Go Fashion (India) Limited (GOCOLORS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q3 FY '23 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 the guarantees of 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.

Thank you. Good evening and a warm welcome to everyone present on the call. Along with me, I have R. Mohan, our Chief Financial Officer; and SGA, our Investor Relations advisers. Hope you have all received our investor deck by now. For those who have not, you can view them on the stock exchange and the company website. The company has shown strong performance in Q3 FY '23. Our revenues grew by 24% to INR 177 crores, highest ever quarterly revenues at Go Fashion. EBITDA and PAT grew by 14% and 3%, respectively, to INR 59 crores and INR 24 crores, respectively. This has been on the back of high volume growth and improved product portfolio. Our revenues compared to Q3 FY '20, which is pre-COVID levels has increased by 51% for Q3 FY '23. SSSG for EBOs stood at [indiscernible] Q3 FY '23 compared to pre-COVID levels, which is Q3 FY '20. SSSG for EBO is at 10% compared to last year's quarter 3. For the quarter, our volume growth -- our overall volume growth has grown by 17% compared to last year. Compared to pre-COVID levels, our overall volume has grown by 28%. Our product being core and essential to customers has enabled to operate us on a business model where we are -- where we offer limited discounts and the sale of our products is typically at full price, which is in our experience, results in greater profitability. 96% of our sales in the 9-month FY '23 are at full price sales. In addition, our EBO average selling price has increased continuously, primarily on account of value-added products that we introduced as part of our product portfolio. Our ASP for the 9 months stood at INR 724. As mentioned in our last couple of calls, the company is investing in brand building initiatives, which will help us gain visibility and help us focus to grow our online sales channels to benefit the evolving customer trends in the market. During the last quarter, the company has had a brand campaign, GoodToGo. This activated 53 mega and macro influencers across 8 cities and reached 36 lakh unique audience via influencer marketing. The approach was to reach out to audience, which have affinity to the brand, also the audience who are currently in the consideration funnel of purchase. We reached 82 million audience and recall lift at 23% after 60 days. During Q3 FY '23, the company added 35 new store -- new EBO stores and the total of 101 stores in the 9 months FY '23. This takes the EBO store count to 604 as on 31st December 2022. As guided earlier, we will continue to add 120 to 130 stores in FY '23, which is in line with our growth expansion plans. So we are looking at omnichannel engagements for a seamless customer experience, building on a technology-driven strategy to reach consumer across all cities. We are leveraging technology to bring cost efficiencies and enhance customer experience. We intend to further improve our operating efficiency and ensure efficient supply chain management through global best practices. We will upgrade our warehouse to optimize our inventory and supply chain management. Coming to the working capital front, we have reduced our working capital days to 151 days as on 31st December 2022 compared to 178 days as on 31st December 2021. We are further working to reduce it mainly on the inventory front. On the cash flow front, we have delivered a positive operating cash flow of INR 60 crores for the 9-month FY '23. We look forward to continuing our innovative and creative approach and launch more designs while providing more brand destinations for our consumers, which will help us grow and gain market share in the coming years. Our focus will be to target customer acquisitions to drive sales through our website and online marketplaces. In addition, we intend to invest in content generation to build engagement with a younger audience. With this, I would like to hand over the call to our CFO, Mr. R. Mohan, for the update on the Q3 and 9 months FY '23 financials. Thank you.

Thank you, Gautam, and good evening, everyone. The company has posted strong performance for the quarter and 9 months ended 31st December 2022, backed by the increased demand across product categories. Our revenue for the quarter stood at INR 177 crores as against INR 142 crores in Q3 FY '22, a growth of 24% Y-on-Y. Gross profit stood at INR 104 crores, a growth of 21% Y-on-Y with a GP margin of 59% for the quarter. Our EBITDA for the quarter stood at INR 59 crores as compared to INR 52 crores in Q3 FY '22, a growth of 14% Y-on-Y, our EBITDA margin stood at 33.5%. Profit after tax for the quarter stood at 24% to INR 24 crores. We have 3% Y-on-Y growth from Q3 FY '22. PAT margin stood at 13.8%. Coming to the 9 months FY '23 performance, revenue stood at INR 508 crores as against INR 285 crores in 9 months FY '22, a growth of 78% Y-on-Y. Gross profit stood at INR 303 crores, a growth of 79% Y-on-Y with a GP margin of 59.7% for the 9 months. Our EBITDA for the half year stood at INR 162 crores as compared to INR 81 crores in 9 months FY '22. A growth of 99% Y-on-Y, our EBITDA margin stood at 31.8%. Profit after tax for the 9 months stood at INR 68 crores as compared to INR 23 crores in 9 months FY '22, a growth of 192% Y-on-Y, profit margin stood at 8.2%. The ROCE and ROE on an annualized basis stands at 19.8% and 17.8% respectively. With this, we will now open the floor for the question and answers.

[Operator Instructions] We take the first question from the line of Ankit Kedia from PhillipCapital.

Sir, just wanted to understand your volume growth for the quarter. Given that you have posted 17% Y-o-Y growth, but you also had a 27% [ area of store ] addition. And ASP growth is also around 10%, 11%. So what is the volume growth in SSG? And how has been the new store impact on profitability and volumes?

Yes. Thanks, Ankit. So from an SSG perspective, see this year, we had a 10% value growth over last year Q3 FY '22. So the value growth is at 10%, the volume, we have seen a degrowth of minus 2%. But to our business, like I had also mentioned earlier, it's becoming more of a cluster-based business. So this quarter, we have seen where our SSSG has stood at 10% and minus 2% on a volume level, our SCSG, which is same cluster sales growth, has stood at [ 24% ] on a value level and 11% at a volume level.

And this is Y-o-Y?

This is all Y-o-Y. I'm telling you as a comparison between Q3 FY '23 versus Q3 [ FY '22 ].

Sure. And sir, from a cluster-based approach, how many clusters do you think or how many stores do you add in that cluster or how many kilometers is this cluster? And how much stores out of your 600-odd stores are in this cluster-based strategy?

