Go Fashion (India) Ltd

NSE:GOCOLORS

Earnings Call Transcript

[Operator]

Ladies and gentlemen, good morning, and welcome to the Go Fashion India Limited Q3 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Gautam Saraogi, Chief Executive Officer. Thank you, and over to you, sir.

[Gautam Saraogi, executive]

Good morning, and warm welcome to everyone present on the call. Along with the R. Mohan, our Chief Financial Officer; and SGA, our Investor Relations advisers. I hope you all have received the investor deck by now. For those who haven't, we can view them on the stock exchange and the company website.

The apparel retail demand remains weaker than expected driven by underwhelming festive season and decreased consumer spending on discretionary items. Despite the same we at Go Colors, continue to meet expectations and have continued to maintain our growth trajectory.

Revenue from operations for the 9 months grew by 11% to INR 643 crores with the EBITDA, which grew by 9% at INR 206 crores.

Same-store sales growth remained flat, reflecting the subdued market environment as highlighted -- heightened inflation prompted customers to postpone discretionary apparel purchases. Despite this, the apparel and good P&L hygiene and achieved interest in EBITDA margin of 32%. This performance was due to strategic cost control measures and disciplined discounting practices, demonstrating our ability to maintain profitability irrespective of the challenging demand landscape. Our full price sales ratio accounted for 95.1% in a challenging demand environment. This underscored consumer loyalty and acceptance of our product and pricing. Our brand ability to not rely on discounting sets up apart from our peers.

Over the last few quarters, large format stores segment had encountered some challenges, reflecting shifting market dynamics and involving consumer preferences. However, we remain confident in the resilience of this space and anticipate strong rebound in the coming quarters driven by strategic initiatives and improving market conditions.

As of December, our average selling price stood at INR 759 driven by favorable shift in our product mix. Over the years, we have seen significant transformation in our mix from our earlier reliance on leggings and churidars. This shift underscores the strong market acceptance of our value-added products and reflects our evolution and comprehensive bottom-wear brands capable of catering to diverse customers across all categories.

Our strategy remains focused on being on one-stop solution for all of women bottom-wear needs, offering a broad selection of products at affordable prices to a diverse customer base. These factors will support our growth trajectory moving forward.

I'm also pleased to share that we are on track of opening our first store in Dubai and a store should open by April 2025 through Apparel Group.

Moving on operational metrics of Q3 and 9 months FY '25. Our advertising spend as a percentage of revenue stood at 1.9% for the 9 months. We have strategically taken a call to keep it intact because of the sluggish demand environment. They continue to rationalize our smaller stores and plan to phase out another additional 10 to 15 stores in Q1 this year. This will be the last set of small stores closures. Based on observations, we are confident that the sales from these smaller stores will eventually seamlessly transition into the larger stores.

In line with our approach, we opened 61 new stores, next stores on a net basis for the 9 months FY '25. And for the full year, we plan to do a total between 80 to 90 net additions.

Our EBO channel revenue for 9 months FY '25 stood at INR 463 crores, reflecting a 8.5% year-on-year increase. This growth can be attributed to the core nature of the product offering, which has been less impacted by the sluggish demand compared to other categories.

Given our diverse portfolio and large amount of SKUs, we continue to maintain a decent inventory levels at 99 days as of December 2024. For the full year, we anticipate our inventory days to stabilize between 90 and 95 days, ensuring operational efficiency and healthy working capital management, generating a decent higher operating cash flows.

Our strong focus on inventory and working capital efficiency will help us achieve a target of converting more than 50% of our EBITDA into operating cash flows. We are on track to achieve the same for FY '25.

Way forward, our first step is to achieve low single-digit SSSG in FY '26. Second would be grow our footprint, increasing the number of stores in our portfolio. For FY '25, we aspire to open around 80 to 90 net addition store opening. Going forward next year, we aspire to open anywhere between 100 to -- 120 to 150 net additions for the next year.

Lastly, our focus would be to maintain strong check on inventory levels, leading to healthy balance sheet and working capital and improved cash flows in the business.

To conclude the women's organized bottom-wear segment in India is poised for significant growth despite the current tough environment. As fashion trends evolve, there is a growing preference for versatile and comfortable products, which are not only one on locations but are every day in nature and core in nature, which cater to both casual and professional settings. Furthermore, India's expanding urban middle class increased disposable income and greater awareness of global trends are likely to drive consumer spending in the segment. As these dynamics continue to unfold, we are set to capitalize on growing opportunity and soon, our growth trajectory forward.

With this, I would like to hand over the call to our CFO, Mr. R. Mohan for the update on Q3 and 9-month financial FY '25 results and financials. Thank you.

[R Mohan, executive]

Thank you, Gautam, and good morning, everyone. Despite the challenging business environment, the company continues to witness a strong operating performance. First, I'll give you financial highlights for Q3 FY '20.

