemy Capital Management Private Limited.
Just a couple of bookkeeping questions. It looks like our ASP for the quarter has actually fallen, right? Because last quarter, we had an ASP closer to INR 771. And this quarter, we are INR 752. So wanted to check whether it's a conscious decision to reduce prices? Or is it a mix issue?
No, no. See you're comparing it on quarter-on-quarter. It actually has to be compared on a Y-o-Y basis because quarter 2 usually has [indiscernible] compared to quarter 1. So the ASP in quarter 2 will always be lower than quarter 1. So if I compare with quarter 2 last year, there has been a 5% to 6% increase in ASP.
Got it. And in terms of our mix between Western and Indian fusion, et cetera, if you could sort of just give us a broad indication of how it is headed?
See we have tested very recently. Even now, our ethnic, western and fusion is the same as earlier 1/3, 1/3 and 1/3. So there's no change in that ratio for us.
Got it. And also just wanted to check with your CFO, if you could give it in an Ind AS kind of a fashion of how it has moved because pre-Ind AS because...
So yes -- I understand. So if I look it at a pre-Ind AS level, if you reduce the rent -- if you reduce the lease liability payment under financing activities, which is I think about INR 49 crores, I'm not wrong, if you minus INR 112 crores, minus INR 49 crores, you get to INR 63 crores of pre-Ind AS OCF after tax.
Okay. And last year, this would have been?
That would minus INR 2 crores.
INR 2.5 crores.
Minus INR 2.5 crores.
[Operator Instructions] The next question is from the line of Prerna Jhunjhunwala from Elara Capital.
I was just trying to understand your gross margin uptick you said gradually, we should see gross margin uptick. But would like to understand the quantum that could come in given that the category has competition as well and reducing prices via discount, et cetera, as well. So where do you see the gross margin levels eventually settling at?
Yes. So Prema, see, from a GM perspective, I don't think competition will have an impact on GM because even competition has price of product maybe at similar levels like us or maybe more. So because of competition, you will not see us reducing our prices.
As far as GM based on cotton prices is concerned, like I also mentioned that we had bought a lot of inventory on the higher price and now we are optimizing when the cotton prices are low. So it will take a little bit of time for the upside to happen. My gut feel is that the absolute GM increase should be between 100 to 150 bps is what I understand. Out of which, right now, about 40 bps is coming in -- is showing in the financials. So how long will it take to reach that 100 to 150 bps from 40 bps, it will take a few quarters.
Okay. And could you also expand on your city expansion target. Where do you think over long term, how many cities you can reach maybe next 2 to 3 years? And what kind of penetration levels we can see going forward?
We are at about 154 cities. I don't see ourselves crossing 250 cities over the next 2, 3 years. Because see, what is happening is we are continuing to see a lot of potential and space to expand even in our existing cities like if you take the top 8 cities. Even if I -- today look at H1, a good number of stores that come from our existing markets.
So from a expansion perspective, we are going to give equal importance to newer territory, but also importance to our existing territories. So in a 2, 3 years ago, I don't see this number going 250 -- across 250 cities -- beyond 250 cities.
Okay. 250 is something that you have visibility...
I'm just giving you -- no, no. I mean, look, we have a visibility of far more number of sitting as far as expansion is concerned. I'm just telling from a next 2-, 3-year window, how much -- how far does this 150 city number go to, we feel that it might go to a 250 city number over the next 2, 3 years.
Okay. Okay. And you same...
In terms of potential, I think we will go beyond 250 cities. We have a clear road map. So we don't see any concerns there.
Okay. Okay. And are your same cluster sales growth, which was 16% in Q1 come down to 13%. So would you like to highlight anything? If there is anything that we should look upon because it's a new metric? Apart from demand slow down.
No. I think look, the slowness what you're seeing in the SSG number is also reflecting in the SCSG number. Yes, at the end of the day, it comes to the sales of a particular store, right? And if a sales of a particular store is impacted because of macro conditions, SSSG takes a hit, even SCSG will take a hit. Just because SCSG we're looking at a cluster level, the number looks better than we SSSG. But both numbers definitely takes a hit in a -- where the situation is smooth.
In fact I would be -- in fact, I would be surprised if SSSG is low and SCSG is strong. Because in a overall slowdown situation, it has an impact directly on your sales of particular store.