I would say about 60% to 70% of the stores -- about 50%, 60% of the store or a little more than that are in clusters. But how many stores we can have in a cluster is very subjective to that particular location. So every area, every locality is different. There are some localities where in the entire cluster, one store is enough. And some localities where the area is very -- the area of the cluster is very small, but multiple stores is required. So it really -- like -- I'll give an example now. Let's take Mumbai, right? So Linking Road is one cluster, the Bandra cluster, Linking Road, if you have one store for the entire [indiscernible] is enough. But whereas if I take the Dadar market, Dadar stores in the small west -- Dadar West area where the shopping is there, where they can have a potential of 3 to 4 stores. So it really depends from market to market.

Sure. So going forward, is it fair to assume the volume growth on SSG basis would be low single digit or flattish? While on the cluster base, it could be a higher growth?

See, though we are going to be a cluster-based model. But on an SSG level, we are going to continue aiming to have a volume growth of 4% to 5% on our SSG level. See, this quarter, the overall retail market [indiscernible] was a little slow. That is why we've seen a degrowth of minus 2%. On a generalized basis, we are aiming to maintain that volume growth of 4% to 5% on SSG level on a Y-o-Y basis.

Sure. Sir, my second question is regarding your working capital...

On an overall basis, we are more of a cluster-based growth model than an SSG model.

Understood. Sir, my second question is regarding your working capital. If I look at on a quarter-on-quarter basis, the cash on books have actually reduced, while you're saying your operating cash flow is INR 60 crores, I believe that is [indiscernible] operating cash flow. So if you can just help us with the absolute inventory number for the December-ending numbers, so that will help us understand the actual working capital.

Yes, yes. So I'll explain that. Our absolute inventory is around INR 223 crores to INR 225 crores in the books, which is including finished goods and raw materials. Now very rightly, you pointed out this cash flow from operations, which you see at INR 60 crores, which is post Ind AS basis. If I take pre Ind AS basis, this INR 60 crores will actually be 0, because we have a rent outflow of about INR 60 crores to INR 61 crores. So if we net off the rent from the INR 60 crores, the INR 60 crores become 0. So from a cash flow from operations perspective, it stands at nil on a pre Ind AS basis.

Understood. That's helpful, sir...

But what happens is the working capital also includes the inventory for the newer stores that we've opened. So this 0 cash flow from operations what we have, it is both the inventory what we've added for the new stores.

Sure. Sir, if I look at your -- September inventory was INR 215 crores. So approximately INR 8 crores, INR 9 crores of inventory has been added. And that inventory was also slightly on the higher side because as cotton prices are falling, you would be using the high cost inventory and procuring low-cost inventory, assuming the inventory absolute amount decline?

See what -- see currently, Ankit, we are at 4 months of inventory. And we are looking to optimize our inventory, and we have been doing it over quarters. And we are looking to bring it down to 3 months. So this optimization from 4 months to 3 months will take a few quarters, but we are aiming to bring it down to 3 months. And that is how we are going to be reducing our overall working capital.

We take the next question from the line of Mr. Devanshu Bansal from Emkay Global Financial Services.

Sir, I wanted to understand the gross margin declining versus last year. So the EBO mix impact has improved, but our gross margins have actually dipped by about 160 basis points. So what explains that?

See, in this quarter, we've had some marketing offer [ debits ] from our large format store partners. And that is why, because it come all in 1 quarter, that is -- and we usually net off this against revenue because of Ind AS 115 accounting standards. And because of that impact of those marketing or debits, our revenue has fallen to that extent, and this has led to the decline in the -- the slight decline in our gross margin.

So comparable gross margins you're saying, so [ net debt ], if you would like to call out the impact of this thing...

See, usually on a steady-state basis, we want to -- we will maintain 60% to 60.5% gross margin consistently. But [indiscernible] channel mix. If the channel mix tomorrow as the EBO sales increases, the GM will increase, but taking the same channel mix, we will maintain 60% to 60.5% of gross margin.

Got it. And sir, with cotton prices sort of being at reduced level sustaining at the current level, how is the competition sort of taking it? Are they going for cutting the prices? Or -- So what's your plan on those fronts?

See, we have not -- we don't have any plans to reduce prices. And even what we have studied from competition, competition has also not reduced prices. Currently, these reduced prices, these reduced cotton prices, we'll have to see the sustainability for 2, 3 quarters. And then we'll have to see because cotton prices in the last 18 months have fluctuated a lot. So for us to take a judgment on whether these prices will continue to be low, we don't know. We'll have to study this for 2, 3 quarters. But having said that, we have not reduced prices, and we have also not seen anyone else in the industry reducing the price.

Got it. And sir, you indicated that this was a challenging quarter, and I should sort of give you good compliments on maintaining a decent inventory levels. So what sort of helped us in maintaining the inventory levels despite shortfall in sales during the quarter?

You see -- I think, look, our inventory planning is very accurate one. You see, for us, all our inventory planning is through our ERP calculation and [ EI ] what we built internally. Everything is based on sales and sales projection. So we kind of very accurately planned our inventory thinking of how the quarter will go. Now how -- so we have done about INR 177 crores of revenue. I believe, as management, we thought that we could have done about INR 184 crores to INR 185 crores of revenue. So we have fallen short by INR 6 crores, INR 7 crores to what we thought would have been a good number to achieve.

Got it. And this INR 6 crores, INR 7 crores, so there is a general trend that January is seeing relatively better performance versus what historical January have been. So is that same trend visible in your -- at your stores as well?

Yes. I mean recent January has been pretty decent. So I mean initially, how January performed, we have seen similar trends in January this year. It's too early to comment because January is not concluded yet. But from what I understand, I see in the industry, it has been pretty decent, and it's been similar to past trends.

Got it. And one last question from my side. Generally, on an annual basis, we have seen about 10 to 15 store closures. And this year, there has not been any store closure. So do you expect store closures to happen in Q4 or not?