Our revenues for the quarter stood at INR 215 crores as against INR 202 crores in Q3 FY '24, a growth of 6% Y-o-Y. Gross profit stood at INR 138 crores, a growth of 11% year-on-year because GP margin of 64.1% for the quarter.

Our EBITDA for the quarter stood at INR 70 crores as compared to INR 68 crores in Q3 FY '24, a growth of 3% Y-o-Y. Our EBITDA margin stood at 32.5%.

Profit after tax for the quarter stood at INR 24 crores and witnessed growth of 4% Y-o-Y. PAT margin stood at 11.3%.

Coming to the 9-month FY '25 performance, revenue stood at INR 643 crores in 9 months FY '25 as against INR 581 crores in 9 months FY '24, a growth of 11% Y-o-Y.

Gross profit stood at INR 405 crores, a growth of 14% with a GP margin of 63% for the 9 months ended. EBITDA for 9 months FY '25 stood at INR 206 crores as compared to INR 189 crores in 9 months FY '24, a growth of 9% year-on-year. EBIT -- our EBITDA margin stood at 32%.

PAT for 9 months FY '25 stood at INR 74 crores as compared to INR 70 crores in 9 months FY '24, a growth of 6% year-on-year. Our PAT margin stood at 11.4%.

ROCE and ROE, excluding IndAs impact as on 9 months FY '25 stood at 20.3% and 15.8% respectively.

Cash and cash equivalents stood at INR 231 crores as on 31st December 2024.

With this, we now open the floor for the questions and answers.

[Operator]

[Operator Instructions] The first question comes from the line of Devanshu Bansal from Emkay Global.

[Devanshu Bansal, analyst]

Firstly, I wanted to understand the trends. Growth trends have remained muted, and it is also slightly weaker than our own expectations during the course of the year. What are the reasons for this? And also, if you could highlight if there is any significant growth divergence across regions for you?

[Gautam Saraogi, executive]

Sure, sure. So to see, I think the difference why this Q3 has been a little bit of a weak performance is because of the festival. I think festival far lesser than expectations, and we've done a channel check as well, which is, and it isn't consistent across different retailers we have checked. The festive was quite disappointing this time. But what was good about this quarter was that December onwards, the growth trajectory and momentum was good, like post-December 15, demand has actually picked up well. And in post-December 15, we've seen decent demand, but the entire festive and post-festive leading up to December 15 also very subdued.

Now as far as region-wise understanding, if you look, I think there are some positives which have come out in Q3 for us is -- North has actually reported positive SSSG. West India also has reported positive SSSG efficiency. South has been a little bit of a drag for us. One of also the reasons for South having a little bit of an underperformance in Q3 because of extended rains. Regions like Tamil Nadu, Karnataka, especially in Tier 2, Tier 3, the rains actually -- the monsoon actually continued into December. So some part of December sales actually kind of weakened the sales for South, and that's why South Q3 SSSG has been a little on the weaker side. But the positive side of this quarter is that West India had actually low single-digit SSSG, and North India actually had mid-single digit SSSG. So we are seeing some kind of improvement in demand when it comes to Western, North of India.

[Devanshu Bansal, analyst]

Understood that is helpful. Just a follow-up on this. So I noticed that particularly for Q3, the full price/mix is 95 versus last year, it was [indiscernible] to 98. So this demand environment, which we're indicating after December 15, is this also due to a start of early OSS this time around? Can we attribute this to that?

[Gautam Saraogi, executive]

Yes. I think, look, because festive was a little weak, in our case, we actually didn't start as very early. We started but on the same time which we usually start. But the overall market, U.S. this time started a little early because of subdued demand and weak festive.

[Devanshu Bansal, analyst]

Okay. Okay. And what other categories, at least like food services, we are noticing that there is a big consolidation happening from a competition perspective, right? So there is the launch slowdown and there are a lot of store closures that are happening around the space. So is the space also seeing a store closures for competition as well because of this pronounced [indiscernible].

[Gautam Saraogi, executive]

Well, there is, honestly, not only competition, if I see among all peers in retail. I think many brands are in consolidation mode because of slowdown in overall and [indiscernible] space. So there's a lot of consolidation happening because the same-store sales growth would have been [indiscernible], usually tend to consolidate to maintain margins.

In our case, we have done some little consolidation as far as small stores are concerned, and we look to close another 10 to 15 stores in Q4, most of which I think we are largely done with our consolidation. So from Q1 onwards for the next financial year, we will probably see store closures in low single digit or mid-single digits. It's not going to happen what happened this year. So next year, like this year, we are going to end up with an 80 to 90 net addition, which was actually lesser than what we had targeted. So on a gross level, we are actually closer to 120 this year. And because of our closures, we are around -- going to end up between 80 and 90. Next year, because it's going to be mid-single-digit closures, which happens in the normal course of business, we are very confident that we'll be closer to that 120 [indiscernible] without any problems.

