Metro Brands Limited (METROBRAND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Metro Brands Limited Q4 FY '24 Earnings Conference Call hosted by Avendus Spark. 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. Tejas Shah. Thank you, and over to you.

Thank you, Yashashri. Good afternoon, everyone. On behalf of Avendus Spark, I welcome you all to Metro Brands Fourth Quarter 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, CEO; and Mr. Kaushal Parekh, CFO. Without taking any further time, I would like -- I would now like to hand over the call to Mr. Nissan for his opening remarks, followed by a Q&A session. Over to you, Mr. Nissan.

Great. Thank you, Tejas. Good afternoon, everyone, and thank you for joining, and welcome to our Q4 FY '24 earnings call. As you're aware, for Q4, we reported an 11% stand-alone year-on-year growth, which resulted in a 17% growth in our PAT. Additionally, for the full year of our stand-alone Metro Brands business, we grew revenues by 11% year-on-year with a 5% growth in our PAT. I'm pleased to report that we were able to grow our business in double digits while going against aggressive comparable sales from last year from the post-COVID bump. The Q4 year-on-year growth in profitability is attributable to our improved gross margins of 80 bps and improved expense controls over last year. In Q4, we demerged the Fila business from its subsidiary company and merged it with Metro Brands Limited. To ensure transparency, we have shared additional information that shows our comparable stand-alone numbers, the go-forward business with Fila in MBL and the consolidated numbers. In our business, we continue to see the premiumization of the consumer as our sales of products over INR 3,000 now represent half our business. In the quarter, we opened a total of 21 new stores while also exiting 11 stores, giving us a net addition of 10 new stores that made it 97 net new stores for fiscal '24. We closed the year with a total of 836 stores. And by the end of Q1, we'll have exited all but 2 of the Fila stores, which we do plan to retain in our go-forward initiatives. Going forward, we target to open a total of 225 stores over the next 2 fiscal years. Our e-commerce business continues to be on track as we grew 33% for the year while improving key metrics for profitability. I would like to switch gears for a moment and share the results of one of our key sustainability initiatives. In FY '24, we were able to recycle 50% of the shoes we sold. To give some clarity on that, we have set up an ecosystem of partners that collect used and discarded footwear to recycle it for other uses rather than take up space in the garbage landfills. This is one of the many initiatives implemented by our ESG team, and I'm excited to share that we have set a goal of recycling one pair of shoes for every pair that Metro Brands sells within the next 2 years. It's an ambitious goal, but one that we are committed to achieve. On the technology front, we're making significant investments to update and upgrade our tech platforms while also setting us up to adapt to the power and efficiency of Gen AI and robotic process automation in multiple departments in the organization. It is a revolutionary time from a tech standpoint. And as always, Metro Brands remains focused on being relevant and up to date on the tech that enhances stakeholder value. While FY '24 was an unusual year for like-to-like comparisons, I'm proud of the team for achieving our key metrics in line with our previous guidance. We do see this coming year to finally normalize in demand trends, though we anticipate Q1 to be affected with the lack of marriage dates in May and June of this year compared to over 20 dates for the same period last year and also store closures for a day spread over these 4 weeks to accommodate and support the national elections. So in closing, as with any retail operation, while there will be fluctuations and shifts of holidays and special occasions, we continue to guide to deliver EBITDA around the 30% range and our path to deliver a 15% to 17% range while adding new stores and formats such as Foot Locker to the Metro Brands organization. I would like to reiterate that the operational rigor and focus of the team continues to position Metro Brands firmly to take advantage of the immense opportunity of the Indian economy. With that, I'd like to turn it back to the operator to open it up for questions.

[Operator Instructions] We'll take our first question from the line of Abneesh Roy from Nuvama.

I wanted to check on your key format. What will be the plan in terms of store opening for FY '25? We are seeing some of the retailers expand quite aggressively, while some of the players have also taken a more cautious call given the current overall growth slowdown. If you could comment on the growth aspect in FY '25 and format-wise what's the store opening plan?

Abneesh, thank you for your question. We see opportunities in each one of our banners to grow stores, right? So we don't see any diminished opportunities in any one of the banners that we have, albeit some are a little bit more penetrated than others, especially when you compare Crocs to Fitflop. Crocs has been around for 10 years plus in our organization, and then Fitflop is relatively new. Having said that, though, how we would like to look at our business is we will open as many stores that makes sense. We're not here to hit a target, albeit we guided just in my opening comments to opening 225 over the next 2 years as a directional position. We will capitalize on every opportunity there is out there. Unfortunately, the real estate availability is not totally predictable. And neither is it something that you want to do on a certain pace and scale simply because then you'll end up signing some leases that you probably shouldn't have signed. And don't forget, these are long leases of 9-plus years. So we're not in any hurry to open them, but we will open all the right stores that come our way.