Hard to say right now, but maybe 1 or 2 stores, nothing material. There are 1 or 2 airport stores which we are considering to shut. But we have not finalized that yet, but maybe 1 or 2 stores maximum in the last quarter, nothing material.

[Operator Instructions] We take the next question from the line of Mr. Varun Pratap Singh from ICICI Securities.

So sir, as you highlighted that depending on channel mix, that trajectory of gross margin would be taking shape. So just wanted to understand that in our current presentation, revenue contribution from online channels are close to 21%. And if you look at your last quarter presentation, revenue contribution is around 3%. So from 3% to 20%, it is quite a big jump.

No, no, no. No, no, Varun, there is a small correction there. I think you've read it wrong. The online in this quarter been 2.5%, that 21% what you're paying is LFS.

LFS, okay. Okay, okay. So I think there's some error in the presentation, right? Understood.

No. Okay. Maybe I'll have to check the presentation, maybe the color coding was wrong, I'll have to check that. But the online sales, which was earlier at 3% is currently at about 2.5%, 3%. So it's been maintaining a similar trend.

Got it. Got it. Understood, sir. Okay. And so how do you look at the revenue contribution from this channel going forward, for example, next 2, 3 years, especially from online channel?

See, we are looking over the next 2, 3 years, we want to ideally scale the EBO business and online business together. Currently, we are at about 76%, both EBO and online together. We would actually want it to be around 90% over the next 3 years or a little more than that. We are aiming to get to the 90% number. And in that 90%, online would be about 8%, 9%. So currently, the online is about 3%. We would like to take it to 8%, 9% over the overall...

Right, right. And that should not be gross margin dilutive? I mean, I had a [indiscernible].

[indiscernible] further improved the gross margin. We currently are -- based on the current channel mix, we have a steady-state gross margin of about 60% or 60.5%. As the EBO and online sales contribution increases because that is direct to consumer, that will have a positive upside on our gross margin.

If I'm saying only for online channel, gross margins should ideally be dilutive given the commission [indiscernible] that we have to pay [indiscernible].

No. See what happens with the online, the commissions are booked below gross margin. So the gross margin in online and EBO are similar.

Understood. Okay. And sir, second question is on marketing spend. So given the renewed thrust on improving visibility and brand perception, so how should we look at the overall expense as a percentage of revenue?

See, on a steady-state basis, Varun, you can estimate it to be between 3% and 4%. Usually, H1 will have higher spend than H2, which was even the case this year. See, because we usually plan our advertising spend prior to [indiscernible]. So this year, we had about 4.5% in H1, which has now come down to 3.5% by -- for 9 months because our spends in quarter 3 were less. So on an annualized basis, on a steady-state basis, you will see about between 3% to 4% will be [ RM ].

We take the next question from the line of Mr. Nihal Mahesh Jham from Nuvama.

So 3 questions. First, the clarification on the cluster approach that you mentioned, just to understand that right, you were basically highlighting that opening stores in the same cluster ends up impacting the SSG value and volume growth in a way. Is that the right understanding because the stores opening next to each other?

Correct. Correct. Sometimes it does. Yes, correct.

That's helpful. The second question was that if I look at your city expansion over the last 5 years, you've consistently around -- opened around 20 cities every year. And I think for this year also, it is at 16. Maybe I think by '23, you will end up reaching a similar number. So is there a thought of accelerating that? Or that is the template we want to follow in terms of the number of cities we keep expanding into?

See, it's very difficult to estimate how many cities we are going to add every year because it's all based on availability of stores. But what I can tell you is that whatever INR 120 crore to INR 130 crores we are adding, 50% would be from the top 8 cities. See our percentage of top 8 cities on a cluster-based model is about 56% to 57%. That ratio will maintain. Now how many new cities we'll add every year is very hard to estimate, sometimes 23, sometimes 25. This is all based on availability. But the mix of metro versus nonmetro which is currently at 57% by metro [indiscernible].

Got that point. Just one last thing on the inventory side. Currently, we are at around 120 days of inventory, and that's a number that has stayed similar for the last couple of quarters. It has been a while off course, but I'm guessing that is because of what had happened due to COVID last year. What is the road map from the 120 to 90 that you keep highlighting? What are the parts of the value chain that you will reduce inventory and that will help you raise some [indiscernible]?

So, Nihal, let me clarify why 120 days, and why we are at 120 days. See, in our business, our sourcing model is as such where we buy fabric, buy our raw materials and then we convert it into a garment. So there is an element of raw material inventory in our book. So if I take the 120 days, my garment inventory days is around 90 days. It's because of my fabric what I'm maintaining of 30 days, I'm having 120 days of inventory. So if I take in terms of real sense of finished goods inventory and still at 3 months of inventory in terms that the fabric is making it look at 4 months. Now of course, our sourcing model has stayed consistent right from the beginning. So pre-COVID, we had 90 days of inventory, including fabric. So the little bit fine-tuning what we'll end up doing it to bring it down to 3 months is we are going to be fine-tuning the inventory at the warehouse. Here at the store level, currently, we are adding about 35 to 40 days of inventory on the overall scale. That will remain the same. The warehouse inventory in finished goods, we will fine-tune that a little bit, and we will fine-tune the fabric inventory. So automatically, these 120 days will come down to 90 days.

Including the fabric also?

Yes, absolutely. But it will take some time because the fine tuning happens over a period of time. Maybe it will take 2, 3 quarters or a little more, but we will bring that down to 90 days, which was the number prior to COVID.

We take the next question from the line of Mr. Manish [ Poddar ] from Motilal Oswal AMC.

I [indiscernible] of questions. One is, would it be right that this quarter has the entire raw material impact? And let's say, incremental raw material, let's say, sort of [indiscernible] taken up?

Sorry, Manish, can you come back to the question again? I lost you in between.

Sir, I'm just trying to understand, let's say, the gross margin which you see during this quarter, does this making the entire -- all this inflationary impact, which is there, let's say, in the inventory, in the system? Is that how we want to [indiscernible]?