[Operator]

The next question comes from the line of Prakash Kapadia from Spark PMS.

[Prakash Kapadia, analyst]

Two questions from mine. Gautam, you mentioned about SSSG being muted. So still not able to understand the actual reason for a flat SSSG because we've been anticipating the demand to come back. So what is really hitting SSG growth? And historically, if I see Q4 is not very big quarters. So as we move forward, how do the next few quarters in terms of demand or sales look like? Are there any initiatives internal which we are trying to boost demand or you think the environment is now better? You alluded to some demand coming back, but -- so some sense on revenue growth going forward will clearly be [indiscernible].

[Gautam Saraogi, executive]

Definitely, yes. yes. So see, the start of your question on SSSG rate. I mean, look, in this demand scenario, honestly, the fact that we are at flattish at SSSG is actually, in my eye, a very decent achievement. If I look around whatever channel checks have done, of course, there are some exceptional players in the market who have done double-digit as well. But many retailers, many brands have actually had negative SSSG during the last couple of quarters. So I think -- in the overall scenario, I think we're maintaining flattish SSSG, maintaining demand in our [indiscernible], I think we've done a great job. But the idea is obviously to move towards positive SSSG.

So moving forward from strategies' perspective, a couple of strategies that we are adopting right now because we know that the environment is tough. Though we have [indiscernible] a cluster-based expansion model, we are also now trying to control our cluster-based expansion model and trying to do more horizontal growth rather than vertical growth.

So I think in the past, we went very deep in clusters and opened more number of stores. I think we will continue cluster expansion model in a more controlled base. I think for example, in a market where we see a potential opening 4 small stores or 4 medium-sized stores in a particular facility, we will open 3 medium stores instead opening 4 small stores. So the idea is to control the customer base expansion model so that we don't end up cannibalizing. So that is one of the strategy.

And moving forward, also from a growth perspective, I think next year, we're looking at a double-digit company revenue growth with our mid-single-digit SSSG. And for Q4, we will target a low single SSSG, and company is working towards that goal how we can make this positive.

[Operator]

The next question comes from the line of Sameer Gupta from India Infoline.

[Sameer Gupta, analyst]

Firstly, I'd like to dwell a little bit on SSSG, like other participants. So it's been flat now for 6 quarters. Now I understand that overall consumption hasn't been in the best of health. But for a brand which is relatively small and young, it still seems an underwhelming performance. You also give same cluster growth, and I see that, that has also now started to moderate. It used to be around 8% to 10%. Now it's around 5%. So apart from the broad consumption, which may take some time to revive or we don't have a handle, what are the steps that you are taking as a company to revive this growth? Are there any pilots that you are doing? I understand that the bigger problem is footfalls right now. So any color on your own strategy, your own initiatives will be helpful.

[Gautam Saraogi, executive]

Two things we are doing. Two things we are doing, Sameer. And one is like I just mentioned to Prakash as well, on the expansion part, we are not trying to go very deep now. We understand that demand scenario is weak. If we try to go very deep in cluster-based expansion model, I also don't want to end up cannibalizing their own stores. So we are doing more horizontal. So whatever expansion we are going in with right now, we are also trying to go to newer cities, new towns, so it is new growth which is coming into the revenue channel. And we are not opening the very small stores right now.

What we've experienced when we open our mid-sized stores of 400-, 500-square feet, the consumer is actually having a very good experience because of our extended product range in that 150-, 200-square feet that experience is not coming. So we are also trying to expand good experience close of 400-, 500-square feet and move away from the 200-square feet model. And also, like I mentioned, more horizontal than expansion rather than going deeper into the same cluster.

Second thing, I think, look, we as a company have done fantastically very well in cost control. In an environment where demand is weak, SSG we are actually operating margins and tax margins have not seen too much of a decline. In fact, our actual PAT has actually grown.

I think as a company, our strengths have always been cost control, and future also cost control is going to be a big positive for us during the weakened environment. I think people these 2 initiatives in mind -- if you keep these 2 initiatives, one, demand revised could reflect in the top line revenue and even on the bottom line margins.

[Sameer Gupta, analyst]

This is helpful. And that actually brings me to my second question. So I noticed that on the cost line that you said, so gross margin up to 64 bps, including subcontracting, employee costs are up 26% and other expenses are 16% if you exclude ad spend. So just trying to understand reasons for the increase in gross margin as well as the employer and other expenses.

[Gautam Saraogi, executive]

[indiscernible] Yes, yes, sure, sure. So thanks for the question, Sameer. So on the GM part, Sameer, if you look -- I think it's a product mix perspective also. Some of our products, which had a slightly higher multipliers and higher GM, those products sold a little more than our other products. That had one impact on the GM to go up.