Right. And in terms of Fila, I think the turnaround is taking a bit more time. So in second half of FY '25, should we expect that store addition will start a bit more aggressively?

Yes, it's important to note that the turnaround has only taken a little bit more time because of the BIS issues we had. We just wanted to pause to see where that went. We knew that it would be good for us to have those requirements in place. But at the same time, we needed some clarity on what that looked like and how that looked like before we went ahead. We're pretty much on pace. I wouldn't say we're tremendously behind pace. We're pretty much on pace. We're down to 3 stores in Fila, of which 2 of them we plan on continuing, right? As far as the new store growth, sometime late Q3, early Q4 is when we would say that we would start the growth of Fila stores specifically.

We have next question from the line of Shirish Pardeshi from Centrum Broking.

Congratulations for margin recovery. Two questions in the beginning. For FY '24 and specifically quarter 4, would you be able to share number of pairs or some volumetric number across formats or overall?

So on an overall for the full financial year, we sold approximately 15 million products. If you take footwear, it was around 10 million. I'm just giving you broad numbers for the year.

And which particular format has seen a higher growth because I think now we are seeing that 50% growth is coming from INR 3,000 plus, but any particular format, you will see the growth is much higher or ahead of competition?

I think what we see is really as the demand cycles come through or the seasonal cycles come through, for example, there was lots of weddings in the previous year, so the wedding business did as well. So to say that there was pent-up demand for weddings that also resulted in pent-up demand for wedding shoes, right? So when you see that flatten out a little, it's not necessarily indicative of consumer demand, it's more a cyclical thing, right? So what we are seeing, though, is that people still want premium products. They have aspirations in mind that they think they'd like to shop in stores in the organized sector. All those indicators look favorable to all our businesses. And when you say who had the bigger growth in units, they all have different numbers of stores out there, right? So it's the base. But overall, we're seeing the trends of casualization of footwear continue. If I were to pick on trends, that's continuing definitely. And we are also seeing the shift to athleisure and athletic inspired products. And so we're seeing those 2 shifts happening. But it's not necessarily coming at the cost of this particular segment of business. We're just seeing some categories grow slightly better.

Okay. That's helpful. On Slide 14, I'm referring the revenue per square feet. Largely, we have remained in the range of about 5,000, 5,100. This quarter it has come about 4,800. So if I build saying that now the contribution from INR 3,000 plus is going to go up, what this number will look like in FY '25?

So I think -- let me give you some historical point of references on this one. If you go back to FY '19, and I know you're going -- why we're going back that far, but that was the only -- that was the first year without COVID, right? When you go back to those -- that year, we ran at 17,500 for the entire year, right? Last year, we ran at 18,700 for the year, correct? So when you look at that growth over that period of time for square footage, it's considerable, right? Now what you have to remember is I'm trying to take out and flatten out the COVID dip and the COVID bump. But this -- when you look at this growth, I think it's quite remarkable when you look at the fact that during the last few years, we've accelerated our growth of Metro and Mochi stores as compared to the previous years where we were very reliant on growing just the Crocs stores. Crocs stores come at a much higher sales per square foot, whereas Metro and Mochi while they do much more volume per unit store as a banner, they don't have the same per square foot metrics as Crocs does. So a lot of it has to do with the mix. And then all your new stores don't always come up to your average performance in year 1. And we've opened well over 200 stores in the last 2 years. When you look at all those factors, that's an admirable record of growth to maintain from 17,500 to 18,700 this year, right? And there's no reason for us to believe that on a long-term basis, so you may not look at it and see it quarter-to-quarter, but on a sustainable long-term basis that we should be able to continue that growth. Mind you, we have one of the highest realizations per square foot in the industry, right? So when you're flying at the edge of the atmosphere, it's not like we're going to have a rocket ships take off from there. But we're confident that we're not going to see much erosion in that number. And we think that growth is -- if you look over the 5-year period, that is a pretty reasonable growth trajectory to assume for the next 5 years.

Wonderful. That's really helpful. And one last question on the margin story. You maintained in the beginning saying that we will especially maintain the margin at 30%. But then the question here is that with BIS getting settled maybe another one quarter, do you think the inventory correction will happen and then we will normalize with that inventory, so it's all boiled down to the top line growth. So if we build the top line growth double digit, do you think this margin guidance is little reserved?