See, Manish, the inventory -- the cotton prices, which have reduced has actually not given the upside yet in the gross margin because we -- our inventory works on a weighted average methodology. So right now, the newer fabric, what we are sourcing is on the lower cotton prices. So that has really not affected. The reduced prices have actually not got the positive upside on the gross margin yet. That will take some time for it to kick in.

So this [indiscernible] by quarter 1, is that how it is? [indiscernible].

It is very hard to estimate, Manish.

What I'm trying to understand [indiscernible] prices which you've got in late December, that would be at least [indiscernible] lower than what the quarter average [indiscernible]. So that is still not the case.

No. See, the price increase what we have taken in December '22 -- 2022 is more or less...

Yes, I'm talking about RM prices, not product prices. I'm just talking about, let's say, the cotton raw material that you get be it either end product or work in progress, has that started deflecting lower prices because of the price correction which will happen in the other commodities.

Yes, I think that -- the price hike what had happened in December '22 at the RM trend, that has already impacted the gross margin. Yes. So your question is right. So that increase what had happened at that point of time has already started showing in the gross margin. But there's not so much because we have taken a price hike also at the same time.

Okay. And secondly, [indiscernible] now you're calling out, let's say, 3% to 4% for this year. So I believe at the beginning of the quarter 1, I think July, August, you mentioned about 4% to 5%. So is there a change in that?

No, no. I stand corrected on that. The 4% to 5% was more from a guidance of quarter 1 and quarter 2. For a year or 2, we are looking at 3% to 4%, not 4% to 5%. 4% to 5% is more from an H1 perspective.

Okay. Just one last one. So let's say, this 130-odd store guidance ballpark space, internally, are you planning to open higher number of stores in FY '24 and '25?

We are yet to make the plan, Manish. So probably, we'll have better clarity maybe in the next couple of months. But it will be in the line of, more or less it will be in the line of 120 to 130 stores.

We take the next question from the line of Mythili Balakrishnan from Alchemy Capital Management.

Just a couple of questions. One is on this [indiscernible]. Given that we have indicated that 96% of our sales was [indiscernible], could you sort of just help us a little bit in terms of [indiscernible] during the quarter? Is it currently on? And what is the kind of response we are seeing?

See, so we have 2 [indiscernible] periods effectively. We have 1 we run it during quarter 1 and 1 we run it during quarter 4. So currently, we have [indiscernible] running. On certain articles, we are providing certain offers. But the impact of such articles are very less because the total inventory, which will be under those offers will be less than 15% or less than 10% of the total inventory. So the 96% of full-price sales still continues to be. So because the offers are there at the store, but it is on very, very limited. Because in our business, most colors and products continue to the next season without getting discontinued. So we don't have too much of such inventory where we want to liquidate or discount.

Got it. And when did the [indiscernible] start for us?

We just started now in January end. It will go on until Feb end.

Also just wanted to -- on this ASP increase that we have seen on this 9-month basis. How much of it is mix and how much of it is pricing increases per se, on a like-for-like...

This ASP, what we have seen increased from INR 709 crores to INR 724 is based on new products. Because the last price hike what we have taken was in December 2022. And [indiscernible] would be -- no, '22 we took know -- sorry, '21, [indiscernible] December '21, yes. So the last price hike we have taken was in December '21. And mostly after that, we have not taken a price hike. So this slight increase in average selling price of INR 709 to INR 724 would be on the basis of new products, largely driven by new products.

Got it. Just wanted to also get a sense from you on the outlook, which you have spoken about that, there was a certain part of the sales which you expected the sales to be higher by INR 6 crores to INR 7 crores, which didn't finally occur. What is the consumer sentiment in? Or could you just sort of elaborate a little bit on what you are seeing in the demand then? And what are you seeing currently?

See, I think, look, overall, the sentiment has been pretty decent. I mean, look, I wouldn't call this a bad quarter. The sales were pretty good. But see -- look, we had a management expectation of about INR 184 crores, INR 185 crores. We ended up with about INR 177 crores. So the consumer sentiment has been pretty okay. We thought it could have been a little better. But otherwise, November was quite a fall, was quite a sharp fall. October and December were pretty good.

Got it. Also wanted to check with you on 2 other points. One is on your EBITDA margin, while you have indicated your gross margins would be in that 60% to 60.5% range, would you have a similar range which you are thinking for the EBITDA margin?

See, on a year through basis, we are looking to maintain EBITDA margins of about 32% to 33%, post Ind AS.

Post Ind AS. Got it.

Yes. On a year through basis.

On a full year basis, some quarters will be higher, some quarters lower, got it. And in terms of the loyalty program, is there any further action which happened along that side?

See, we have already made the loyalty program. We are just in the final rounds of testing. Hopefully, we should be taking it live starting first quarter.

Okay. And my last question is on the pledge. Just wanted to get a sense from you that you had mentioned earlier that it would take 6 months to sort of get it out. Does that still stand in terms of...?

See, our original plan was to close it by September 30. It was -- and it continues to be short term in nature, the pledge. As family, as promoters, that is on our top of our priority list and we're looking to close it soon, as soon as possible.

But there is no time line that you are giving for it.

As of now, we're not giving a time line, but we continue to maintain saying that it is short term in nature, and it's on top of our priority list. But hard to give time line right now on it.

I just wanted to get also sense from you of the rental to sales ratio that you are seeing currently for the 9 months of this year.

See, at the company level, we've had about 14% to 15% as rent-to-revenue ratio. On our -- but that's an overall [ sales ] basis. If I look at an EBO level, EBO channel -- EBO level, it will be about 17%, 18%.

17%, 18%.

But at a company level, because at the overall company sales, it may be about 14% to 15%.

Got it. But coming to this opening more stores, especially in a cluster basis, we are now seeing some amount of this cannibalization happening on the volume side that -- which earlier was not the case and clearly the market is a little more saturated than we might have expected. Just wanted to get your thoughts on this, especially given that you are indicating that you want to be at the 4% to 5% SSG level at the stores. So how are you sort of thinking about it. And like on incremental stores, are there any metrics that you'll keep a close track on that if things don't work out appropriately, then you might look to even close some of these stores?