Okay. Okay. I thought maybe because you're opening more and more stores in the same cluster, SCSG should be better.
No. that's -- So the gap between the SCSG and SSG is basically of the new stores, what we have added in that cluster.
[Operator Instructions] The next question is from the line of Jason Surana from VT Capital.
I wanted to understand the margin change? In the terms that I understand that Q2 would be better than -- the Q2 would be worse than Q1 and then Q3 and Q4 was affected and the wedding demand that might be impacted. But as a range on the margin, I wanted to understand what is the kind of range that we could call it normal or stabilize?
See, on a annualized basis, about 60% to 61% of gross margins, 31% to 32% of post-Ind AS EBITDA and about 12.5% to 13% of tax on a annualized basis. And that's what we have been delivering consistently. So in the normal course of business, I think this is the margin that we look to maintain.
Perfect. And I also wanted to understand the trend of premiumization or the trend of mass products that are selling within the categories of ethnic and fusion. So is there any visible trend of more premium products selling or more mass trend product selling.
Well on that front, I think it's pretty similar to what we have done. I mean even our mass products are being pretty well even our premiumization -- our premiumized products what we have recently launch over last year also are doing very well. So I think from that bucket, I think more or less it's the same [indiscernible] what it used to be earlier. There's not any particular outlier we have seen.
The next question is from the line of Vikas from Equirus.
Sir, my one question is with respect to our performance of the stores probably in metros Tier 1s versus Tier 2 and 3 cities. Any color or any comment that you want to say how the performance of these 2?
See, our presence in the non-metro cities is fairly lesser compared to the metro. But when we analyze it, we have seen that both have had [ subtled ]. It's not that metros have done far better than Tier 2, Tier 3. I think both have subtled this quarter. So I think it's very difficult to point out whether Rajkot has done better than a Mumbai or Mumbai better than Rajkot. I think the decline would be across.
The next question is from the line of Ankit Kedia from PhillipCapital.
Sir, after 5 quarters, we have seen the contribution of LFS increased substantially. And actually, on Y-o-Y basis, they have grown more than [ 10%, 12% ]. So what's happened on the LFS side of the business? Are some of your peers that we are putting our products doing much better than the off-line EBO market?
Not necessarily, Ankit. I think what has happened is in LFS also, we are going deeper now. [ Team Pantaloons ] we've added about 40, 50 stores now in quarter 2. We are also getting an entry into Shoppers Stop as well. We are just on the verge of finalizing and reentering Shoppers Stop starting in Q3. So I think from an overall LFS environment perspective, there were some operational issues that we had in February and March, but that's behind us now. Our LFS business has come back to normalcy. If I -- if I remove the new store expansion and if I just compare LFS with EBO, both are pretty much similar in terms of growth rates. I don't see too much of disparity, LFS is doing better or EBO is doing better both are relatively doing the same, but you'll see higher and faster growth because we've added more number of stores in LFS during H1. But like the likes of trend, we continue to expand even Pantaloons, we've added a good number of stores, and now we're also entering Shoppers Stop in Q3.
Sure. And sir product development, how has been the response for denim, which we have introduced a couple of quarters back now? Are you seeing repeat orders from customers coming, are we introducing of colors out there in the denim and what are the new product ranges you are looking at to introduce some of winter perspectives? Because in North market, we have started to see pleasant weather. Are you seeing winter demand come up sharply in the north?
Yes. See, winter has done very well for us last time. See, I'll tell you, I'll give you an example, North India for us in Q3 did very well last year because of the introduction of no winter products. If I take our historical performance during the winter season in north, it used to be a little subdued. But last year, we did fairly well because of the introduction.
Now this year also, we've introduced a good winter collection. And our winter collection also is continues to be core. So the products what we are doing last year is the same products continued even this time. We have introduced 1 or 2 additional products like the likes of Conte pants even in the regular pants strategy with a higher GSM fabric.
So many winter product suite come out with [indiscernible] as well. So these winter products, we have just put it in stores. We will know how it performed during November and December. Last year, we had a very good response. And now we have [indiscernible] enough number of winter size across all the stores in North India. And in fact, in some areas like Bangalore also where it becomes a little cold, any place where the temperature is falling less than 20 degrees, we have kept our winter products.
