Metro Brands Limited (METROBRAND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q3 FY '24 Earnings Conference Call for Metro Brands hosted by AMBIT Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Videesha Shah from AMBIT Capital. Thank you, and over to you, ma'am.

Thank you, Ria. Good afternoon, everyone. On behalf of AMBIT Capital, I welcome you all to Metro Brands 3Q FY '24 Earnings Conference Call. From the management today, we have with us Mr. Rafique Malik, Chairman; Ms. Farah Malik Bhanji, Managing Director; Mr. Nissan Joseph, Chief Executive Officer; Mr. Kaushal Parekh, Chief Financial Officer; and Mr. Alisha Rafique Malik, President, Sports Division, E-commerce and CRM. Without taking any further time, I would now like to hand over the call to Mr. Nissan for his opening remarks. Thank you, and over to you, sir.

Thank you, Videesha. Good afternoon, and welcome to our Q3 FY '24 earnings call. As you are aware, we reported a 7% stand-alone year-on-year growth for the quarter, and I'm pleased that along with delivering our highest quarterly sales in the stand-alone business, we were able to do so while achieving our PAT and EBITDA numbers within our guidance. As a reminder, we have guided that our stand-alone PAT will be in the 15% to 17% range. And this quarter, we reported an 18% PAT. And for the 9 months of this fiscal year, we're at 17.4%. Our guidance on EBITDA for stand-alone business has been north of 30%, and I'm pleased that we achieved 34% for this quarter and 33% for the 9 months. This despite the normalization of various expenses last year, including investment in talent for the new business of FILA and Foot Locker and other business-as-usual expenses. Additionally, this year, we had an incremental noncash expense of about 60 basis points due to ESOP issuance and Ind AS accounting, the latter primarily due to increased new store openings. We continue to face the headwinds of the COVID bump from last year and inflated inventory levels in the market, that prompted some retailers to be aggressive on their clearance sales as early as the fourth week in November. Despite both these challenges of the COVID bump and inflated inventory levels in the market, we achieved a gross margin for our product of 60% for the quarter and are currently at 59% for the 9 months, which is also above our guided range of 55% to 57%. And as mentioned in the previous call, we anticipate lapping the COVID bump in sales towards the end of Q4, at which time we will have more normalized business comparables. To recap the first part, while we see headwinds from the COVID bump, we're not seeing economic headwinds for our business. Our sales of product over INR 3,000 hit a high of 49% of our sales. We see growth across all categories, all our banners in premium products, confirming that our strategy of premiumization continues to perform. On the e-commerce front, I'm also pleased that despite challenges faced in integrating additional technology platforms to our warehouse and order management systems, specifically for digital commerce, we were able to recognize a revenue of INR 53 crores while achieving 10% to the total sales for the 9 months of fiscal '24. We continue to be on pace with our new store additions as we opened 31 net new stores, bringing us to 87 net new stores for the year and targeting to open a total of over 100 stores for this fiscal year. We closed the quarter with 826 stores, not counting the FILA stores. Earlier in the year, we saw a very competitive market for new leases. And given the normalization of the COVID euphoria, we're seeing normalization of pressure for new leases as well. On the BIS front, we're getting more clarity and visibility on the requirements. Some of the rules are already effective as of Jan 1, while others have been delayed till July 31, 2024. MSMEs continue to be exempted currently, and we await further visibility on those suppliers. Overall, we have forward bought inventory and do not see any disruptions if the authorities are set up to inspect and grant licenses as needed. Our FILA liquidation continues to be on track. And as guided to earlier, we will continue to see the impact of this on our consolidated numbers through Q4. The team has been working on repositioning initiatives that will start to take effect in Q1 of this coming fiscal year. FILA Global has also started initiating global marketing campaigns that align with our positioning, which will create synergies for us. During the quarter, we also announced the signing of a long-term agreement to open Foot Locker stores in India. Our current plans are to open 4 to 6 stores in Q3 of this coming year, targeting 2 to 3 key cities and then roll out more stores in calendar 2025. This is a great platform for Metro Brands to enter the athletic and sports category. As we look to the future, we see significant growth opportunities from this segment and are pleased to have Foot Locker and FILA in our quiver to capitalize on that journey. In anticipation of our growth, we will be signing a lease for additional 320,000 square feet of warehouse space to be operational in late Q3, early Q4 2025. This will effectively double our warehousing capacity and will ensure we can continue to grow our different business units. In conclusion, despite the COVID bump from last year, Q3 performed to our guidance on the key metrics of PAT, EBITDA and store openings. We continue to invest in our talent and technology to enable our profitable growth. We remain confident on the pillars of growth, our strategic initiatives and the opportunity for each of our brands to take advantage of India's growth story. With that, I'll turn it back to the operator for the Q&A session.

[Operator Instructions] The first question is from the line of Ms. Videesha from AMBIT Capital.

So sir, while we understand the base was elevated, but the broader sense was T-shaped growth would continue and discretionary consumption would benefit from the shift in festive season, leading to some bump up in Q3 sales. So while you're a bit early into the current quarter as well, can you elaborate a bit further on what is your read on the ongoing consumption trends and the consumer sentiment?