And on the cotton prices as well, I think we've had cotton prices coming down. And I think finally, we have seen the full benefit of cotton prices. So we have done a 64% GM in Q4. I think steady shale, you see our 62.5% to 63% GM on a steady-state basis. 64% has been a little on the higher side also because of some product mix which are sold well during first it's at a slightly higher GM. But on a steady-state basis, we see 62% and also 63% of GM on a steady-state basis.

As far as salary is concerned, which you very rightly pointed out, so one of the reasons salary cost has gone up as well, see we've added -- we've gone -- we've added 3 LFS partners in this entire 9 months. We added lifestyle. We added Shoppers Stop. We added bank loans. So bank loan was already there, but we added more of stores in banks loans. So bank loans, we added about 70 to 80 stores. Lifestyle, we added about 60 to 70 stores. Shoppers Stop, we added 120 stores. So all these stores, we have kept employees which we usually do is that we sold in terms of sales are not stabilized because they are fairly new to the roster. So that's why employee costs on an overall basis have seen a sharp increase, but I see this employee cost stabilizing by Q1. See, Q4 anyway is usually a big quarter in retail. But in Q1, I see the cost stabilizing and this will come down in proportion to our revenue. So I don't see that as a concern.

As far as the other expenses are concerned, where my revenue has grown by 11% but my other expenses have grown by 16%, so I think more of these expenses is rent. My rent has actually grew at 13% versus my revenue going at 11%, which is a good thing. So there's not a very big imbalance between my revenue and my rent. And my other expenses are the variable expenses, which are more linked to revenue [indiscernible]. So that also the 16% and 11% is not a big concern, but Q1, it will stabilize. The salary part, which are seeing a much larger increase, is largely on the basis of me adding more LFS stores, which are yet to get stabilized, which in Q1, we will see a good stabilization in those.

[Sameer Gupta, analyst]

Just a follow-up here. So by my calculation, ad spend, if you exclude the other expenses of 16%, So if the rent is 13%, the other portion of other expenses will be up even more than 16%. So I mean -- and if more variable linked to revenue.

[Gautam Saraogi, executive]

See, I think what has also happened is many malls, the electricity costs across states and the maintenance cost and SSSG costs across also malls have gone up over a period of time. And that is also impacted in some sense, it is impacted the other expenses.

[Sameer Gupta, analyst]

Got it. So again, I will just dwell a little bit on this. So let's just assume SSSG growth stays where it is. Where do you see the [indiscernible] EBITDA margin bottoming out? Is it like -- currently, it's around 17%, and this is a quarter of a higher revenue. So where do you see this stabilizing on an annual basis. [indiscernible]

[Gautam Saraogi, executive]

See, I'll tell you on this, Sameer. Now see, if I take for the 9 months, I have shut about 23 or 24 stores. And my write-off in my -- before my EBITDA is about close to INR 4 crores. So this has also taken an impact on my EBITDA. So that's why the other expenses are a little higher.

So if I take my closures last year for the 9 months, my total amount hit on my P&L was INR [ 2 ] crores, INR 28 lakh and this time, it is INR 4 crores. So that has also resulted in the other expenses as a percentage going up.

So on a steady-state basis, I think we will target a pre-Ind AS EBITDA of about between 18% and 20%. So at least 18% going up to 20%.

[Sameer Gupta, analyst]

And this 18% to 20% is with a mid-single-digit SSSG, right?

[Gautam Saraogi, executive]

We are targeting to do mid-single SSSG, correct. Now even if we do a low single-digit SSSG, we are very confident that we will be able to achieve the 18% to 20% of EBITDA. Our target is to grow mid-single. But even with a low single SSSG, 18% to 20% pre-Ind AS EBITDA is very much possible without any problem.

[Sameer Gupta, analyst]

Got it. And one last question, if I may squeeze, more bookkeeping. Over 30 to 35 store closures this year, I'm assuming 10, 15 will come in the fourth quarter. How many of these would be relocations?

[Gautam Saraogi, executive]

No, no. See, relocation happens in the course of business, Sameer. So I don't have the exact number of relocations which are -- which have happened this year. I don't have it handy. I will give the data through [indiscernible] and send it across. I had 23 store closures in this year. This 23 for the 9 months are net of new locations.

[Sameer Gupta, analyst]

Okay. That answers my question. Got it.

[Gautam Saraogi, executive]

Yes. So 23 net of new locations.

[Operator]

The next question comes from the line of Gaurav Jogani from JM Financial.