I think as retailers, you know, we're very conservative in how we approach our business with a lot of discipline. I would say it would take us probably 2 quarters to where we feel comfortable with all the BIS regulations and our inventory position to get it in line to where we want it to be, at which time we would see that maybe start to help EBITDA. But equally, what I found, Shirish, is when one lever comes up, the other one goes down. This is retail. There's 95 levers that we're watching at the same time. So for me to say that one lever is not going to be 100% accretive to our EBITDA. I think that's just putting too much on one lever.

We'll take our next question from the line of Umang Mehta from Kotak Securities.

I just wanted to try to understand how the underlying business on an organic basis has done. So would you be able to share on an annual basis what are the sales or EBITDA of Cravatex brands?

So Umang, we have shown numbers without Fila and then after giving effect of Fila demerger. So if you basically subtract the numbers, it's basically Fila performance that you can sort of identify. For the year, this is not representative of what to expect going forward. because obviously, as we have clarified earlier, we are in the phase of liquidating excess inventory that we had with Fila at the time of acquisition. So numbers are there, but it's not representative of what you will see going forward. Another important point, we are -- till last year, growth channels were a few large-format stores, e-commerce and SOR sales directly to the marketplace. We are coming out of some channels and we'll be predominantly focusing on EBOs selling via Metro, Mochi and dot-com website. So you will see change in the sales mix and the margin mix as we move ahead over the next 2 years.

Understood. And the second question was on Crocs. So this new agreement, which you signed up, what was the rationale for Crocs not giving right of first refusal in North and East? And will this by any chance hamper your store opening plans in that brand?

I think the rationale is very simply this. We have -- first right of refusal is not as good as an exclusive right, right? So it means that if we turn something down in any territory, somebody else could take it on because it might make more sense for them. So from that standpoint, it's much more attractive to have an exclusive territory than just the first right of refusal. So that's number one. Number two, equally, I think Crocs also wants to mitigate some of their exposure and just have some more partners run their business. And so we were able to retain what we believe are the best 2 growth areas, which is the South and the West of India for Crocs. As you know, it's summer year-round in both those territories. So we think it's a great win. And you must remember that it's a great partnership. They not only did all that, but they also extended it by an additional 3 years. So we have a 12-year agreement with them, albeit with dates and gates.

Understood. Understood. That was helpful. And just one last, if I can ask a bookkeeping question. What would be the difference between pre and post Ind AS EBITDA margin for full year?

The delta would be around 8.59%.

We have our next question from the line of Abhishek Getam from Alpha Invesco.

So my first question was on Walkway. So I see in the presentation that in this quarter, we closed around 4 stores in Q4. So just wanted to understand what has been the update on Walkway. And I see also that most of the stores are concentrated in West and South. So any strategy to expand in North or East in Walkway?

So just to give you an overall perspective on Walkway, we believe that Walkway has tremendous growth potential in India with the format it offers. So that's the first thing. The second thing is we wanted to get the concept totally right and make sure that it is set for growth. So we've taken the last 18 months to reset the business. That reset involves 2 significant aspects. One of them is to exit almost all our franchise stores, which is why you've seen the store count go down. And also maybe rationalize a couple of stores that we believe didn't have the right location/precinct for Walkway. Having said that, though, I think that that's fundamentally what you saw there. What was the second part of the question there, Abhishek?

Abhishek, another point, for Walkway since it's a brand with 65 stores, we would want to follow cluster strategy, and we are focusing on West and South to start with. And obviously, West and South are areas where even currently, our presence is slightly better as compared to North and East. So that's a strategy. And obviously, it's a long journey, right? We would first want to strengthen in West and South and over a period, then cover North and entire part of India.

Okay. Understood. I was coming to the question in the sense that are we strategizing Walkway openings in a sense that we maintain the overall ASPs of the company or Walkway strategy is completely different or is not reliable on what Metro is doing at the overall level?

It has nothing to do with Metro level, right? It will be considerably different than the Metro level in a lot of metrics, including that of ASP and which is why we've been ensuring that we understand that model fully well before we start expanding it. But it's not going to be accretive in any way to our ASPs at all.

Understood. So another question was in the opening remarks, you did mention the impact of elections. So if you could go more deeper on what has been the impact you're seeing in Q1 because of elections and heat wave combined?

Well, the only impact I'm referring to is the fact that our stores closed for the day while there's elections. Some of them closed for the full day, some of them opened up late in the evening. That's the only impact I'm referring to.

Okay. But you're not seeing any delayed buying as such in those areas or anything because of heat waves in North, people not coming out?