Yes. The COVID bump was through the entire part of last year, and we were aware of this bump coming up, Videesha. We knew that this would continue through Q4. So while you have a little bit of shift here and there, it tends to normalize -- level out itself. So it doesn't create enough of a momentum to overcome a big bump like we had last year, right? So if you look at our growth over the last 4 years, 5 years, we continue to maintain the 18% CAGR growth, right? So yes, last quarter, we did not hit that, but you got to look at it in a string of events and how we performed over a period of time. Given that -- and given the fact that all our categories, all our banners are doing equally well or performed to an equal level, you would normally see consumer sentiment start to affect certain categories, right? So you might see a slowdown in some discretionary categories of festive or wedding or whatever. We're not seeing a distinct difference between our categories, and we're not seeing a distinct difference between our banners as well. So they all -- we don't believe there's an overall downtrend in the consumer sentiment. It's really just continues to be a matter of the COVID bump.

Got it. That was helpful. Just a follow-up to this comment. When we look at how the quarterly product mix has moved in terms of pricing, the mix of INR 3,000 and above products is increasing Q-o-Q as well. So just wanted to get some clarification here that is there any element of change in terms of assortment that we're doing consciously or it was done by design? Or is it purely done by default that's driven by pressure in the mid-premium segment consumption?

Yes. So just to make sure we look at it carefully, all of the entire sales for the entire company was up Q-on-Q, right, this year to Q2. But when you look at the premium category, which we consider anything over INR 3,000 premium because it's just a good cut point, there are premium products that we sell in Fitflop, for example, that are not INR 3,000, right? So we see across the Board, it's moved up. But that category has only gone up by 1%. It was 48% last quarter. It's gone up to 49% this quarter. So what drove that 7% growth for us in the top line was not disproportionately spent on premium. It was spent across, which is why I don't believe it's consumer sentiment. But that fact that 49% of our business does come from this segment is really more of a premiumization strategy as opposed to having a different group of consumers doing okay and another group not doing so well. It's really how we're positioning ourselves.

I just wanted to add one more point to what Nissan said. When you see Q-on-Q, generally in retail, Q2 and Q4 would have reduction end of season sale. So -- and Q1 and Q3 generally have -- there's no discount in our ecosystem. So that also leads to slight improvement in Q3. It would come back maybe to, say, 47%, 48% what we saw in H1 as we go on.

Our next question is from the line of Mr. Tejash Shah from Avendus Park.

Nissan, in post result, one of your media appearances you asserted that the lackluster result this quarter isn't a reflection of any economic headwinds, but rather a timing issue. Can you elaborate the same? And what gives us confidence that this is not an economic headwind and not here to stay for long?

So I think -- first of all, it's not a lackluster quarter, Tejash. It is definitely a good quarter for us. You just -- when you look at the comparables, obviously, that's what you're basing it on. But if you will look at our business performance, it is not a lackluster quarter. On the contrary, I'm actually quite pleased with how we've come out comping the COVID bump from last year. One of the reasons I believe it's not consumer sentiment is that we've been able to maintain our gross margins. Typically, when consumers have a sentiment that they want to withhold their money and not spend or they want to down -- they usually want to quit, they want to go down market a little bit. We're not seeing that. You would also see certain categories like a certain very fancy wedding shoe that you might wear only to an occasion or 2 that would indicate that you're not willing to spend just for an occasion or 2. So there are various indicators we use to see, is this really consumer sentiment? Or is this just a matter of traffic that doesn't compare to the previous quarter. So -- and when you look at our brands of Metro, Mochi, Walkway and then Crocs, we're continuing seeing demand for the right products at the right price points in all of those banners. So typically, we would see an unbalanced performance. We're not seeing that this quarter.

Got it. And in your initial assessment, the BI's tool, how would it impact the demand, profitability, competitive landscape in the longer run? And this is for industry in general and for us in particular, if you can help?

Yes. I think the shoe retailers and manufacturers that rely heavily on imports that haven't prepared themselves for local production and local compliance, meeting local compliance can get impacted, right? So there is that exposure to those companies. As you know, in our Metro Mochi, Walkway business, 85% to 90% of everything we produce is made, you're right in India. A large portion of that is manufactured by MSME factories, which are now currently exempt. So what I really see it doing is helping Indian manufacturing step up. Of course, it will come in phases. It won't come overnight. And the fact that the government is pretty quickly imposing this does put some pressure on the industry, but we're not as heavily reliant on imports as some of the other brands might be.

Sure. But as the compliance cost for MSME increases, does it mean that our sourcing costs will also get inflationary impact and then we'll have to pass it on to customers?

Compliance costs are marginal, Tejash in this. It's not the government trying to come up with another source of income at all, right? Because this is not the way they would do it. It would be quite steep. It's not steep. It's not consequential.

Sure. And then last one from my side. Looking at the demand pressure that industry is facing and as you called out that EOS was started untimely way in November itself, do you think that industry will extend this discounted period for longer term and we kind of hit our fresh sales in 1Q as well?

I don't know the answer to that because I don't have visibility of other people's inventories. But I can tell you that there were inflated inventories, not only in India, by the way, this COVID euphoria was a global phenomenon, right? So globally, almost every footwear retailer, manufacturer has been flooded with inventory, right? We were a lot more cautious because we understood that this was a COVID bump. I think we've talked about it quite frequently on these earnings calls. I've called it out quite pointedly on all of these calls. And I've also pointed out that it will take us through Q4. So I don't see why this should be any different.

Our next question is from the line of Mr. Nihal Mahesh Jham from Nuvama.

Nissan, just discussing further on the COVID bump aspect that you mentioned. If I look at the last year similar quarter, our revenue per square feet was actually down. And I do recollect that after festive, we've seen a bit of a moderation in the demand. And in this quarter, while early participants also discussed that there were maybe a shift in the festive. So when you look at it from that perspective, do you still believe that it's mainly a COVID bump that explains majority of the contraction in the revenue per square feet, if I had to look at that as maybe a proxy to the SSG for our business?