[Gaurav Jogani, analyst]

The other question is, again, with regards to the [indiscernible] EBITDA margin. If we look at the average for the 9 months is around 17.5%. And typically, I have seen that your margins in Q4 dragged because of the lower sales and the operating deleverage at some [indiscernible]. So taking that into consideration, I mean, it seems basically to do even a 16% is EBITDA margin this year because your FY cost again, as you mentioned, has been elevating to some extent. So what gives you the confidence of taking it to 18% next year even with the low single [indiscernible].

[Gautam Saraogi, executive]

no. I think, look -- I think we should aspire to get 18% from Q1 onwards, Gaurav. I think, look, Q1 is a good quarter, and we also expect demand to pick up a little bit. So I think considering -- and plus we are not also going to have any too many store closures next year. So that cost in the P&L also will not be there.

So I think we should be able to deliver 18% -- see, if I remove my store closes, which I've had, right, for the 9 months, I have generated close to INR 117 crores of EBITDA pre-Ind AS 18.2% EBITDA. So currently, my -- without the exceptional expenditure of foreclosures, it's about 18.2%. Considering extra, we're not going to have sign closures and demand also will pick up a little bit. I think we should aspire to do 18% plus EBITDA next year.

[Gaurav Jogani, analyst]

I think one of the key reason here is the gross margins as well. I mean the gross margins not taking the subcontracting point consideration. For the 9 months has been around good 68%. And as you mentioned that right now, the gross margins are a bit elevated and likely some correction. So with this benefit kind of fading out of the gross margin level saying that number is doable?

[Gautam Saraogi, executive]

See, I think -- so I think we should always look at the GM support ranking charges. I think that's the right way of looking at it. So I think look, 63% is for the 9 months. And I think we'll maintain between 62% and 63% moving forward. I don't see a drop in the GM.

I don't think it will be to the extent of the 64% what you saw in Q4 -- in Q3, but I think that, between 62% and 63% will maintain in moving quarters, which earlier, in fact, earlier times used to be 61%, now between 62% and 63%.

[Gaurav Jogani, analyst]

Then on just one question on the demand phase as well, we are seeing most of the [indiscernible] getting impressive especially the value fashion retailing in the apparel side, posting good double-digit kind of an SSSG [indiscernible]. A lot of these players also typically, they tend to sell bottoms and somebody like [indiscernible], even we have the bottom-wear offerings with them. So do you think there is also some impact from this side on the overall demand that you might be able to share for me?

[Gautam Saraogi, executive]

See, I don't think so. Honestly, our customer comes in for our quality and comfort in our range. And with all due respect, I think with the other value-format retailers also have a good range in top and bottoms with good quality. So I don't want to say anything negative about that, but our customer comes to us because of our range quality. And I think our impact on revenue is largely to do the overall rather than any competition in value retail, honestly.

[Gaurav Jogani, analyst]

Sure. But my last question is with regards to the LFS. I mean this quarter [indiscernible] LFS closures that we have seen, so anything on that? I mean, how do you look at [indiscernible].

[Gautam Saraogi, executive]

Actually, what happened, Gaurav, is at that the stores were under renovation. So one of our large format of partners, about 80 to 90 stores have actually gone under renovation, and it is temporarily closed. So that is why that number is reflecting lower in our number of LFS stores which we have reported. We have not really shut any LFS stores because, in fact, we've added through lifestyle [indiscernible] and all. It is just that one of our LFS partners at [ 80 to 90 ] stores is going under renovation, and that is why it shows the reduction in that LFS number.

[Gaurav Jogani, analyst]

Okay. So that would have also some impact on the revenue as well, even maybe not operating the store.

[Gautam Saraogi, executive]

Yes, to a certain extent. Not much because if we [ 80, 90 ] stores and LFS being only 22% to 23% of the business, it wouldn't have had a very large impact on revenue. But yes, a small impact will be there.

[Operator]

The next question comes from the line of Akil Goleta from Hornbill Capital.

[Unknown Analyst]

So my question is around the industry landscape and how it is evolving. So if you look at, the ASP has increased and SSSG is 0. So that basically means there is a volume de-growth. So you've been in this industry for over a decade. You understand it very well. So have you seen the situation before where we had a couple of years of Class SSG and volume de-growth? And typically, how long does it take for the cycle to turn around and people do start buying more and the volume to start increasing at low single digits or even double-digit volume growth.

[Gautam Saraogi, executive]

So okay, very rightly you asked, I think, look, so the first part of the question on the growth of ASP, right? So our ASP growth is actually on the basis of product mix and not price increases. So it is based on product mix or ASP has grown, the volume de-growth really does not concern me. The volume deal would have been a big concern for me if I -- if the ASP growth would have come based on price hikes, which is not the case. It's purely based on product mix. So the volume de-growth really does not concerning. It will stabilize in the coming quarters.