As far as denims are concerned, see, denims, we introduced it in very small quantities and many of our stores. We are seeing very good response. But for denim to start doing very well for us, it will take a long time. See, for us, [indiscernible], right? As the sales increases are inventory at the back-end [indiscernible] increases. So for denim to become a decent contributor in the sales, it will take a long time, but as a initial response, the response has been very encouraging.
Sure. And sir, from an A&P perspective, if I look at last year, YTD A&P spend in the first half was around 4.5% this time is 1.5%. So from a second half perspective, while I understand demand was not there, so you could have curtailed you spend. Now with demand expected to come back in the second half. Are you also double downing on A&P and spending back to 3% or it will be -- still be sub 2%, 2.5%?
See usually, Ankit, what happens is you tend to spend majority of the A&P in H1 than H2. Even if you take the last year's trend, it usually happens before taxes. Now because there was a slowdown, we haven't spent too much in H1. Even in H2 we don't see ourselves spending too much. So currently, what we are at about 1.5%, if I'm not wrong in H1. In H2, it might go to around 1.5%, 2%. So it's going to be in the similar range.
If demand starts coming back by Q3 and Q4, maybe next year, we slightly increase our A&P. See A&P is all dependent on the outside demand. In a sluggish market, we don't want to spend money on advertising because it does not [indiscernible].
Sure, sir. But also it helps in brand building, while it may not relate directly to sales, but today competition is on a weaker footing, so you can get much stronger with the brand building and new product launches, which you are doing. And also, now you're doing more digital and omni. So it also helps on that from a online perspective.
See, from a brand building perspective, Ankit, for us that 2% or 1.5%, what we are spending is completely from our brand building experience. But we understand for us, our biggest brand building exercise is our stores -- is our store locations in malls, airport, high streets. And that is our brand mining. That is our advertising. Incrementally, for us to spend anything over and above that, we don't have to materially spend a little bit more. So we see in a year if you are spending 2% to 3% on brand building, it's more than enough over and above of what we are spending on [indiscernible].
Sure. And sir, last question is on omnichannel. You made a comment that you are starting to do delivery from those stores. So just wanted to know more on that supply chain because online still is a very small percentage, sub 3% of our revenues. So how can that scale up and back end? How are you looking at pure omni of deliveries from the stores?
See, I think from a technology perspective, we have got it right. I think the perspective is that omnichannel at store is a very new animal for all brands. Now we had piloted this in about 9 to 10 stores and 3, 4 stores we saw very encouraging response there. We were able to drive 5% to 6% additional sales in that store through omni.
And surprisingly, in some stores, which are our very good performing stores, we didn't see any movement. So we have seen mixed responses as far as omni is concerned. But wherever we have a lot of good response has been very encouraging. So omni slowly we able to scale up. Today, we are there in about 15 stores. Every quarter, we will add about 15 to 20 stores in our network. And we have to slowly guide that number. If today I try implementing omni across my 650 stores, it will fail. I need to put a focus of 15 stores or 20 stores every quarter and add that omni network.
So it will take a lot of time for that omnichannel to completely settle down, but the initial responses, what we are seeing in certain stores have been very encouraging where we are seeing sales increase to the tune of 5% to 7%.
And sir, this orders which are coming is purely from marketplace or from your own website. So even if that store number increases at 5%, it's pretty much counted in the online revenue, right? It's not an off-line generated sales?
No. See, the 5% what I'm talking about, I'll tell you is largely -- what you're saying is right? We suppose if I'm doing or dispatch from a store. From a channel bucketing perspective, I'll put it under online because I'm doing the dispatch from the store. I think where we have seen the biggest rise in a 4%, 5% is not from the dispatch from the store, but from a customer coming into the store, not finding the color what she wants. And then and there we have converted that customer from a EBO customer to an online customer. I think that part that loss of sale what can potentially happen at a store, we have covered it by the 4% to 5% increase by having an omni.
Sure. That's very encouraging. Because that...
It is very encouraging. And I'm saying that -- yes, exactly because the loss of sale, which was -- which you could not track, through an omni if I'm able to increase 4%, 5%, that is a superb number because that can potentially future drive the same-store sales got also for you existing network.