Nihal, I just want to make sure that you and I are looking at the same numbers or I'm understanding the same numbers from you. So last year, if I recall correctly, Q2 was INR 4,900 sales per square foot, Q3 was INR 5,700. So we saw a big bump one quarter to the next also, right? So that -- I'm not sure I know what you're referring to. What I'd really encourage you to look at, though, is overall, last year's numbers are highly inflated because of the COVID bump. So I wouldn't look at that as an anchor point, Nihal. I would really look and see what is this business doing in terms of EBITDA? What is this business doing in terms of PAT? Are they able to maintain their gross margins with their customers? These are the critical drivers that ensure that nobody is getting caught or hiding behind the COVID bump. And those are the factors I would read. So as far as the industry goes, I can't tell you. But going forward, this will continue next quarter as well, the quarter we are in currently. We're not going to see big numbers come out of this quarter. You're not going to see the 18% growth that we continue to have and we'll continue to have once we get past this growth. If you do add this year's numbers to last year's numbers or the last few year's numbers, not counting the COVID dip, we would still be tracking at 18% if you go back to pre-COVID numbers. So we are on pace for 18%. We get past the COVID bump. I feel confident that we can get back to our 18% CAGR growth. Some quarters will blip up, some quarters will blip down.

Nihal, just adding to what Nissan said, if we compare, say, this 9-month sales versus, say, 9 months FY '20, which is a pre-COVID normal year, we are seeing our sales growth has grown by around 84%. If I take out store growth during that period, which is around 53%, 54%. That leaves you with 30%, 31% over the last 4 years, even on a CAGR of 6%, it's a reasonable SSG growth that we would have -- we have seen over the last 4 years.

Point taken. Maybe just some more clarification I'll take that separately. Just one more question was that with the signing of the Foot Locker agreement and also having FILA, do you now believe that from a portfolio perspective, at least for the next 3 to 4 years, the focus has to be on getting FILA and Foot Locker right and expanding the core of Metro, Mochi, Crocs or we are always open to the right kind of arrangement as it comes along?

So I think your first statement is very, very true. We have immense growth opportunities for Metro, Mochi, Walkway. We have immense growth opportunities for FILA and Foot Locker, not the least of it because it's a low base, right? If I just look at the total addressable market for FILA and Foot Locker is considerable. So immense opportunities there. Sometimes some synergies are forced upon you. So if there's a brand that does not export to India, for example, that we want to carry that we believe is important for these banners, then those are tie-ups we look at. I also think the next rise is probably coming up in Athleisure, right? Over the next few years, we're going to see Athleisure improve. That will create other opportunities that we may feel the need to look at other brands to fill that space. What we actually do is we work consumer backwards. It's not about me or Kaushal sitting here wanting something. It's about what does our customer want. And if the customer says through their actions, through their wallets that they want to go somewhere, get a brand, we're going to go and do our darnest to go get it.

Our next question is from the line of Mr. Gaurav Jogani from Axis Capital.

My first question is with regards to FILA. If you can highlight how much is the old stock inventory that you are still carrying around and probably how much time it will take to get that exhausted? And additionally, one more question on the Foot Locker. If you can guide us some way how the Foot Locker expansion plans are going ahead? What kind of margins are you looking in this format? Some more details about it would be helpful.

Gaurav, I'll take the first one. If I broadly have to give you a sense, we are at around INR 30 crores of inventory at cost for FILA. We would have equivalent amount of inventory in the large format stores and the EBOs where we are currently operating. So that's the quantum that we are looking at. As we have guided, we should be able to liquidate most of it by March '24 or max by June '24 in a worst-case scenario.

And then to take the second part of your question on Foot Locker, as I said, we're going to target 4 to 6 stores. We're going to use the cluster -- we want to use a cluster strategy for growth. We will start opening in October of this year. We will accelerate the growth through the calendar '25. We believe that Foot Locker has the opportunity to be in every major city in India with multiple stores between the 3- to 5-year range. We have to remember, it's a premium operation, right? Both in terms of the level of operations that they do have and the type of products that they do carry. So it will not be one of those that can go down to a Tier 2 or Tier 3 city at all. It will stay focused on metro cities and Tier 1 cities. But the runway for growth, if you were to look at it in the next foreseeable future is going to be every metro city, every Tier 1 city having multiple outlets. And just to give you a little bit more color, there will be 2 types of Foot Locker stores we open. One of them is called a Power store, which will range north of 5,000 square feet. And the other one will be the Core stores, which will range north of 3,000 square feet.

So sorry, you're saying the Core store, right, Power store and Core store?

Correct.

Okay. And one question for the taxation part, if we see the taxation for the first 9 months is around 27% odd. And given we also have losses in FILA. So what kind of tax rates should we build for the FY '24 and years ahead? I mean for '25 -- '24, '25 actually?

Gaurav, we are discussing with our tax consultant if we can get any benefit of the carryforward loss at the subsidiary level. So at this point in time, we won't be able to comment on this particular point.

So, Kaushal should we build in the 9-month rate for full year for now?

Come again, should you build what?

The 9-month rate, whatever it is 9 months rate, whatever the tax rate is, can we build that for the year FY '24 at least?

Yes. Because as I said, once we have clarity, we will come out. Otherwise, the normal tax rate continues.

Our next question is from the line of Mr. Jay Doshi from Kotak.

A lot of other retailers have generally when we talk to across categories indicated that footfalls in general traffic was a bit soft this festive season. So did you also witness similar trends across your stores? If you could comment a little bit on traffic and footfall.