Now so for a company like us, this is the first time we are facing this because I think this kind of a similar demand situation was there in 2018, 2019. But at that point of time, we were a much younger company with a weaker base. So even though demand was weak, we still saw double-digit SSSG growth at that point of time because our base was small.

Now after having a decently mature base, I think -- and having a demand -- tough demand scenario out there, I think is the first and we as a company are facing this over the last 1, 1.5 years.

But having said that, if I define my memory back, I think that '18, '19 slowdown in demand also eventually recovered. This one is taking a little longer, but there will be 100% of recovery.

[Unknown Analyst]

Okay. Okay. Understood. And my second question is just want to understand a mature level, slower economics. So if you take an average mature store which has been in existence for 3 to 5 years, typically, what kind of revenues -- I'm talking about EBO stores. What kind of revenues does it do? What are the gross margins? What is the store level EBITDA, store level ROCE that a store, which is performing well does?

[Gautam Saraogi, executive]

Sure. So I think, look, from a mature store perspective, our average store does begin INR 90 lakh crore. A mature store would be higher, would be about maybe INR 1.3 crores, INR 1.4 crores. I'm not having the numbers close to me, but it will be actually in the range between INR 1.3 crore INR 1.5 crores. Gross margin profile would be similar across metro and nonmetro, so gross margin would be 68%. So mature stores will deliver a total level EBITDA of about 31% to 32% after line.

[Operator]

The next question comes from the line of Ankit Kedia from PhillipCapital.

[Ankit Kedia, analyst]

Gautam, a couple of questions from my side. First is on the product side. While still 40% is coming from leggings and churidars, what are we doing to capture the young audience, say, 18 to 30 age group? Do you see in that segment, our growth is a little more muted compared to mid-aged women? So are we seeing some mix change coming in the product where you think that's where some slowdown is happening?

[Gautam Saraogi, executive]

See, look, I think at a mix level, we are doing a lot of book. And the mix is not one of the reasons for the slowdown. Our mix is actually pretty -- in last few quarters, our mix has evolved very well.

In fact, what we are doing also is we as a brand are a all-age brand. We attract the Gen Z, we attract the Millennials as well, and the older audience as well So we are more of a all-age brand. So what we have done in recent times also is we are also introducing some core CR category self core. So some core Gen Z products we are introducing about 4 to 5 products in our product portfolio. And I think that will also start attracting the Gen Z audience into the store and keeping that 4 to 5 Gen Z product, they'll also start buying the other products as well. So we understand the importance of Gen Z. If you don't want to be a Gen Z brand, like I said, we want to maintain the positioning of a very high-quality all-age brand. But we want those Gen Z to come into the stores and buy because that's also a very large population. So I think once we introduce these products, we do the right visual merchandising around the stores, I think that will make a very big impact. And that actually ties back to the concept of doing a minimum of 400-, 500-square foot. See, what was happening earlier on when we are having 150 to 130 stores, the display of products was a very big challenge. Ladies walking in she does not know the different type of browsing, which is there because there's no visual merchandising. There's no browsers. Now by doing a minimum 500-square feet, we are creating a lot of browser space and visual merchandising for our value-added products, including the Gen Z product.

So I think once our store size is settling, I think that also will give a good positive impact on our revenue.

[Ankit Kedia, analyst]

Sure. And just a follow-up on that is past new consumers, are we seeing repeat consumers being intact? Or is it the new consumers which are seeing a slowdown? If you can give some data on that.

[Gautam Saraogi, executive]

See, I think the largest issue for us is new customer acquisition of [indiscernible]. Repeat -- our repeat customers who are coming in to buy a Go Colors is very much there. I think when I compare this year data versus last year and the year before that, I think the largest issue -- see, is our drop in [indiscernible] because of the newer customer acquisition has dropped down during this tough environment. So I think that is what we are trying to fix right now. But how are we able to get new customers coming in?

[Ankit Kedia, analyst]

Sure. My second question is again on the employee cost. I check suggest on the variability of the employee salary. You have tweak some things. So in the medium term, say, 1 year out, how is that helping you? And what could be the revenue growth? I'm not looking at cost savings. More on the revenue growth given that it's going to be more visible in nature. How should we read that into SSSG?

[Gautam Saraogi, executive]

See, I'll tell you so this is something which you actually do to you. So we are creating a variable component, additional visible component over and above what we have for our [indiscernible] employees with certain targets on SSSG and overall growth. If we are achieving the target, there will be an additional variable payout for right from the regional manager to the store person. Now how does that impact my P&L when that it is stable only when certain targets are achieved over quarter 1, quarter 2 or quarter 3. If we're achieving those targets, then there is a payout, but employee cost as a percentage will not go up because it has resulted in an increase in revenue. So this new variable component which we are bringing in should go live from Q1 and which will also bring in a big positive impact in our overall revenue.