And sir, reason for the loss of sale was because the store was smaller in size and now you're opening bigger stores. So some part of that could also be covered with your bigger store network or it's across...
it's not like that. It's not like that. I think the main question comes down to on a weekend [indiscernible], there are a lot of shopping happens. Even when you're well stocked, you cannot have everything at 1 place at every time, right? So I think this omni thing is very well for us in retail.
The next question is from the line of Nihal Mahesh Jham from Nuvama.
Gautam, the first question was that the 6% ASP increase that we are seeing on a Y-o-Y basis, how much of it is the price hike you've taken?
It's largely product mix, Nihal. I think the price hike tapered off last quarter itself. So this 6% -- 5% to 6% ASP, what we've achieved is completely based on product.
Understood that. And historically, if I look at your SSG the larger period, say, the last 4, 5 years, there has been a good element of new product launches, which I think have triggered incremental demand. Would it be right to say that maybe versus last year that has been 1 element, which has not been as strong as been historically?
No, I don't say that. New introduction of colors and products is very routine in the normal course of business. I don't think we are not introduced enough number of products. I think we have introduced fair number of products over the last 24 months. I think this attribute to reduction in -- I mean, the slowdown in sales because of the overall inflation what is happening in the market. I think new product launches, I don't think has an impact on that.
Understood that. And just 1 more question was that on the online side, if I look at our business construct with the kind of gross margins we have, which is 60% plus, and also the fact that the ASPs reasonably good at INR 750 or higher, why is it that our online share is still, say at 3%? You did mention of the omni initiative. But even if you look at the direct shipping model, there is enough margins in our economics to make this an attractive channel for us. So any reasons why this is a channel we've not [ right ] scaling up significantly?
No. See, Nihal, I think it's -- this channel scaling very fast. We are growing at more than 3% that our company is growing at 15%, the online channel to the marketplace more than [indiscernible] model is growing at more than 30%, 40%. Just that, it's not really moving the needle as an overall contribution to business because of the size of EBO and LFS business what we have. But growth rates are very encouraging, but for it to be a decent contributor it will take some time.
Having said that, the online business currently in India is very largely discounted and we are a full-price brand. For that motion to -- for the online business will start moving from discounted to full price also it will take some time. So as that transition happens, even our transition from 3% to a higher percentage also will happen.
Got that. So just to clarify on that from an inventory perspective, everything would be listed online, maybe just from the limitation or discounting somewhere the scale is not happening because of [indiscernible]?
Yes, absolutely. We are completely -- all our inventory is live and everywhere we are on the pure play marketplace model. We don't eat any of our inventory with any of our channel partners. It's completely drop ship model where any order comes in, it's shipped from our warehouse to the final customer directly through of course the marketplace's transporter.
And our reach is also more or less the majority the FinCo that is also not an issue as such.
Yes, absolutely. Not at all a problem.
The next question is from the line of Binoy from Sunidhi Securities Finance Limited.
Could you help me with the rental expense for Q2 FY '24 as well as Q2 FY '23?
Which expense? Can you come again?
The rent expenses?
Sure. I'll just tell you, just give me a minute. The rent expense before Ind AS for Q2 is INR 28.83 crores. And for Q2 FY '23 last year Y-o-Y basis, last year was INR 21.9 crores.
INR 21.9 crores?
Was last year Q2. And this year, Q2 is INR 28.83 crores.
Right, right. So on this -- Gautam, are we seeing a little bit of rental inflation here? Because if you look at the store count growth, versus, if I look at the rental growth, the rent expense increase, there is -- the rental expenses are growing at much faster rate than your store count growth, right? So are we seeing some rental inflation? Are we signing properties at a higher rate?
I mean, I don't think so that is the case. I think, look, we have added about -- if I take the 12-month window between Q2 and Q2, we valued also about 120 stores. So the new store rent also has been added on a absolute basis between Q2 last year and this year.
So our current rent, what is -- are getting escalated at 5% every year on an average sometimes 5%, sometimes 15% every 3 years. But this large difference in rent, what we see between INR 21.9 crores and INR 28.8 crores is because of the newer stores we have started. It's just that the percentage on revenue has increased, the rent to revenue ratio has increased because of the slowdown in stores.
If the sales was a lot slower than as a percentage, it would have been pretty much in line.