Yes. So if you're talking against last year, Jay, we definitely were softer, right? 100% -- definitely softer. However, if you're talking about what we think is a healthy business, it wasn't soft.

Sorry, I -- sorry for interrupting. But I'm referring to generally, you see monthly trends, right, based on, let's say, what you would have witnessed from April to September and this time we had late festive. So you would have certain expectations on a sequential trends for October, November, December. So if you can ignore the base quarter for now, but generally, during the course of this year, over the past few months, have you seen moderation in traffic?

I think I've seen normalization in traffic for sure. And I would really call it normalization because shoes is still selling. We're still selling a lot of shoes in our stores, right? So it's not like we don't have any traffic. So I just want to be careful that everybody is doing this based on the comparable. There's no other metric that they're using. What we're using is, is the metric leading to the PAT that we need to operate? Is the metric giving us the kind of footfalls and the velocity we need to produce an EBITDA of north of 30%. And all of those metrics are being met, right? So it's hard for me to sit here and say the traffic is lousy. It's not. It's hard as a retailer to show 17% PAT. It's hard as a retailer to show 60% gross margins without traffic. You need traffic to do that. So I think the sentiment is all about the comparable against last year, which is valid because that's how you evaluate retail 90% of the time but you cannot compare restaurant sales on a Monday night to the sales on a Sunday night. And as far as the festive shift goes, it wasn't significantly a shift. It shifted out by a few weeks into November, but the bulk of the sales would have started in October, too. So it was -- it caught the cusp of the turn of the quarter, right? So you're not going to see it was absent in Q2 and it was fully present in Q3. That's not how it rolled. It rolled -- was -- it started to trickle up and ramp up in Q2 and it culminated in Q3, unlike last year. So -- and then the wedding dates shift and while they shift and they go within the quarter. There's a lot of variables to this, but you've got to look at the fundamentals of our business, and we look at our inventory liquidations, we look at what people are buying. We look at the price points they're buying. We look at where they're shopping in our multiple banners, the types of products that they're looking for. We're not seeing that it is an economic or a consumer sentiment that's reflected in these numbers.

Understood. One more question, if I may. This year, especially during the festive period and before, have you seen higher than usual level of discounting, deep discounting by some of the other brands, both offline and online. So your comments on competitive intensity and the level of discounting that you would have seen in the market by other brands?

Yes. So I think mid-quarter, we saw some unusual discounting going on. I mean, I can only speak in my space. I can't speak to any other spaces, but we saw some unusually high levels of discounting going on, which is indicative that I think it's a combination of people were over-inventoried because I go back to that comment on the euphoria of COVID. We thought that would continue forever. So people overbought. And also that against the performance not coming through leads to a lot of inventory bumping up, which probably caused cash issues with some of them. That's why they ran on sale. We, by the way, did not match those sales. Jay, we stayed without offering any discounts through Black Friday when there was steep 50% of entire store discounts going all around us. We did not match any of those. Again, that's a reflection that we were convinced that we are not seeing it in the consumer. So these were not consumer-driven activities. They were retailer-driven issues that they were trying to fix as opposed to fixing consumers. Yes, there were fewer consumers in the previous year because it was a COVID.

[Operator Instructions] Our next question is from the line of Tanuj from HDFC.

So I had a question on gross margins. I'm just comparing to 3Q FY '24 with the base quarter. I'm trying to understand this improvement in margins. See, anyway at 60% odd or 59% odd, you are already -- you're already meaningfully higher than what you typically guide. Now there has to be a couple of things which would have ideally played against this, right? So for example, the FILA inventory liquidation would have been higher in this quarter versus the base. The share of discounted sales would have probably been normalizing upwards versus the base plus the mix remains broadly the same, right? So I'm trying to understand how is this gross margin consistently improving? And how are you doing that?

Thank you for pointing that out. But it doesn't necessarily improve. Don't forget that we were almost to the same levels in Q1 at 59.1%. Now we're at 59.9%, right? So it's not significantly different. What you also got to look at is last year, we were at 58.8% for the full 9 months. This year, we're at 58.7% for the full 9 months. So we're going to be within a striking zone range there. You cannot compare it just to last quarter because Q2 is typically the end of season sale quarter. So you would see margins retard as you would also see it in Q4 of this year, right? So -- but the way we -- I think the fundamental way to drive our margins is to ensure that we're selling more products at full price.

Right. So that's what I was trying to mention. So even if I ignore 3Q and if I look at the 9 months block and the gross margins are broadly similar, but wouldn't have -- wouldn't the discounted sales have been higher? I mean FY '23 was sub-5%, right, the share of discounted sales typically versus a typical 8%, 9% that you do every year, right?

Right, Tanuj. So there are multiple of factors. Our improvement in gross margins, and I'm talking on an overall basis, is also a factor of a slight improvement in markup and also a change in the mix that led to a slightly improved margin. Say, if you see Q3 margin on a stand-alone basis, we have seen improvement of around 50 to 60 basis points, which is getting carried forward even in the consolidated numbers. Also, one important thing you need to note that as we start selling FILA more in just Metro, Mochi, MBO, on an overall basis, you will see a margin close to the normal margin because if we don't do distribution sale, that's not -- we are not parting away margin with the third party. You got what I'm saying?

Yes. Yes.

We are focusing more and more on liquidating FILA within our Metro Mochi network. So on a consolidated basis, it's just -- it's just like B2C sales and not B2B sales. And hence, obviously, B2C margins are higher than B2B.

Got it. But this will be in the future, right? I'm saying 9 months, fair enough.