[Ankit Kedia, analyst]

So some bump up in SSSG could be seen. And this is across all our stores.

[Gautam Saraogi, executive]

I don't know about across, but on a blended average level, we will definitely see good positive SSSG actually based on this variability coming in. It will be only after achievement of the [indiscernible]. So even in the worst-case scenario, [indiscernible] is not achieved, I don't see like variable employment of going up the quarter back.

[Ankit Kedia, analyst]

No, my question was, are you seeing this new structure and employee salary across all our 800-odd stores, which you have by the way.

[Gautam Saraogi, executive]

Of course, it's not a very big structure. There's just a variable component which we are adding, but it will be across all the stores of the country.

[Ankit Kedia, analyst]

Sure. And my last question is on the some of the new product launches, which we had done, be it denims, be it shorts or be it longer printed pants. How has been that response...

[Gautam Saraogi, executive]

Doing well, doing well, but the base is small, so very difficult to judge right now, but definitely good positive response. Actually done that.

[Operator]

The next question comes from the line of Tejas Shah from Avendus Park Institutional Equities.

[Unknown Analyst]

Gautam, my first question pertains to your views on demand sentiment. Now despite initial expectations, and this is for [indiscernible] class very strong quarter, supported by consolidated festive season, in fact, wedding calendar and then very robust winter, which had turned out to be. The actual performance for broader retail in for us also has fallen short. So theoretically, all the tailwinds are there in place. So what's your opinion on what's your read on the demand sentiment? Are there any, because you called out that southern part was actually a drag. So are there any nuance based observation there, a? And b, what would have changed after 15 December where you said that demand has revived. And has that sentiment expanded to Jan as well?

[Gautam Saraogi, executive]

So I tell you, it's very surprising, but now doing the way demand is [indiscernible]. You should see the current demand scenario in Q3 is very weak. It's a very tough environment. So there's no shying away from that. It is very tough, but nowadays, particularly your question, what happened after 15 December, right? Nowadays, we are seeing the stopping during smaller windows a period of time happens in a very, very large way. Then festive, there is a very, very big bump up of sales. So if you take the festive week and the week before that, it will be a 50%, 60% increase compared to the [indiscernible] weeks. So it's not a gradual buildup [indiscernible]. That second to be before that the sales have a very sharp V-type spike and then there's a fall.

I think the same thing we also saw in December where most of December was very weak. And then we were heading towards Christmas and New York. There was another very sharp spike in sales, which recovered the sales of Q3. Honestly, if that size wouldn't have been there, the numbers would have been very weak. The way the shopping easier knowledge is happening, whenever there is a festival, those particular 2 weeks or 3 weeks window, there is a very, very sharp spike and not a gradual increase. And that basically answers the question of what happened post-December 15.

Now how is January? January has been fairly good. January has been actually doing well on a Y-o-Y basis. I don't want to jinx it, but hopefully, February, March is good, we'll end up with a decent number for Q4.

[Unknown Analyst]

Sure. And is there any organized or restructured framework in how we measure our market share where this is relevant peer group? Or is it more anecdotal? Let's say, if we would have lost market share, will you figure it out at the end of the quarter or weekly basis or monthly basis?

[Gautam Saraogi, executive]

So Tejas, we are actually doing a study with Tecnopac right now as we speak. We did one during the IPO, and it was long due. So in fact, the study is going right now. And hopefully, by the end of Q4, when we declined by Q4 as the new study on market share, the overall market size everything will be in place.

[Unknown Analyst]

Perfect. And last one, if I may. Gautam, your whole point on smaller stores earlier, sounded very, very [indiscernible]. And if not to judge by the results, what has happened. The hub-and-spoke model where you will recruit customer from your smaller stores and they like the merchandise, they can ramp up in the larger stores was actually sounding very perfect on paper. So what [indiscernible] -- do we get the consumer sentiment wrong or the aspiration from the [indiscernible] all this [indiscernible]?

[Gautam Saraogi, executive]

I'll explain is it like that anecdotal example, what had given was for LFS, the consumer gets acquired in an LFS and then comes to a view. So what I had mentioned for small stores actually not small stores for LFS, how we enter new markets through large format stores and then eventually the consumers move and buy also any [indiscernible].

Now why we have taken a certain step for a very small EBO is if look at our product lines have expanded very well. And see, today in markets where we are adding a small- to medium-sized stores. Just [indiscernible] consumer, right? You would want to go to the store, which has a slightly larger experience [indiscernible] on a bigger, so very small stores is very difficult to browse.

Having said that, I'm not shutting all my small stores because the small stores from a unit economics perspective still done very well for me. In markets where I don't have a mid-sized store or large-sized store and I'm not having a small store, those small stores are doing well. They're growing and they continue to do well. So there's no reason for me to shut every small store. It's just that I have selectively shut those small stores which are coming up for renewals, which also have medium-sized stores in the nearby area as a consolidation perspective.