Elections are nationwide. So I don't see any difference anywhere else. It's just the fact that I wanted to call out that we will lose 836 shopping days in our company because we have to support it, right? It's a national thing that we want to support and stores will be closed somewhere up to a day, no more than a day, though, but up to a day, they might close to support it.

Understood. Just a last question. So earlier, by having a conversation with the participant, you mentioned that until FY '19, we were sort of opening a lot of Crocs stores and now the openings are filled on Mochi and Metro side. And even in that case also, we've been able to grow our per square feet realization. So I just wanted to know, now going ahead, we'll be opening a couple of Fila stores and also Foot Locker stores. So that should also give impetus to per square feet realization, right? I mean, in FY '26 or '27 sort of?

Correct. We see Foot Locker and Fila being accretive to certain metrics, especially that of ASP in both those cases to the rest of our business. There's other metrics that may not be as accretive. But overall, we see them as great additions to the Metro Brands portfolio. And to answer your question, we actually -- and as I said earlier on in the call today, we see growth opportunity for each of our banners. So it's not like we feel that some of them have limited opening capacities or the other. But don't forget, every banner has different reach into India, right? Fitflop is not going to be in 500 cities. It's just not the way that works. Neither is Fitflop. Metro is going to be more than 500 cities someday.

We have our next question from the line of Videesha Sheth from AMBIT Capital.

My first question was on the online channel. Last quarter, you had mentioned that online sales mix was impacted due to some transitionary issue related to the warehouse and order management system. I wanted to understand the reason for further reduction in online sales contribution from 8%, 8.5% in 3Q to 7% in 4Q. And just as a follow-up to this question, is this lower mix from online in any way contributing to improvement in gross margin?

Okay. So first of all, when you look at FY '23, the omnichannel business and the e-com business was 7.9% of our business. When you look at last year, it had actually grown to 9.5% of the business. So -- or when you look at it over a period of a year, right? We did have a tough quarter 3 because of the tech issues that we've now, through Q4, have been able to get past most of them. But let me remind you, we were up 25% in e-commerce in Q4 and 33% up on the year. So these are strong numbers on e-commerce on a business where we've invested in it. And just as a point of reference also, 9.5% makes it the highest year of e-com business higher than that of the COVID year, right? So I just don't see what you're quite seeing, Videesha, but to answer your other question, we do want to continue to improve our margins/reduce our discounts and improve our operating efficiencies. But I think that's -- everybody that's in the e-com space should be trying to do that, shouldn't be unique to us.

Okay. So going forward, the mix from this channel should largely be in the existing range of 9% to 10%. We don't see further improvement from there.

For 2 reasons. I think there's a couple of reasons for this. First of all, you can wear a shirt a little bit loose, but it's very hard for you to wear a shoe a little bit loose or a little bit tight, right? So the need to go to a store and try on shoes is quite high in our business. The second part is you know that we are growing the rest of our business as well. If the rest of the business was stagnant, then I think you'd see e-commerce starting to take a bigger piece of the pie. But the rest of the business is as robust and growing. So overall, we think it's going to tick along at that rate. And to be quite honest with you, we're quite happy with that rate. We might want to -- as Kaushal mentioned earlier on, for Fila, we might look at how we go about it. But overall, that's about the range you can kind of forecast for us going forward.

Understood. Understood. And the second question was on the excess inventory of Fila. Last earnings call, you had mentioned that there was approximately INR 30 crores worth of inventory pertaining to FILA. What would the value be as of now? And do you believe any kind of provisioning would be required for the same in the future?

Videesha, the number is around INR 17 crores. And we have made all the provisions that is needed to ensure that we are carrying that inventory at the right value. We expect to realize more than the value at which we are carrying the inventory in our books.

Got it. And lastly, what was the revenue share of end of season sales for 4Q in FY '24?

For the full year, it's around 7.9%, so around 8%, whereas our long-term range is around 9%, 9.5%.

Okay. And for 4Q, it would be higher than 8% or...

Yes, yes, because obviously, EOSS comes in Q2 and Q4. For Q4, it was around 12%.

We have a next question from the line of Saurabh Kundan from Goldman Sachs.

Can you hear me?

Yes.

Yes. So my question was around Fila. Could you please provide us any updates on that business on sports SBU actually, what kind of team you're putting together? And since you're opening some stores towards the second half of this financial year, would you give us an idea of what are the store sizes, merchandise mix and maybe the kind of locations that you're targeting? And the second part to the question is, have there been any learnings yet on the acceptance of the brand? I'm asking this because I believe there is some -- has there been some new merchandise also that's launched at least online? And how are the consumers reacting to it?