No I'm not talking in terms of percentage only. So if I look at the Q2 rent number, right, it's up something like 31-odd percent. And if I look at your store count number, it's up something like 20-odd percent, 20%, 21% considering 120-odd stores added. So I'm just coming from this angle.
Yes. So the majority of the elements would be obviously -- the majority of the would be attributed -- some stores would have also come up for [indiscernible], which happens in the due course of business.
Okay. But it is not a function that you are adding properties and the properties are coming at an expensive rate?
No, no, no. No, that is not better. See, I mean, look, for us, rent-to-revenue ratio and EBITDA, whenever we are opening a store, we always take a very sharp eye on. And that's why we have only a 12% to 13% conversion rate on the number of properties we evaluate. So it's not high because we are signing the wrong property at the rental. That is not the case.
Understood. Fair enough. Sir, earlier in the call, you actually called out the impact on -- of Ind AS 116 on PBT. Can I get that a again, please?
No, I didn't -- I had given the non-Ind AS number of cash flow. Where INR 112 crores (sic) [ INR 113 crores ] was our post-Ind As cash flow and pre-Ind AS cash flow after removing the repayment of these liability, our, pre-Ind AS cash flow comes to INR 63 crores. That is where -- I have given the number.
Okay. Okay. Okay. But is there any Ind AS impact on PBT?
100%. Because on a -- so -- see I'll tell you, I'll give you an example. I don't have the exact number here. From what we have seen in the past on a PBT level, there will be an impact of INR 7 crores to INR 8 crores revenue here.
You mean annually?
It can go from INR 7 crores to INR 10 crores. So we don't have the exact number handy, but it can range anywhere from INR 7 crores to INR 10 crores, can be an impact on your PBT. Because when you're taking up a new store, the rent paid versus what we show in depreciation and interest, the depreciation and interest is shown much higher than the actual rent paid.
It depends on the period of agreement. It depends on lot of conditions. That's where the challenges comes.
Yes. Fair enough, fair enough. I understand. And can I have a pre-Ind AS EBITDA margin for quarter 2?
It is 18 point -- for quarter 2 I tell you. For quarter 2, it is 16.5%. 16.5% is quarter 2. And for H1, it is 18.9%.
Understood. So essentially, you're saying the after rental expense, your EBITDA margin pre-Ind AS is flat because it would...
Last year was 19 -- last year, H1 was 19.6%. And this year, H1 has been 18.9%. So there is a 70 bps fall in the EBITDA percentage.
And last Q2 FY '23 was how much?
Q2 FY '23 was 18% last year.
18%. Okay.
And this year, Q2 is 16.5%. So there is a 1.5% fall in Q2.
Understood. Understood. Fair enough. Gautam...
Absolute EBITDA [indiscernible] only the percentage [indiscernible].
Understood. Understood. So Gautam, now coming to the business, right, when we see the product, which is women's bottom wear. It's a very core product and low fashion component product, right? Very [indiscernible] priced at most of your basket is below INR 1,049, right? More than 80% of the basket is priced at below INR 1,049. So I'm just wondering -- and the size at which we are. I'm just wondering that at a SSSG level, why would should we be looking at a very low single digit or a flattish muted sort of a sales growth? And should this not be attributable to competitive intensity from the larger retailers?
Look, I don't think so. Like I mentioned, the competition landscape is pretty much similar to what it was last year and the year before that. I think also we also compare the SSG number with SCSG number because we are growing in clusters and we're adding so many more number of stores in the same locality and in the same city. The 1 thing which is very encouraging is that our SCSG has been in double digits at a value level.
That means that our market is not de growing. From a profitability and to store hygiene perspective our SSSG has been flat, but our SCSG number has been very encouraging, even in a tough environment like this. So I don't really think that the competition landscape has anything to do with it. It is just that the overall purchasing power in the market has been a little subdued over the last 6, 7 months.
Sir, I understand. I'm also coming from a some very fundamental [indiscernible] that SSSG of -- flat SSSG actually to maintain your margins at a store level, you would need to maintain SSSG of roughly about 4%, 5% year give or take?
About 4%, 5% we have to maintain.
Right, right. Now when you are generating flat SSSGs, so essentially, it puts pressure on your store level profitability, right? And to offset that pressure, you might have to take -- you might -- to offset it by higher gross margin and -- which could -- don't you think would it disrupt your price architecture and the value proposition [indiscernible].