See, for us, closure of stores don't happen a lot because -- see, we are a [indiscernible] in any market before we open a store. We typically wait for the larger retailers to open first. We see -- we judge their performance. And then after that, we decide to open a store. So closures in our case is very limited because we are the [indiscernible] mover in any market. But considering how we are growing in clusters, the right metric to be used in our -- evaluating our sales is obviously SCSG, which is same cluster sales growth. But as management, we continue to aim that at an SSG level, we will want to maintain about 4% to 5% volume growth, we would want to at least aim and try maintaining that. But our experience has been that even in the cluster, though in a cluster multiple stores sometimes cannibalizes the first or the second store from the same cluster. It does not really reflect in decline in margins because the incremental increase in revenue to the incremental increase in the rent and other expenses is far greater in revenues and the expenses. So the margin of what I have noticed at the cluster level pretty much maintained, if not get better.

Got it. But you are closely tracking these margins at a cluster level including trend [indiscernible].

Because we look at cluster as one location, right? So we take out EBITDA, we take out gross margin at a cluster level and then see whether there has been a decline after adding [indiscernible]. And that trend, we have not seen any decline.

We take the next question from the line of Mr. Vikas from Equirus.

Sir, just a couple of quick questions. Sir, can you break this 10% SSSG that we brought into a pricing or a volume-led breakup? Then please do that.

Yes. So the 10% when it converted into volume, it is minus 2%.

Volume is minus 2%. Alright. And sir, I missed the math when you said that you expect the reason for the decline in the gross margin for this particular quarter. Can you please repeat that? What was the reason?

Yes, see, in this quarter, we have had some marketing and offered debits from some of our large format store partners. And such debits are knocked off in the revenue. And because it is adjusted in the revenue line item, we have seen a slight decrease in the gross margin.

Sure, sure, sure. So this has more to do with -- just to understand the nature of this item. It does usually happens every third quarter or these -- what is the time period?

No, it defers. It defers. It happens every alternate quarter but this time, the amount was a little more than normally. See what these offers are basically, many of the large format stores run many schemes in their stores, like on a BigBasket, they'll give a particular offer, they run some marketing campaigns in their store. So such initiatives are basically borne by the brand, external brands and also borne by their private label. So proportionately, we have [ borne ] our contribution.

Correct, correct. But this is a normal business phenomenon that usually incur every quarter, right?

It is always in the normal course of this. It's not an outline.

Understood. Understood. Understood. Sir, with respect to the stores opening, you did reaffirm that around [indiscernible] usually in a particular area.

I just want to confirm one more thing. This comes every quarter. But this time, because of it being a little more than normal, that's why we have seen a decline in this year.

Sure, sure, sure. I understood. Sir, my last question. With respect to -- you did mention that whatever store openings that would have on an annual basis, either 120 or 130 stores, around 57 [indiscernible] continue to be open in top 8 cities. Is that understanding correct?

Yes, about 50% to 55%. See, in our existing [indiscernible] also, we are seeing a lot of [indiscernible]. So I think that 50% offer coming from a top 8 cities or top 10 cities will continue.

Understood. So sir, in that case, can I ask you a broad question as to like we do mention in our presentation, that our revenue from a particular matured store will be around INR 85 lakhs to INR 90 lakhs, right? So out of this 600-odd stores that we have, around how much percentage of our stores would be clocking such revenue throughput?

See, the INR 85 lakhs to INR 90 lakhs is not for matured stores, that's a blended number.

By blended number...

Meaning it is also including the stores which are opened in the current financial year. The last is the blending number, the 85 lakhs to 90 lakhs. It's not for the matured stores only.

Alright. So a matured store would be even clocking higher than this?

Ideally should be clocking a little higher. I don't have that number handy, but it will be clocking higher.

Sure, sure.

How do we measure maturity, any store which is greater than 18 months, we took that as a matured store? So we measure maturity by time and not by revenue.

We take the next question from the line of Mr. Akhil Parekh from Centrum Broking.

My first question is on the demand trend, right? You've highlighted October and December was good. Would you be able to bifurcate how different or similar they are in, say, Tier 1 versus a Tier 2, Tier 3, Tier 4?

See, I think the real difference happens at the state level and not at the Tier level. I'll give you an example. Now Delhi, for example, let us take the Delhi region, right? And some of the Delhi, October, November are usually good one. December starts to decline because of [indiscernible]. Now in South, the trend is very different. October does very well because of Diwali and then December around Christmas, New Year, the sale again picks up. So the trend really differs between individual states and not at a Tier level.

Okay. So I mean, yes, I mean you answered from a seasonality perspective, totally agree, but I'm just saying in general, how the demand trend is there.

In general, what happens, usually, festivals fall in October and even this year, it was in October. So October usually sales spike. November, again, after festival, the sales slightly takes a dip in November. And then in December, because of New Year and Christmas and the holiday season, December again the sales spike. So usually, November is slightly lower than October, and December picks up better and it becomes -- December usually becomes on par with October. This is the usual trend. It depends when the individual festival falls.

No, but my question where I was coming from was like we are seeing, right, the impacts of inflation are hurting the consumer segment, more so people who are in Tier 2, Tier 3 towns, which is evident from the numbers reported by some of the FMCG companies. Are we seeing such kind of a discrepancy between the Tier 1 versus a Tier 2, Tier 3 store in terms of a demand trend?

See, in our case, we have not seen any such disparity as of now. For us, our Tier 2 is continuing to do as well as our Tier 1. So we have not really seen too much of disparity between Tier 1, Tier 2. But having said that, we are more currently looking at our network, if you see 50% of our stores are in top 8 cities. So currently, we are more Tier 1 from a [ matured ] perspective. But whatever we have in Tier 2, Tier 3, Tier 4, we have not seen any as such fall. I mean no greater fall than what has happened in Tier 1, let me put it that way.

Okay. So SSG volume of minus 2% would be broadly similar across the tiers...

Yes, it would be similar.