Great. Thanks, Saurabh. Let me answer the 2 questions you asked. We put together an outstanding team for Fila. I don't know if we've announced this before specifically, but Alisha Malik, one of our promoters, now is President of our Sports division and is responsible directly for the FILA business and has been for the last 7 to 10 months in that business. And behind that, we have a team for Fila already in place, right? So that's number one. Number two, as far as the acceptance of the brand, what we liked about Fila is the awareness of Fila in India is very, very high. What we knew to be a challenge was the relevance of Fila, right? So what you will see with the new product, I don't want to make a blanket comment yet, but it's on pace with how we want to test products, right? So you want to test and see what resonates, what doesn't resonate. So all I can tell you is the little that we've tested, we believe it's getting us on track to do the repositioning for Fila this year.

Right, right. The last question is actually around the base. So last quarter, you were on a high base for the overall business. And do you think you have lapped that now? I mean the 11% growth that you had this quarter, is it despite the high base? Or is it the underlying growth that's there in the market right now?

Yes. No, it's really despite the high base, right? Because we could tell when I saw -- when I looked at the FY '24 numbers on growth, any week where we had a high growth last year, we had muted growth this year, right? So that's number one. And we are able to track it literally by categories. And as I alluded to it, if we see any base issues, it will be from shifts of holidays and wedding days, right? So May has 0 wedding days compared to -- I believe there were 11 wedding days last year, and June had an additional 11 or 13 wedding days and this year, we have 0 again. So you will see that shift in that business, right? But overall, we are seeing, as I mentioned earlier, the growth of athleisure, the growth of casual footwear. That continues to be right on pace as we'd expect for an economy that's growing the way we are. It continues to be right on pace when it comes to the selection of premium products versus the not so premium products. So all of those indicators stay intact, and we have to read through the little fluctuations of the cyclicality or the seasonality of our business.

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

Sir, my first question is with regards to the discounting because the discounting this year was around 7.9% to 8%, which has been higher versus, I think, the 5% to 6% we are doing in the last couple of years prior to this. So do you think some bit of the premium contribution that we are seeing is also getting masked because of the higher EOSS contribution this year?

Gaurav, can you please repeat your question, the second half of it? Sorry, there was some disturbance in the line.

Yes. So what I was trying to ask is, given that the discounting at approximately 8% this year was higher versus the 5% to 6% we have seen in the prior 2 years and the contribution for the premium segment has been now 50% plus. So do you think the premium contribution is somehow masked by this EOSS sales?

No, I would say -- let me give you some historical data there, Gaurav. First of all, in FY '19, the number was 6.68%, right? So you can't look at just 1 year, but we're not seeing that because it's premium product, right? We've also hedged a lot of inventory from time to time if we anticipate price hikes on raw materials, sometimes your costs go up, so you have to take increases. But that's not a reason that we are seeing the discounts. And I hate to tell you this, but most retailers would give their right arm to run that kind of a discount rate. So when you're operating on very thin numbers, I think you might be trying to read too much into a fluctuation in that number.

No, no, no, Nissan. So what I was trying to ask is, given that your premium contribution is increased, I mean, the products that are of INR 2,000, INR 3,000 and above, that contribution has increased. So ideally, that should benefit the gross margin. And I'm saying the entire benefit of that is not reflecting maybe just because of the couple of percentage points increase in the EOSS on a Y-o-Y basis.

Our gross margins -- gross -- I think the way to measure that, Gaurav, is to look at the gross margins, right? Our gross margins for Q4 were 58%, right, compared to 57.2% last year, right? If you look at it overall, we stay in the range. And that's what I'm trying to say. In that range, there's a mix of -- because we improved gross margins and you take a couple more in discounts. That's not necessarily related to the premiumization of product is what I'm trying to say, right? It's a balance. And again, it's very hard to just pull one lever and say, is this the lever that drove it? Or is this the cause of it in retail? It's seldom is that, but unequivocally, I can tell you that I would not look at our data from last year and say it was because we sell premium products that our discount rate blipped up a little bit last quarter.

It's a combination of many factors. And generally, the way we work is our gross margin doesn't significantly change with MRP. On certain products, it may be high, on certain products, it may be low. So it's a mix change as well that impacts the overall gross margin that you see.

Okay. Sure. And the second and last question is with regards to -- if you look at the revenue per square feet, so that has kind of on a Y-o-Y basis, been lower. Despite that, we have seen good margin expansion. And to an extent, we don't see any impact on the margins. So what would you allude this? It is more the variability nature of our model or it is more operational efficiencies that we are driving in?