Even in Q3, as we said, we are reducing our -- we closed a few EBOs of FILA. We will be closing most of it by June '24. And our focus is increasing of consolidating FILA within Metro Mochi and selling it and leveraging our Metro Mochi MBO network to reset the brand. And we will be slowly coming out of all the large format stores and even the EBOs for FILA temporarily.

Fair enough. And my second question was on the Foot Locker arrangements. Now if my memory shows me right, Foot Locker globally, 2/3 of the inventory is typically in Nike. So I wanted to understand why would we go through Foot Locker and perhaps instead of just straight away strike a deal with Nike.

So I think this is the beauty of Foot Locker and the power of Foot Locker, right? They have 2,600 stores globally. They're able to command two things from all the brands, not just Nike, but also Adidas and Puma and all the other key brands in the world. They're able to command 2 levels of product. One, of course, is what we call a Tier 1 level product. So if you're a sneaker head, you would understand the difference between Adidas Ultraboost and there's Air Force 1s and there's Air Jordans. And these are products regardless of who you are, Nike will not want it to go outside of their Tier 1 distribution, right, that Nike, Adidas, all the people. So I'm talking about all the big brands in the world, right? So that's number one. You will not have access to the products regardless of the type of store you open. You will have to be part of one of these big, big global retailers and a strategic account for each of these brands so you have access to that product. So that's number one. Number two, because of their size, they also get exclusive products from these brands, right? As an example, they have a Crocs product that's exclusive to Foot Locker. Ironically, as good a partner as we are at Crocs here and there were no Foot Locker here, we still could not get access because Foot Locker has a global exclusive on the product. So that's the other access we get. Those two things, along with Foot Locker's operational capabilities are very, very exciting for us because it puts us in the game really quickly, right? Listen, there's 300, 400 stores from Nike, there's 300, 400 stores from Adidas and so on and so forth. They're already playing the game, and we needed something to get up to speed very quickly. And both those things, Foot Locker's operational capabilities and Foot Locker's access to key products puts us into that game very quickly.

The next question is from the line of Mr. Varun Singh from ICICI Securities.

First on the operational capabilities that you mentioned in Foot Locker, which is very, very different compared to any other MBO outlet. Maybe can you highlight 2, 3 star differences in the operating capabilities of Foot Locker that we will be benefiting upfrontly in India? That's my first question.

So we won't operate differently. There will be some localization that obviously needs to occur, right? So there's always localization with every brand. But when you look at a global brand and how they operate and how they plan their business and how they focus on the consumer experience, both from an associate standpoint and a store design standpoint and, of course, the product, it is a whole different experience that comes to life, right? And that experience meshing where you're able to leverage each of those pillars, the associates, we're able to leverage the store ambience and experience and of course, the product only comes from years and years of experience, right? And we know this because we have it at a different level totally and a very good level, but in a different space with Metro and Mochi, right? So it took us years to hone that as well. So what you usually get when you get the operational capabilities of all those good things that they've been learning, all the lessons that they have learned over the years to come and you're able to execute it. You also get access to best-in-class store designs, you get access to best-in-class marketing campaigns. It takes -- elevates you to a whole different level because it is a different field.

Okay. So it is primarily store design and maybe product access, I understand, but from operation point of view.

I wouldn't be that simplistic about it. These things are very intricate to a consumer experience, Varun.

Yes. Understood. And sir, my second question is like we see more than INR 3,000 price point, 25% growth that is outstanding. But the less than INR 3,000 price point, which is 51% of our total portfolio, there we see some absence of growth. But I just wanted to understand that I'm not sure what percentage of the shifting of the SKUs might have happened due to price hike, which may possibly explain 25% kind of a growth in the -- more than INR 3,000 price point. So if you can help me understand, uncover the reasoning for a 25% growth from the price hike and portfolio point of view?

I think it's our thoughtful positioning of products that we find -- that the customers find value in, right, over INR 3,000. It is not an accident that's happened. It's not us vacating certain price points, and it's definitely not us performing at certain price points. Listen, we sell 51% of our shoes underneath that. And if that were not to do well, we couldn't come up with a 7% year-on-year growth in our stand-alone stores, right? So it is really a matter of us picking products very carefully and curating the products based on customer demand that has enabled us to grow that part of the business.

Okay. So that means there has been -- I mean, it's not related to any price hike related shift in SKU revenue to the more than INR 3,000 price point?

No, it is not hike driven improvement. It is literally a planned curated positioning.

Varun, just to add, if you see our average ASP increase, it's been around 3%. Also, as I said, you need to -- if you see contribution of product above INR 1,500, we have seen improvement from around 86% to 87%. When we complete March '24, once we have March -- Q4 would have USS effect coming in, you might see some rejig in the percentage that we see. Most important thing is to see above INR 1,500, are we tracking above that 85%, 86% on a consistent basis.

Understood, sir. And sir, just one last question, if I may. On the e-commerce business, this quarter, growth has been significantly subdued at hardly 6%. So I mean, how are you reading this number?

Yes. You're absolutely right. We had -- we are upgrading our technologies and adding technologies specifically to order management and catalog management in the e-commerce space. That has created some glitches. Unfortunately, it was also over the busiest time. We're not seeing any erosion of demand on the e-commerce front. Unfortunately, we were not able to capitalize on it last quarter, which is what happened. Having said that, though, the good news is they didn't fall away and disappear. We're still running very close to our 10% rate for the year. But e-commerce will continue to be a big part of our business. But consumers have 80% of Gen Z customers say they like shopping in stores, right? It's not -- and we're not looking at that and saying that means we don't need to worry on e-commerce. Almost everybody in some way, at some point, starts or completes or looks deeper into their journey on a digital space. So we are very aware of the need to be digitally present. But today, 10%, is not a significant part of my business. But at the same time, it's not a part of the business equally that we cannot afford to invest in because our customer is digital.