Yes, yes. See I'll tell -- Okay, I know where you're coming from. And I'll explain a little differently.
Just to finish my point. Should you not -- to in order to -- that such a situation doesn't arise, should you not actually also focus on volume growth? And how do you increase the volumes at a per store level rather than -- and look at a cluster level?
I think, ideally, we do look at a volume level only because we are a volume-led business and not a value-lead business because we are not increasing our pricing every year. Though our ASP are increasing. So our focus is more volume.
Now coming back to your specific question that how do you maintain profitability when you SSG is flat. The SCSG makes up for it. Let me put it differently, right? Today, our SSG has been flat for the last 6 months. But if you take the complete P&L, the impact of EBITDA has not been so much, considering that the SSG has been flat. That is because the SCSG has been good. So the SCSG -- see at the end of the day, 1 store or 2 stores might get slowed down. But at the end of the day, number of stores, you're adding in 1 cluster, then you should look at the revenue, the expense and the EBITDA as a cluster and not that store individually. So the real way to make up the efficiency growth is by obviously pushing volume, but the SCSG will be a very important factor making up [indiscernible].
That way even if you see in our current P&L, our operating margin has not come down that much compared to our [indiscernible].
Okay. I would -- I perhaps take this offline because I believe you are negative -- yes, yes that's all from my side.
The next question is from the line of Rajiv B. from DAM Capital.
Sir, will it be possible to call out what is the SCSG volume number this time and the previous [indiscernible]?
Sure. I'll tell you, just 1 second. Our SCSG volume number for Q2 is 6% and for H1 is 7%. I'm not having the Q1 number handy, but Q2 is 6% and H1 is 7%.
And the 11% SCSG Y-o-Y is basically equally split between price and volume?
Yes, absolutely.
Yes. And is it possible to call out what is the universe in the SCSG in terms of, let's say, number of stores or the volume of, let's say, on a quarterly basis, you do 1.9 million articles, right?. So...
Yes. I mean, look, we have about 150 to 160 clusters, about somewhere between 430 to 450 stores come into the clusters -- fall into clusters.
And let's say -- and every quarter, how does this cluster universe change? And is it possible to put this in the presentation as well in terms of the SCSG universe?
We will look into it. It's a good point, Rajiv, we'll look into it if we can show it in the presentation. This number does not dramatically change because see we are adding about 30 -- 25, 30 stores every quarter. So I think probably this cluster number of 420 stores what we had last quarter should move by 10 to 15 stores every quarter is my guess.
Sure. And in terms of the articles per bill, has that changed dramatically? Like a few quarters back, you had called out 2.2. Has that changed dramatically in the few quarters...
No it's the same number. Even now it's the same number. There's no change on that.
Okay. And lastly, on Shoppers coming back to fold, I think during the time of IPO, you had -- they had dropped out...
Well, we don't know. I mean, look, see -- they want -- they actually had -- we had also approached them asking that if it could come back again. And things worked out. So we are doing a pilot of 10 stores with them. And this festive quarter, we are going to start dispatching [indiscernible]. So things locked out well at the right time for us.
Sure. And lastly, 1 more thing...
We've been in touch with them for a very long time, and this time we asked them and they were more than happy to have us back.
Sure. And though it's early, on the MBO revenue, which is -- I mean, which is e-bill portion of your entire book. But that number is down, right, so at close to INR 3.6 crores. Now does it lend anything in terms of the demand from the MBO side is weak for the festive, or should have -- there have been slightly better billing?
Well, I actually have not studied the MBO market demand because as a business, we don't really concentrate on that front. Probably we'll track over festival and I'll come back to you with some feedback at the end of festive. But as of now, I don't have concrete data on why the MBO [indiscernible] because as a focus area, we are more focused on an EBO, LFS and online.
As there are no further questions, I would now like to hand the conference over to the management for closing comments.
I'd like to thank everyone for being of this call -- on this call. We hope we've answered your questions. If you need any more information, please feel free to contact Mr. Deven Dhruva from SGA, our Investor Relations Advisers. I would also extend my heartfelt wishes for the upcoming festive season. Wish you a very happy Diwali. Thank you.
Thank you. On behalf of Go Fashion (India) Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.