Well, there's 3 things that I would say. First of all, is the mix of stores, right? So like I keep saying, it just depends on the mix of stores you open. If you open a high number of Crocs stores 1 year and not so many the following year, you're going to see a degradation, but that doesn't mean you're less productive in the format that you open. So that's number one, right? We also open new stores. And our new stores don't always -- a lot of times don't come to the full average revenue per square foot at that rate. They take a while for them to mature. So that will be the second driver when you look at it. Fundamentally -- and then the third, but not the least also was the year you're comparing it to was a COVID bump year, right? If you compare it to the COVID dip year, it would look amazing. If you compare it to the COVID bump year, it doesn't look as amazing. So you've got to look at it over a period of time, which is why at the start of the call, I made it a point to point out that we've grown at a good rate from 2019 despite opening a number of new stores, despite opening a lot of stores that were not crossed in that period of time. So you've got to look at things a little bit at a broader range like we do at Metro. We look at things for the next 5 years as opposed to the next 5 weeks.

And Gaurav, just adding to what Nissan said, which he had mentioned in his opening remarks, better flow-through to EBITDA is also on account of slightly better gross margin, around 8 basis points and improvement in overall efficiency in cost management, which is around 0.5 to 0.6 -- basis points, sorry.

The next question is from the line of Tejas Shah from Avendus Spark.

[Operator Instructions] So Nissan, in most retail acquisitions, inventory-led surprises are common. So would you say that the delay in liquidating Fila's inventory is a kind of indication of what we encountered on inventory quality versus what we anticipated during the due diligence?

You always think you leave enough provisions for that. But to your point, Tejas, there's always a little bit -- I think everyone is a little more optimistic and then the truth is not always quite optimistic. But I would say the larger part of that has been because we decided that we were going to exit some channels of business sooner than later because they were extremely unprofitable to do it. So that slowed down our liquidations. But at the same time, had we continued that, it would have come at a much higher cost to profit than it would be to bring that product and take another quarter to liquidate it, as Kaushal mentioned earlier on, at a price higher than your cost price on your books, right? So I think that was the primary driver to it.

Sure. And the channels that you're referring to are large format stores?

We don't like to call out any channels in particular, but there are some channels that we know are less profitable than others. So going forward, we want to focus on our own EBO Fila stores and of course, our Metro, Mochi multi-branded stores and the e-commerce channel, our own dot-com sites because as anybody would tell you, those tend to be your most profitable channels. So everybody else comes under various grades of not as profitable.

Sure. Nissan, you spoke about how this quarter is devoid of any marriage dates. But I just wanted to understand, we had Eid also in this quarter, and we had perhaps 11 days prior to Eid also falling in this quarter. So how does Eid play out? And does it compensate to some extent loss of marriage days not being there in this quarter?

Yes. So first of all, Eid was very early in the quarter. So the impact of Eid was really felt might have gone more into the previous quarter for those stores that do get a lift from it, right? So the lack of marriage days, I'm really speaking to is in Q1 of this fiscal year. So -- and we're not going to see the uptick from Eid because it was -- I think it was 11 days off, slightly earlier. So the bulk of it, if anything, would have gone a little bit more in favor of Q4 as opposed to be in favor of Q1.

We'll take our next question from the line of Jasmine Surana from VT Capital.

Congratulations on a good set of numbers. When we're studying another company in the footwear sector itself, they mentioned that they are seeing some revival in the rural sector with open footwear picking up. I understand that you're not playing in that segment, but do you see any changes in the premium end of the footwear segment? Are there any changes in terms of buying behavior or trends which are visible?

Yes. You know what, we're not seeing anything. As you said, Jasmine, we don't play in the rural sector. But when it comes to open footwear, we are seeing the customers being more discerning. When you look at my stores that are in Tier 3 cities, 15% of the stores do 9% of the business. If I look at it from a year-on-year comparison, it's up 100 basis points in terms of percentage of business, but it's also up 100% in terms of -- 100 basis points, I mean, in terms of share of store count, right? So I wouldn't say that I would be reading that as a distinct growth happening there for us at least.

The next question is from the line of Saurabh Kundan from Goldman Sachs.

I think I missed one question earlier on Fila, which is I wanted to know the 2 stores that you are retaining. What made you decide to retain those 2 stores? Is it the location? Is it something else? And also, I think a part of my question earlier was the stores that you're going to open, could you give us an idea of the size and merchandise in terms of at least footwear, non-footwear in those stores?