Got it, sir. And sir, just one last question. I don't know if you have already answered this. I joined call a little bit late. What is the like-to-like growth or same-store sales growth for the quarter?

Varun, actually, we don't disclose same-store growth numbers. So unfortunately, we'll not be able to share that. But just a quick data point. If you compare our 9-month sales for current year versus, say, 9 months of FY '20, we have seen growth of around 84%. During the same period in last 4 years, we have seen our network store numbers improve by around 53%, 54%. So that leaves you with that 30% growth number over the last 4 years, which would translate to about 6% to 7% CAGR growth year-on-year basis.

[Operator Instructions] The next question is from the line of Mr. Amnish Aggarwal from Prabhudas Lilladher Private Limited.

Yes. Sir, my first question is on FILA. FILA, are we actually going slightly slower than what we earlier anticipated in terms of finishing our old stock? That is one. And secondly, on -- in terms of FILA, now will we be in a position to start opening new stores? Or how will the business model look like after we close down all the existing EBOs by the end of 1Q of next year?

Sorry. With every acquisition that you make, you always find out things post acquisition, right? So it's not that we've gone slower than we thought. It's that we -- as we went through the acquisition, we found more things than we knew about prior to the acquisition, which is normal, which is nothing abnormal, but we just didn't know what that was, right? There were orders placed to factories that we had to honor. And we believe in doing an honorable business. So it's not like we're ever going to leave anybody hanging. So that was a little bit more than we expected. Having said that, though, we've always guided, Amnish, that we would -- it would take us a full year, all of this year, all the way through Q4 even and maybe tripling a little bit into the next Q1 to clean out the inventory. But the plan is using this year broadly as a cleanup year, next year as a repositioning year. So yes, you will start seeing us open stores sometime in fiscal '25 when we feel that we are ready to get going. And then we will accelerate stores in FY '26. Having said that, though, don't forget that 15% of all our business in Metro Mochi comes from athletics. And we will plan on using that platform to accelerate FILA. So while you may not see stores out there right away, you're definitely going to see FILA product with the new positioning that we plan on taking it to later on next calendar year.

Is it fair to presume that losses in FILA or rather Cravatex, they have more or less peaked out?

They have peaked. They haven't gone away, though. I just want to be very, very transparent about it. They have definitely peaked. But we would still continue this in Q4. We anticipate that to be as much of an investment in quotation marks, if you want to call it, into the brand. But again, we take a long-term view on all of this, Amnish. It's not like we wanted to hurry, get rid of everything and start to show some sales because we want to position the brand right. It's a multi-decade agreement, right? So we know that if we take the first 15 to 18 months to position it, 18 months and 24 months to position it right, we will reap the rewards for the next many decades behind it, right? And we've taken a playbook from China, which went through the same transition when they took it over from the local -- the incumbent distributor there, and they used -- it took them 3 years to clean up and reset the brand. And today, if you look it up, FILA in China under ANTA does somewhere in the USD 4 billion range in sales. So when you look at the size of the price, you want to set it up right and not rush through it and miss that opportunity.

Yes, sure. My second question is on Foot Locker, where we are talking about, say, your Power stores and Core stores. So can you give us some idea on how many Foot Locker stores we will open, say, in FY '25? Any particular you can say, what sort of, say, your brand spends or any your CapEx, which will be still, you can say, which we can spend on the coming year?

So I think the opportunity for us to be in every metro city and Tier 1 city exists with Foot Locker, right? Now some of them will have multiple stores in a city. Obviously, your Delhi, Mumbai will have a lot of them, not just 1 or 2 or 3, right? We'll have significant portions of them over the course of time. We've looked at what we look at both what is an absolute that we need to open and what is an aspirational number that we need to open from a CapEx standpoint, from an inventory standpoint. And we're very comfortable that we have the capital to allocate to this project and to this banner of ours. And we are comfortable with the risk that comes with it because it's in stages. It's not in one go. And we look at it. I would rather not give you a forward-looking guidance yet. It would be a little premature. Don't forget, this is the first multi-brand outlet in India in a long time of a global banner with Tier 1 product. So there's a lot of first in here that we want to make sure that we currently vector so we can position our growth going forward.

Our next question is from the line of Ms. Hetvee Marviya from Catamaran.

I wanted to actually know a little more on Foot Locker. So you mentioned previously that these will be more premium products and we'll have larger store formats. But do we have a sense of idea, let's say, like currently, our revenue per square feet clocks about INR 20,000 annually for Metro, Mochi or even FILA for that instance. But how much more can we expect from Foot Locker given it's in a premium position?

Hetvee, as we mentioned, we are expecting Foot Locker stores, Core stores to be upward of 3,000 square foot in terms of size and Power store upward of 5,000 square foot in terms of size, right? We -- it's too early, but we expect similar -- if Metro is doing -- metro stores around 1,500, so you can use similar multiple. We expect sales per store for Foot Locker to be significantly higher than that of Metro, Mochi. And consequently, we expect sales per square feet also to be in similar or better range.

Okay. So sales per square feet should be at least comparable to Metro or a little bit higher?

Yes, it should be. It should be.

Our next question is from the line of Mr. Devanshu Bansal from Emkay Global.

Nissan, your commentary indicates that Q3 this year was a normal quarter. So I wanted to check, is it fair to bake in normal seasonality between quarters sequentially from here on?