[Operator]

The next question comes from the line of Prerna Jhunjhunwala from Elara Capital.

[Prerna Jhunjhunwala, analyst]

Sir, I just have one question. I just wanted to understand how many stores would be opened in the existing clusters and which -- how many new cities or geographies you are trying to get into in the next 1 year?

[Gautam Saraogi, executive]

See, Prerna, I think regave rightly you asked if we are using a more, we are using a wider approach now rather than just [indiscernible] clusters. We have only grown clusters. That's been our expansion model, but in a controlled way. So I think earlier it used to be a 50-50 approach. Maybe now it's a 40-60 approach, where 40% might come from existing pluses and 60%, 65% would come from newer markets.

[Operator]

The next question comes from the line of Devanshu Bansal from Emkay Global.

[Devanshu Bansal, analyst]

I noticed that there has been an increase of 6, 7 days in the creditor days. So there's been significant receivables are only for 20%, 25% of our business, right? So any comment there [indiscernible].

[Gautam Saraogi, executive]

Sure. So Devanshu, what has happened is because it has been a good quarter, one of our LFS partners have actually paid us late. That one payment of about -- a total of about INR 9 crores to INR 10 crores, which are supposed to come in December, actually came in January first week. And because of that, our December 31, better days have gone up a little bit and also impacted our operating cash flow. So there is a working capital increase to the extent of INR 8 crores to INR 10 crores because of delay in payment from one of our LFS partners, which came in actually in January 1 week, which was supposed to actually come in, in December.

[Devanshu Bansal, analyst]

Understood. And last question from my end, got, so you've indicated that the new certain value-added products have done well, right in this quarter. But ASP increase is almost like 5%, right? So what would be the contribution of such products in this quarter versus the base if you can just highlight?

[Gautam Saraogi, executive]

So also, I think even are value-added products, right? They are not trying to price it very high. We don't want to price at INR 1,200 or INR 1,300 like we've always maintained saying that we want to keep our pricing lower than INR 1,000 because we are a mass in value premium. So that's why you've not seen a very sharp increase, but the value-added products obviously have played a role from a split perspective between churidar and non-value-added products are not having it right now, I'm guesstimating it will be churidar should be between 35 and 40. I don't have the number right now. I'll share it through SGA, but it will be our around in that range. The churidar would be around 35% to 40% of the sales.

[Devanshu Bansal, analyst]

Okay, Gautam. Maybe I just wanted to understand as in because the gross margin performance is really very good. So I just wanted to understand as in what actually...

[Gautam Saraogi, executive]

Certain products in the browser strategy had a slightly higher GM and -- which has resulted it, but it has had a very small impact on the overall P&L. See also one of the reasons of GM being a little higher is also for the fact that EBO contribution has been higher than LFS contribution. So I think considering all that, I think 63% is the between 62.5% to 63% of the real GM I would be looking at moving forward.

[Devanshu Bansal, analyst]

So I just wanted to sort of clarify, there is no one-off, right? So all of it is business performance in the group.

[Gautam Saraogi, executive]

And it's all business performance. There is no one-off at all.

[Operator]

The next question comes from the line of Arada Jar from B&K Securities.

[Unknown Analyst]

I have just two questions. One is a follow-up on the previous question on gross margin. How much of the gross margin increase would be because of product mix and how much would be because of the cotton prices benefiting you?

[Gautam Saraogi, executive]

Pricing majorly is very difficult to quantify in terms of numbers, but I think majorly, it will be cotton prices [indiscernible], majorly. Product-led and [indiscernible] would be smaller contributions, but it will be majorly driven by cotton price.

[Unknown Analyst]

Okay. And my second question is on pledge. So again, I wanted to understand that we've been telling that we'll eventually be reducing the pledge. But to the quarter 3, we will increase our pledge by, I think, 1%. So any thoughts on that? Any sense on by when we expect to pledge will come down?

[Gautam Saraogi, executive]

Thank you for the question. I was going to clarify this. See, we had an urgent requirement within the family, and we have to do this, unfortunately. And this is -- this also continues to remain short term in nature.

Now when will the old pledge and the new pledge get cleared, I will come back soon the time lines when I'll give to the market. Right now, not having time lines in my head, unfortunately. I'm not having them, but the minute I have it, we come back very soon at some time.

[Operator]

Thank you. As there are no further questions, I now hand the conference over to the management for their closing comments.

[Gautam Saraogi, executive]

I'd like to thank everyone for being part of this call. We hope we've answered all your questions. If you need more information, please lead to contact Mr. Deven Dhruva from SGA, our Investor Relations Adviser. Thank you so much.

[Operator]

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.