Okay. Okay. Second question is on the ASP front. You said that you have seen kind of plus 10%, 11% of ASP increase probably on a Y-on-Y basis. Are we also -- are we seeing any trends where premium products are getting sold way more than what they used to be? And probably mass products or entry-level products are getting sold less currently as compared to, say, in the last 1, 2 years?

I wouldn't -- we have not seen any dramatic shift on that front. I think it's been fairly similar and consistent to what it was before. So we have not seen really any big change on the premiumization front. Look, the customer is upgrading and that's why our ASP is increasing. But there's no dramatic shift.

Okay. Fair enough. And the last question...

But to your question, there is a shift. That's why you have seen our ASPs increase because of the new product portfolio. There is a shift, but it's a very slow and gradual shift.

Okay. Fair enough. And lastly, on the ramping up of newer stores, right? I mean, I'm sure the newer stores would be clocking only 30%, 40% of sales as compared to the very mature store sales. So how is the -- how does the time line looks like? Say, for example, if I open a new store today, how many months or years it takes for that store to reach to the sales level of our very mature store?

See, as I was mentioning on the call, maturity for us we measure not by revenue, but we measure it by time. See, we have some older stores also, which is well below the average of 85 lakhs. And we have some newer stores also which are well above that 85 lakh, 90 lakh number. So for a store to be matured by time and not by revenue. So usually, between 18 to 24 months is when a store gets matured.

[Operator Instructions] We take the next question from the line of Mr. Himanshu Nayyar from Systematix.

So first question, I mean, given that you said the demand [ trends ] are very similar for you in both the metros and -- the larger and the smaller market. So just wanted to understand, is there any notable or a significant difference in the store economics for the stores that you open in the top 8 cities versus your other stores? I think -- and even if you open a significant proportion in your non-top 8 cities, would that impact our overall store economics or not much?

See, from a margin perspective, margins are very similar between Tier 1 and Tier 3, and I'll tell you why. So there will be a difference in revenue. So the top 8 cities average store revenue versus a Tier 3 cities revenue would be different. And Tier 3, the revenue levels would be lower. In our case, it is not significantly low but even lower. But what happens is, even when these revenues are lower in Tier 3, our other costs like rental, staff costs and other expenses also are that much lower. So the kind of EBITDA will be generated at average store level EBITDA of 31% to 32%. Whether it is a Tier 3 or whether it is a Tier 1, we ended up delivering the same 31% to 32% EBITDA. So there's no change in the margins as such, but the revenues would be different for our Tier 1 versus the Tier 3.

Okay. And a return ratio's inventory, that would again broadly be similar? Is it?

No, no. There will be a change -- so the return ratios in our Tier 3 would be slightly longer because the investment in order to put up a store as far as CapEx and inventory, whether it is a Tier 3 or the Tier 1 is the same. So your payback period is slightly going to be longer in a Tier 2 versus a Tier 1.

Got it. And the second bit was on omnichannels. So can you share some details as to where we are in that journey. And if we have already started it in a significant number of stores, any initial data on how much is that adding to our store throughput or revenue per store, basically?

See, we have started omnichannel in a small way. I mean we've started seeing some success. It is still early days, so we have started doing localized deliveries from certain stores and it is scaling up. We're also now making an omnichannel program where any customer who walks into a local store and if she's not able to find a color and size, we convert that customer into an omnichannel customer. So we are start -- initiated and right now, we have done it in a few stores. So it's very early on to say how the result is, but it has gone live in a selected number of stores.

So any idea, I mean, how much do you think [indiscernible] significant impact on our store throughput?

Exactly. So that was the idea. I mean, we are quite optimistic that it should improve the store economics and the store throughput. But since we have piloted in a few stores, even the staff are getting trained how to use that omnichannel module. So it will take some time for us to really know how much is the output increase. So we have done a small pilot in 4 to 5 stores.

So it's still a long time away that we actually start seeing a material...

Because there are so many integrations we need to do at a software level. So we have piloted in 4 to 5 stores to see how it would go.

We take the next question from the line of Mr. Saptarshee Chatterjee from Centrum PMS.

Sir, my question is, some time back, you have talked about your repeat customer is around close to 30%, 35% of the total customers. If you can talk about how that has moved, and if your product per customer has also grown Q-o-Q or Y-o-Y?

Our repeat purchase was about at 40% to 45%, and that has more or less maintained. From the other point data, what you mentioned, whether the same customer is buying a lot more or not, that data we have still not tracked in this quarter. Probably, when we have a little more information on that, we will circulate it. But our repeat purchase at 40% to 45% has maintained.

Understood, sir. But also, like do you track whether a same customer with vintage, someone who is buying 2 years, 3 years back with us is buying more? Is there any evidence or data for that?

So that's something -- we have not tracked that data in the last couple of quarters. But what data we track, I'll tell you, which we have done very well in Q3. So we track how many customers have lapsed. So some data around the lapsed customers, we send out estimates and we have been able to recall many customers back to the store and converted those lapsed customers into active customers. So we have done that as well for those customers, which are very old and not repeat, come back to the store.

Understood, sir, helpful. And secondly, I would want to know what are the parameters you try for the brand recall as like Go Colors on all omnichannels. And how do you track that?

See offline, there is no real one way to measure it. But in social media and digital world, there are some third-party agencies through social media and digital they're able to tell what is the recall done. There is no metric and math they use, but there are some third-party agencies doing that in the social media space and digital space. In the offline space, there's not really any real way to measure the recall, unless we conduct a customer survey.

Okay. And -- but do you -- can you quantify like what has been our brand recall as per the third-party agencies?

Yes. So in fact, we had a recall, we did a recent -- we did a small brand campaign also. So in the social media space and the new space, we had a brand recall post our campaign. It is a study, it was about 23%.

Versus like Y-o-Y or something is how to compare that?

No, this campaign, we have not done before. This was the first time we have done this campaign.