No, we're going to have another normalization quarter next quarter, Devanshu. What I said was we see the COVID bump lasting well into Q4. It's not all the way to the end of Q4, but it lasts well into Q4, right? So Q4 will also be a little bit of a normalization quarter. Having said that, though, what you can probably model out is our 15% to 17% PAT, our EBITDA north of 30% -- somewhere in the 30% to 35% range. Our gross margins continuing to hold somewhere between 57%. You can model that out, and we've had a CAGR growth of 18% when going over a period of time, right? So you can model that as well. And that's what I would say. But Q4 is also going to have the same similarities that we've seen in Q1 and Q2 and Q3 of this year.

Got it. So last year, between Q3 and Q4, there was a 15% dip in revenue per square feet. So is it fair to understand that it may be slightly higher this time around?

I'm not seeing what you're saying. You need to look at the stand-alone numbers. So I don't see the dip between Q2 and Q3 last year. I see it going from INR 4,900.

I was saying between Q3 and Q4 last year, it was a 15% dip in revenue per square feet. So is it fair to presume that this time around between Q3 and Q4, it may be slightly higher?

Devanshu, if you just see quarterly sales, Q3 is the biggest quarter with close to about 28% to 29% contribution as compared to the full year sales. Q1 and Q4 generally is close to about 25%. We don't expect this year to be any different.

Got it. And secondly, you mentioned that there was excessive discounting during the quarter by peers because of higher inventory with them. So I wanted to check what -- how comfortable are you on your current inventory positioning? Do we foresee a need for higher discounting in Q4 or we are well positioned here?

No, we are very well positioned, especially we intentionally forward bought inventory, Devanshu, because we have BIS coming in. And as you know, every time there are new rules and regulations, they tend to be disruptive to supply chains, and we wanted to make sure that we would have a steady flow of goods. So we forward bought but the freshness and the aging of that product is right in line with our expectations.

Devanshu, just want to clarify, as we had guided even in our last call, if you see last 2 years, our share of end-of-season sales to the total revenue was sub-5%. And we had said that it will normalize over a period of time. Our long-term average is around 8% to 9%. So for the full year as a whole, we may be close to the long-term average between 7% to 9% for the current FY '24.

Next question is from the line of Mr. Bharat Shah from Ask Investment Managers.

Honestly, I thought the current quarter results were fairly decent. So I've been a bit surprised by all the kind of nuances that I hear on the call. Per se, I felt in qualitative terms, the results were fairly sound. But that's apart on the growth that you have talked about that we have grown at about 18% for the long period of time so far, and we expect to do 18-odd percent going ahead. It sounds a bit mathematical to me is if some holding number has to be delivered going ahead. So just wanted your view on that. I mean, what is magical or precise about it that it will have to be something like that 18% going ahead?

Yes. So I think what we like to do, first of all, is not give too many forward-looking statements about it, right? But I think it's what -- that comment really comes from what's the safe modeling number that we get asked for, right? And to me, when that's a performance that we've done over the last 10 years, there's no reason why we wouldn't be comfortable holding ourselves accountable to continue to perform to that as a minimum, right? So that's where it comes from primarily. But when we look at the different growth opportunities, I think the opportunity for sports footwear in India is immense compared to where it is today, both in terms of as a comparison to what the size of the business is today to what it's going to be, the utilization across India. So there are some significant growth drivers that we've started to invest in, right, which is why we're excited about the future for Foot Locker and FILA specifically. And we went out and got the acquisition from Cravatex, knowing that these kind of acquisitions are very painful to digest and dissolve and reposition, but we were quite comfortable with that because there is immense opportunity and upside in those brands, right? And that is not to take away from we have the equal amount of opportunity with our Metro and our Mochi stores because we're only in about 190 cities approximately. We have the opportunity to go to 300 cities with Metro and Mochi. So we haven't even tapped that out yet. So that's why we come up with it. At the same time, we're not going to sit here and say, we're going to have -- we're going to open up 500 stores next year and put a lot of pressure and make bad decisions. If you look at our history, we're very thoughtful and thought out in how we grow. We're not narcissistic. We're not egotistical. If the opportunity is right, we'll open more stores than we said. If the opportunity is not right, we'll at least open the stores we said we would.

That begets actually my another question that I wanted to ask in any case. Given the way India and Indian economy and society are positioned today in a more take-off stage, given the way the test and the styles and the attitudes have altered and generally, the belief about consumption and the way people turn themselves out have altered dramatically. Would it not be somewhat unambitious to think of just a linear extension of the past that we grew at certain percentage in the past. And therefore, it's a mental kind of number that we have fixated that probably will do something similar. But I would argue that even on a relatively larger base, the size of opportunity has opened up multifold given the income consumption, attitudinal trends that we are witnessing in the society. And given the fact that Metro itself has grown over a period of time in terms of understanding customer psyche and knowledge about the business and all of that. So are we in something psychologically biased in favor of that past number and just mathematically extending? Or are we carefully assessing the opportunity? And if instead of 18%, if that number is to be 25% or 28%, why not? And if on that assessment, if it is 15% since so be it. But some of that number sounds a bit more mathematical to me rather than a kind of a well-conjectured kind of a number.