Right. So the 2 stores that we are going to retain are in the Mumbai area, Saurabh, because they become your test platforms, your test tube babies right close to you. You're able to test for a lot of things. They also have a variety of consumers between the 2 malls. So we're able to see which consumer is resonating with which product. What we want to do there is test our footwear and apparel. And because we don't sell apparel in metro brand stores, we needed the lab of 2 stores to be able to test apparel and see how it does with consumers. So that's the answer why those 2 stores and why we want the lab stores to exist and why they exist the way they do. As far as the store size for these kind of EBOs go, the ideal size is somewhere between 1,200 and 1,800 square foot because it carries footwear and apparel. So that's about the range. And like with any brand, you want to start off with your Tier 1 metro cities and then work your way through the country. The good news is when we look at people in the same space, they have upwards of 300 stores across Tier 1, 2 and 3 cities. So at some point, that would be something we would want to do for Fila as well.

We'll take our next question from the line of Tejas Shah from Avendus Spark.

Yes. A couple of follow-ups from my side. So Nissan, on BIS, how should we think about growth or profitability getting impacted and more importantly, inventory levels getting impacted in FY '25 from this?

So from a profitability standpoint, it's not impacting at all, right? Because as much as people think it's going to add more complexity to it. It really doesn't, right? It's just a matter of ensuring that you're following certain processes and doing some certain testing as well, right? So we don't see that impacting profitability or cost or input cost to the product, right? That's number one. Number two, I don't think it's going to clear out in total for the next 12 months in the sense that there will still be some remnants to be -- some loose ends to be tied up. It's a massive project that the government has undertaken, and it's a massive project with massive benefits, but it's not going to be done and dusted in a matter of x amount of weeks. So I think it's evolutionary, Tejas, and we just need to watch where it goes. I would like to tell you that, as I mentioned earlier on that 2 quarters from now, we would be past it. But at the same time, we're monitoring closely because what we need to ensure is that we have the right product in our systems to make the sales. So we keep monitoring it because there are additions to this BIS -- I shouldn't say additions, clarification is probably the better word to the BIS every so often. So we just watch the next one, and we base our decisions based on what we see there.

Sure. And the last one from my side. When you look at the inventory at the system level, not only with us, but at a very broader industry level basis, do you worry that we might enter into a very hyper discounting year if the growth does not turn out to be the way industry is anticipating today?

Yes. I think we've seen that in the past, right, with a lot of retailers that are overstretched. The reason why retailers do that is you are overstretched in inventory and you're short on cash, right? We try not to do both of those, right? So any time we hedge our inventory for BIS or for raw material hikes, we do that very, very carefully, and it's reflective on our gross margins that we've been able to maintain our gross margins in the sales of the business. So I don't foresee that to be an issue for us. We just got to continue to keep monitoring it.

We'll take our next question from the line of Anushka Chhajed from SMIFS.

I have 2 questions. One, I wanted to know the reason for 10 store openings in Q4, which is relatively lower than our past record of quarterly store openings. And the 225 store guidance that we have, does that include Fila and Foot Locker?

Let me take the easy one first, or the simpler one to explain. First, the 225 does not include Fila, but it does include Foot Locker, okay? So that's part B. Part A, I do want to put in perspective that number. We opened actually 21 new stores in the quarter, right? And we guided to 100 stores for the year. So it was right in line with our guidance. So that's number one. Unfortunately, as timing would happen, we closed 11 stores in the quarter. And that is not -- that is an unusual number of stores to close because for the whole year, we only closed 21 stores -- closed or relocated 21 stores, right? So out of 21 stores, we did most of those, over 50% of that in Q4. So that's why you're seeing the net 10 store growth. I would like to still point out, though, that for the year, we opened 97 stores. So we were aware of these store closures. It's not that we were unaware of it, but you don't predict all the new store openings. We would have definitely -- not that it makes a difference between 97 and 100, but we would have exceeded it, except we had a couple of malls that are still not opened on time that were scheduled to open on February. We had a few malls that will now only open in Q1 and some of them as late as Q2. So it's really a timing issue. It is not a matter of us trying to, in any way, look at store openings differently at all.

Okay. I have just one more question on the BIS standards. So we hear that companies are unable to import certain high-end international brands as well. So will that pose any difficulty for us in acquiring inventory for Foot Locker?

You did hear correctly, and that is one of the reasons that even our Fila repositioning is taking a little bit longer. Yes, that is an issue. I think it's an issue that we can resolve at some point in some way, shape or form as it's not that that's going to be the permanent position on it. What it requires is some steps for that to happen, and those steps are taking time. So it's not a permanent outcome of BIS. It is one of those things that will be rectified. When all the parts of the BIS, including factory inspections are being done as scheduled, right, as the scheduled demands, I should say. So yes, and that could potentially, in some way, have a little bit of an issue with Foot Locker openings, but there's plenty of opportunity for us to grow that business.