Understood, understood. And last question from my side is that like you have talked about maybe around 120 kind of store additions every year, and we have a visibility of maybe another 500 stores. But in terms of like we are seeing some bit of volume cannibalization within the stores of same regions, how our number of locations are going to grow in next 3, 4 years?

See, we are going to continue to grow in clusters. And that's why for us, in-cluster sales growth is a much better metric than same store sales growth. So we are going to be continuing to grow in clusters because ours is the cluster base expansion model. So over the next 2, 3 years, we will continue to add 120 to 130 stores and a good number -- it's very hard to say how many will be coming from the existing clusters, but it's going to be [indiscernible] model only.

[Operator Instructions] We take the next question from the line of Prerna Jhunjhunwala from Elara Capital.

One question from my end is how much of your sales would be new product sales versus old product? This is to understand the impact of raw material movement as well because you've not taken a price hike since December '21. And there has been a material improvement, increase in the cost of raw material as well. So just wanted to understand these 2 factors.

See, for us, whether new product or old products, our gross margin structure and multiplier is the same. So even if our newer products are selling our older products -- older product portfolios are selling, our gross margin profile, which is we are having at -- at the EBO level, we have about 68% to 69%. That maintained and that will translate to even -- that will translate to 60% to 60.5% at a company level. So the margin profile is very similar in all our products. So we don't have that differentiating between a new and an old product.

No. It is from the point of raw material actually because if raw material prices have increased by 30%, 35%, 40% without price hike beyond December '21...

I'll tell you. I'll tell you. In fact, our material price -- the raw material prices have increased twice. And around the same time, we had also increased the price of the product. So I'll tell you, the first increase has happened in April '21 or March '21, whether there was a sharp increase in RM prices. And we had also immediately simultaneously increased our product prices. The same trend happened in December '21, which I had also mentioned earlier in the call, the RM prices went up in December '21, and we took the product price hike also in December '21. So when we're taking the hike with the increase of the RM hike, it kind of counterbalances. So it's very hard to say that when is that impact coming because the newer inventories -- even though when we are changing our prices, the newer inventory coming in is going with the new selling price. The older inventory in the channel has been selling at the old price. So the increase in the RM and the increase in the selling price go [indiscernible] is what I'm trying to tell you. And the last increase of RM and the last increase of selling price happened in December '21.

Okay. And now if cotton prices come down, then what do you do to your ASP? Because -- just trying to understand on the core product, do you reduce your ASP?

No, no. For us, it's not -- it's not possible for us reduce the prices. So even if tomorrow the RM prices fall, I mean it's already fallen, if it's consistently maintained, even in a scenario, in that scenario, we will not be reducing our price.

So your gross margin should increase then.

I mean, if these cotton prices -- if these reduced cotton prices continue, then our gross margin should be.

Okay. Understood. And could you share the number between the core and premium product revenue shares, that will help.

Currently, it's the same ratio of 50-50.

Okay. And historically, maybe 3 years back?

3 years -- 3, 4 years back, it was more 60-40, now it becomes 50-50.

We take the next question from the line of Mr. Aditya Sharma from Aditya Birla AMC.

Just wanted to understand this. So we have completely outsourced in terms of manufacturing. So can't we use -- the procurement can be done by the outsourcing companies to improve their outsourced and actually save around 60 days in working capital. So as you talked about 30 days are in terms of inventories occupied by the RM that you're procuring. So that could actually in turn become payables and the company could actually have a much better cash flow from operations and much better working capital. So I just wanted to understand, are we prioritizing cash margins over cash flows? And can we actually implement this model?

See, I'll tell you, look, because of this model, what we work on, margins definitely are better because we source fabric directly. But having said that, see, the reason why we are sourcing our fabric directly and raw materials directly is because of the quality. See, we as a brand, the fabric quality plays a very, very important role in the garment, and that is why our customers is coming back to us. So that quality, we want to have it in [indiscernible]. And that is one of the reasons why we buy our fabric directly. And now coming to a subcontractor, you see, we work with very small subcontractor. We work with multiple subcontractors, but we work with very small subcontractors. Those subcontractors don't have that kind of financial [ strength ] to buy the fabric directly also. And because we are working with such small subcontractors, we are able to source a better rate on the subcontracting [indiscernible]. Whereas if we go to a larger export firm or a garment manufacturing firm, their cost of doing the conversion [indiscernible] versus a smaller subcontractor would be far higher. So we work with the smaller subcontractors, which gives us some upside in our [ CM ] charges, upside in the gross margin, upside in our [ sourcing ]. But the primary reason of doing this model is because we want to control the quality. More than margin, it's more from the region of controlling the quality on the product.

But we also can actually have our -- from where we are outsourcing, we can ask them to...

We can nominate the supplier.

Buy from the -- from our supplier list, which...

Yes, yes, we are doing that -- we are doing that [indiscernible] but we are just -- but there are many subcontractors who won't be able to do it. Now if I take my entire sourcing model, there are many places...

Correct. So what has changed in our inventory, so we are having the same model, but before we had 90 days now, it's gone consistently around 120-odd days, while we were understanding that the RM prices have shot up, and there was uneven demand and probably that could actually result in such kind of high inventory risk? I just wanted to understand this inventory piece, like what has resulted in this higher inventory days from the previous years?

I think, look, during those periods of COVID, I think inventory planning, it all became little difficult at that point of time. And it was during the period of COVID where our inventory days went from 90 days, and it had gone as high as [indiscernible]. So we've been able to bring it to 120, I think COVID was that scenario in that situation. But now we're trying to -- since we have somewhat brought it down to reasonable as 120 days. We're further wanting to optimize it to 90. But it was the COVID window when this happened.

So can we achieve this in a couple of quarters? Or what's the time line for...?

See, we ideally are looking at 2, 3 quarters a little more to stabilize it to 90.

We take the next question from the line of Mr. Rajiv Bharati from DAM Capital.

Sir, can you call out the rent and the FCF number for the quarter?

Just one second, I'll tell you. Just one second, I'll write down, have it handy [indiscernible]. The rent is, we have paid INR 23.5 crores of rent in quarter 3 FY '23.