Okay. Bharat, I think I wouldn't use the word unambitious, but I might be more inclined to use the word conservative. We are not a flamboyant company. We're not here to overly impress anybody, but we're not here to disappoint anyone either, right? Our responsibility is to make sure that we share forward-looking forecast very responsibly. And I think that's -- I would say it's conservative and responsible as opposed to unambitious. But you're right, we, like you, see a lot of opportunities for growth and the growth is just beginning. So yes, one could argue that it could be more, and it would be a great argument to have. But also, let me remind you, we, as a country, are famous for throwing on GST rules overnight. We're famous for doing demonetization. We're famous for putting legislation in place, right? There's a lot of variables that come into operating a retail business across the country. We have stores today that are operating in a curfew town. They can only open for 4 hours. I cannot get product there. I have the airfreight product in there. These are the realities of retail in India, right? Retail in India is not the steady, steady keel even business. There are many, many behind-the-scene variables that we deal with operationally with deep attention on a day-to-day basis. So given that, I would like to just think it's a conservative and responsible number that you can safely model us on.

One last one, if I'm permitted. And just a thought, I wanted to check your mind on that. I understand that half our business is about INR 3,000 price point and roughly half below that, of which bulk of it is between INR 1,500 to INR 3,000. So really speaking, below INR 1,500, we have rather one-eighth of our business today. But when I borrow from...

Sir, I'm sorry to interrupt. May we request you that you return to the question queue for follow-up questions as there are participants waiting for the turn. The next question is from the line of Mr. Kalpit Narvekar from EFG Asset Management. And sir, please, I request to restrict to one question.

Sure. So it's, I mean, broadly too pronged to be honest. I mean, could you share some update, one, on the inventory issue you mentioned at the competitors. I mean, globally, companies like Adidas, Nike have had some inventory liquidation issues. Are you seeing pressure from them? Or are you also -- I guess there's also a big unorganized market. So are you seeing inventory pressure from the unorganized or the global brands? And in terms of like -- again, so on the SSG bit, you mentioned it's about 6% CAGR over longer periods. So do you think that once this space normalizes, let's say, 4Q then from FY '25, you can kind of return to that 5% to 10% CAGR -- because right now, I'm seeing like SSG Y-o-Y is like maybe minus 10%. So can it like inflect to positive after the base normalization to FY '25?

Okay. So as far as inventories go, I think everybody to some degree, has inventory pressure, right? We've taken ours in a different approach, and it's worked out well for us. But I think it's across the Board, everyone wishes they had less inventory because everybody got caught up in the euphoria of COVID. So that's definitely one. When we guide to 18%, somewhere in the 10%, 12% is going to come from new store growth, somewhere in the 6%, 7% is going to come from SSG growth, right, over a period of time. So I think that's what we're saying going forward as well. Does it have the potential to blip up? Yes, this is India, right? We know what we're looking at. We will be ready for it. Am I going to sit here and guide to a higher number than that? Probably not, Kalpit.

The last question will be from Mr. Sabyasachi Mukherjee from Bajaj Finserv AMC.

So when you talk about this 15% revenue growth, let's not get fixated on this number, but then largely, it is probably, as you said, that 10% to 12% could be a store addition CAGR and 6%, 7% kind of SSG that we are seeing. My question is, as you grow your store base, adding the same number of stores, let's say, 100 stores on a base of 800 or 100 stores on a base of 900, the percentage addition will go down. So are you planning to kind of upgrade your store addition guidance in the near future? That is question one. And question 2 is, on the 6%, 7% SSG, we are already at 48%, 49% of level of premiumization that is more than INR 3,000 SKU. Do you see any further headroom over here? Where do you see this number settling down?

Okay. So on the new store additions, the guidance we gave was for 2 years, right, at which point we'll come back with further guidance for the following years. So we're going to stand by what we said that 10% to 12% of that CAGR is going to come from new stores over the next foreseeable future, right? So that's -- what was the second question?

Second question was on SSG price point, go ahead.

Yes. So over INR 3,000 price points. I think this is something that is going to be -- continue to grow for two reasons. One is our distinct thoughtful effort to premiumize product. I think it's going to grow because the Indian consumer is starting to see value and also being able to afford there's more and more consumers coming into that set of the business. And it's also -- there's going to be price increases over a period of time. It's only 3% on an average basis, but it adds up, right, over a course of time. But I think there's significant growth opportunities in that price point still that we haven't capitalized on.

Got it. Last question, if I may, on FILA. You mentioned closing down -- almost closing down all the deals that we have currently by June '24 and leveraging the existing Metro, Mochi network going ahead. So what's your plan in terms of new store or new EBO opening? Are you planning to open new EBOs for FILA or going to kind of sell the FILA shoes through your Metro, Mochi network only? And also in terms of the athleisure, that also you plan to sell through the Metro, Mochi network or going to open new EBOs?

Okay. So let's -- the FILA network of stores, I think in late FY '25, you'll start seeing us come back with exclusive brand stores, right, for FILA. And that growth runway will start then. I think what we've -- if you earlier on, we mentioned that '26 will be the acceleration year. So I think you would see a disproportionate number of stores open up in '26 for FILA. So that's definitely going to happen. As far as athleisure goes, we sell some athleisure products in our Metro, Mochi stores. We think as that category gets bigger, it will probably require more and more room. And our Metro, Mochi stores are so productive, we don't have much room to spare. So we'll have to address how best to address that market as and when we get there. Right now, we have huge opportunities of growth in our FILA and footwear -- in our FILA and Foot Locker business, along with our Metro and Mochi core business units.

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

Thank you all for joining us. I think Metro continues to have a steady hand at its performance. And I think we're very excited about able to maintain our past our EBITDA numbers. We look forward to speaking with you all at the end of Q4.

Thank you. On behalf of AMBIT Capital, that concludes this conference. Thank you for joining us and you may now disconnect your lines.