Okay. Any time line, sir, close to 6 months, 12 months, how much time it may take for the issues to clear?

I think optimistically, I would say in this fiscal year, sometime it should be cleared. But as I mentioned before, it's a huge project that has been undertaken with huge benefits and huge projects that involve multiple levels of the supply chain take a while to execute, especially where everyone is trying to do it the best way possible.

Okay. Just one more follow-up question on Foot Locker. So we -- I believe we will have Nike products in our Foot Locker stores?

That's correct. One other thing, Anushka, Kaushal wanted to add.

Anushka, I just wanted to add to what Nissan said. This non-clarity on BIS to a certain extent is also one of the reasons for FILA repositioning, the delay of around 2, 3 -- around 2 quarters that we have seen because of confusion in terms of the vendors need to get registered under BIS and it's taking longer. Initially, it was implemented on 1st and now it is -- the implementation is deferred till 1st of August.

We'll take our next question from the line of Videesha Sheth from AMBIT Capital.

My questions have been answered.

The next question is from the line of Rajiv Bharati from DAM Capital.

Sir, this is regarding this some footwear parks being set up in Southern India. And we do import some of these stuff. So in case of, let's say, you -- instead of importing, you in-source it from -- I mean, from domestic thing, the eventual landed price, will that get -- I mean, is there a case of that getting reduced?

Yes and no, right? In some cases, yes, it might get reduced. In some cases, you're still buying raw materials and other pieces from abroad. So now all of a sudden, you have a supply chain that has a much longer lead time, a much longer issue. So it's up and down. But the fundamental thing, Rajiv, is, yes, you're right. There's a lot of shoe manufacturing and PLI for shoe manufacturing happening in Southern India. And the fundamental thing is it's nothing significant that we can see today in terms of cost. either way up or down.

So particularly, for example, for Crocs, let's say, does it accrue to us or let say, Crocs India, I mean, the effective price for us remains the same?

The effective price for us is the same with Crocs, but with almost all of the brands -- well, obviously, in our own brands, it flows directly through to us or certain licensed brands. So all the Fila licensed products we make will flow through to us. Yes. Just one other thing, Rajiv, just to add, the reason why I'm not in any way thinking that there will be spikes in profitability or spikes in pricing is because the footwear ecosystem takes a long time to set up, right, before you're able to get efficiencies of scale. So while you might save on some duties on imports, you're still importing a lot and you're double touching things because you're buying from 10 different sources because the ecosystem has not been set up and it takes a while to set up.

So the duty arbitrage is not good enough, for example, purely in terms of pricing it more sharply in India? I mean is there a case for that?

So no, I mean, it isn't. It's really about ensuring that we have the capabilities to do it, right? So if you don't have the capabilities to do it, you're importing it. It's not like we're making luxury cars cheaper in India, right, because of duty arbitrage. By the time you bring it all in, I'm guessing, I'm not in the car business. But you get my point. It's not as simple as that. And the duty arbitrage from China is significant. The duty arbitrage from Vietnam is not at all significant. It's 5%. So it's barely the cost of freight.

Sure. And with regard to this discounting thing, which you mentioned, close to 9%, this is for -- I mean, for all your brands barring -- I mean, Indian brand plus Skechers, Crocs, Fitflop, right? Because everything else is SOR.

Yes. Well, no, no. When you say everything else is SOR, almost 85% of everything I sell in the ecosystem of Metro brands is not SOR. It's my business, right? So even Crocs though it's an international brand it's not SOR. I have to take care of the discounts, right? Fitflop, same thing. Fila, same thing. Metro, Mochi, Walkway, same thing, right? So it's a significant -- I think what you would see is that number is reflective of the discipline of our business.

We'll take our next question from the line of [ Sunny ] an individual investor.

Am I audible?

Yes.

So just -- it's maybe a difficult question, but when do you expect to return to your normal long-term 10-year growth rate of around 18%, so by this -- by FY '25 or even further?

So I think if you -- first of all, Sunny, thank you for that question. If you aggregate the last couple of years, we are there, including this year, right? Now just because this year, that 1 year, we didn't, what we've always guided to is on a long-term basis, we are confident that we can grow to 18%. This year, as we get past the COVID bump, as we get past some of the fluctuations of business, we should be able to get right back on track with that revenue growth, so of 14% to 18%.

Okay, sir. And lastly, when do you plan to open your first Foot Locker store in India?

Yes. So we're targeting, if all things go well, to open in late October, early November.

Ladies and gentlemen, that was the last question for today. On behalf of Avendus Spark, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.