Okay. So this is entirely the fixed rent, is it below EBITDA margin?

Yes, this is rent. Correct.

Okay. And let's say, the OCF number or the FCF number for the quarter because the INR 60 crores is for 9 months, right?

Yes. So first of all, the INR 60 crores is for the 9 months. So for the 9 months, the INR 60 crores is on basis of Ind AS 116. If I look at pre-Ind AS operating cash flow, it is nil, because we've had INR 60 crores of [ rent ]. And we've had INR [ 60 ] crores of cash [indiscernible] basically is nil.

Got it. But for the quarter, I just want to get a...

No, we've prepared a cash flow for 9 months.

Okay. And one question on, let's say, on loyalty, I think it was asked before. Do you have a metric which you are, let's say, accumulating right now in terms of tracking the loyalty, the repeat part of the purchase?

See, loyalty for us right now has not gone live. We're testing it, we are making the program. Hopefully, loyalty should go live from Q1, that is what we are planning. But as far as repeat customer base is concerned, our repeat customer rate is at about 40% to 45%, which has been consistent over the last 1, 1.5 years is what we have seen.

We take the next question from the line of Mr. Gautam Rathi from CWC.

The first one, actually, I wanted to understand -- so you said you took a price hike in December 2021, right? So generally, when you see your history of last 5, 7 years, whenever you take a price hike, how much impact does it have on your volumes? And how much time does it take for the volumes to come back to a normal level, right? Is there a correlation there?

See, usually, we have not seen a volume impact because of price hike. Because when we do a price hike, very rightly you said we took it in December '21. Whenever we have taken a price hike, we've taken it with the entire industry. So it's usually that for a customer that experience of price hike is across all brands. So we have not seen a volume impact because of price hike in our own experience. See, because we increase our prices only if there are long-term fluctuations in raw material prices. See, short term, if there are any fluctuations, we absorb it because we have the gross margins to absorb. But any long-term fluctuation, that is when we increase. And then in such fluctuation, the entire industry takes along with it.

So Gautam, which is your next quarter, you will -- the price hike that you have taken in December '21 will come into the [indiscernible], right? Then the impact that you were getting because of higher prices will also [indiscernible]. And the question which you are trying to understand is your volume growth being where it is, is it possible that the growth will start to taper off a bit?

No. So you're saying -- can you come again with the question again? I didn't really understand it...

Basically, there is -- there are 3 elements, which are there in your growth. One is the volume growth that you're getting, especially in your SSG, most of the SSG is coming from prices, right? You have around 10% SSG wherein volume growth is negative 2%, right? And if the volume growth has not been impacted by the prices that you've taken, the next quarter onwards the prices will be in the base of the previous quarter last year, right? So in that sense, the quarter will be -- the growth will start to normalize, right? Unless you take another price hike now.

No, no, no, I'll explain the question. I understood where you're coming from. See -- we as a company, we don't want to increase our prices every year to drive growth. We will increase the prices only if there are changes in raw material pricing. Now as far as how are we going to be grow in growth is going to be at -- see, at an equity level, we want to grow at 4% to 5%. But having said that, our ASPs will keep increasing because of the new products coming in. So we are looking at a value SSG of about 10%, in which 4% to 5% will be driven by volume. And the balance 4% to 5% will be driven by ASP, which is going to be driven by new product portfolio and not change in pricing of the existing products.

But your historical ASG -- SSG was much higher, which now you're saying -- you believe that the SSG should grow at 10%. And the second thing is, in this quarter, you were at negative 2%. So it will take some time. The question I'm trying to understand is the negative 2% to 4% to 5% will take some time, right?

No, no. See, that's what I'm saying. So the minus 2% happened because obviously, this quarter was a little tough. But in our business, the right way to look at it also is through the SCSG mechanism. In the SCSG data, we've had 11% volume growth in this quarter on a Y-o-Y basis.

Which is fair, which is fair, which I understand, which is -- which -- okay, which is a fair business. Okay. That's perfect. The second thing which we wanted to just understand is the seasonality bit, right? I'm just talking from our -- I think in one of our conversations, you had mentioned that the way you think about seasonality is broadly 45%, 55%, right? 45% in H1, 55% in H2. Does that remain? Or is this year an exception to that?

I mean, see, these were the patterns prior to COVID. But this is the first full year after COVID, this is the first full year. So we'll have to see. But looking at the current year trends, it is looking at the same trends of 45% and 55%.

Okay. Even at 45%, 55%, which will mean that Q4 could see further acceleration. That is the only limited point, right?

No. Usually, quarter 4 is the weakest quarter of the year.

Exactly. Because the Q4 is...

Yes. But usually, 45-55 applies for us because we are adding new stores. So the stores which have opened in the first 6 months of the year, they normalize to a certain extent to give revenue in H2. And that is why the 45-55 rule applies to us. But on a same store basis, the quarter 4 is the weakest.

Understood. Understood. And just one -- sorry, one last clarification. So when you say you're usually consider 18 months for a store maturity, right? So -- and when you call out these SSG numbers, are these also for those 18 months base? Or is it a different time period?

It's a blended number. It's a blended number right from our older store to our [indiscernible] qualifies under SSG. [indiscernible] stores. So let me clarify it. So now we had 10% SSG, right, Q3 FY '23 versus Q3 FY '22. Now what are the stores that are going to be considered in SSG is all stores which had opened before October 1, 2021, are going to be coming under SSG evaluation. The store has to be live for a full quarter in comparison for it to be evaluated in SSG.

Correct. So October 2022, right, before October 2022?

No, no. No, all stores before October [indiscernible] on a Y-o-Y basis.

Right, for full year, okay. Full year. Understood. Okay. Thanks a lot.

Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to the management for closing comments.

Thank you, everyone, for joining us. I hope we've been able to answer all your queries. We look forward to such interactions in the future. We hope to live up to the expectations of you in the future. In case, if you require any further details, you may contact Mr. Deven Dhruva from SGA, our Investor Relations partner.

Thank you. On behalf of Go Fashion (India) Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.