Metro Brands Limited (METROBRAND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Metro Brands Limited Q3 FY '26 Earnings Conference Call hosted by Avendus Spark. The management is today represented by Mr. Rafique Malik, Chairman; Ms. Farah Malik Bhanji, Managing Director; Mr. Nissan Joseph, Chief Executive Officer; Mr. Kaushal Parekh, Chief Financial Officer; Mr. Mohit Dhanjal, Chief Operating Officer. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Tejash Shah from Avendus Spark. Thank you, and over to you, sir.

Thank you, Muskan. Good afternoon all. On behalf of Avendus Spark, I welcome you all to the 3Q FY '26 Earnings Call of Metro Brands. I'll now hand over the call to Mr. Nissan for the opening remarks, post which we'll open the floor for Q&A. Over to you, Nissan.

Thanks, Tejash. Good afternoon. Thank you all for joining, and welcome to our Q3 FY '26 Earnings Call. As you are aware, we posted a 15% growth in our stand-alone business and our consolidated business. It was good to have a quarter without any unusual events or any offset from the year before. We keep Diwali and Wedding season perform well, and we are pleased to see that the traffic stays steady, both in our online and offline channels. Despite a slightly early effective Puja's season that fell into Q2, I'm pleased to see that sales did come through with a strong mid-teen percentage growth, and we crossed INR 800 crore mark for the first time on a consolidated basis. The GST benefits continue to help specific parts of our business and our ongoing focus on premium products kept our sales of over INR 3,000 at a 55% share of business. I'm also pleased to see the consistent growth from our multiple e-comm channels with our digital commerce business as it grew 4% and now reached a 12% share of our total revenues. On the EBITDA side, we grew by 16% for the stand-alone and 18% for the consolidated business, and we delivered a 33% EBITDA for both. On the PAT front, Ind AS accounting and a INR 3.3 crore accrual for the new proposed labor code from November 2025 dampened our PAT, which is offset by a onetime tax charge in the same quarter of the previous year. Nonetheless, our PAT grew by 33%, and we achieved 16% for the quarter for both the stand-alone and consolidated business. We opened 35 new stores this quarter and closed 11, bringing our total new stores this fiscal year to over 100. Additionally, we are excited to announce the launch of 3 new MetroActiv stores. These stores are designed for athletic performance seekers, featuring brands like Nike, New Balance, ASICS and FILA, along with workout apparel to provide a complete experience. We'll continue to invest in and refine this concept over the coming quarters. Meanwhile, our Fitflop stores will continue to cater to lifestyle sneaker fans, which is a different customer segment than the performance sneakers. As I mentioned on our previous call, our new Clarks partnership is off to a great start, and we plan on opening Clarks stores around Q3 of this coming fiscal year. In closing, I'm pleased to see our business improving steadily and growing with double-digit increases and more importantly, our key metrics of EBITDA impact staying consistent to our guidance, while we continue to invest in marketing initiatives and a significant amount in our new stores. Our differentiated banners, each with the runway for growth positions us well to cater to the complete footwear wardrobe of the Indian consumer. With that, I would like to turn the call back to the operator and open it up to Q&A session.

[Operator Instructions] The first question is from the line of Gaurav Jogani from JM Financial.

Congratulations on the strong set of numbers. Nissan, we have been seeing a slowdown across most of the discretionary consumption in Q3 also because of early Q2 and early festive that has occurred in Q2, but you completely are defying the trend. So what has really helped you in this? And how confident are you of sustaining these trends going like this?

Well, I think the evidence is in the numbers that we've now had our third quarter of double-digit growth. So we see business trajectory headed the right way. There's a lot of initiatives that we put in place in almost all of our banners to see how we can continue that growth trend. We don't see anything significantly one way or the other that should dampen this or a massive tailwind coming our way necessarily either. As always, we just see consistent growth happening, and we hope to see these numbers continue. We see no reason for these numbers not to stay in the range that we've always guided to.

And sir, one of the issues in the past for us had been the store openings, the stores openings have also really picked up. So any guidance or anything that you can guide us towards the store opening, can this be the new normal in terms of store opening? And in addition, with the new formats also coming in, will there be any revision in the guidance in terms of the store opening that you gave in the past?

So first of all, I would like to point out that we've invested in opening up 6 stores and 3 MetroActiv towards. That's our commitment to stay relevant as a footwear retailer to the Indian consumer, right? So it's not like we're hesitant at all to invest in new stores. And as you know, all new store concepts have a gestation period for it to get up and running. And we're happy to do that, and we see that as necessity for growth. That's number one. Number two, we will continue to open as many stores as makes sense. Fortunately, Gaurav, we're not capital starved in any way to do that. We want to make sure that we open stores for profitability. We open stores for growth. We opened stores to capitalize on market and market share, and we are not going to be driven by a fixated number. I think our results speak for itself that as and when time comes, we do accelerate growth when we see the right opportunity.

Sure. And just one last question for Kaushal in terms of the accounting bit. Kaushal this time around there will be absolute depreciation, if you look at it, as hardly increased on a Q-o-Q basis and the other income has also dipped this time around and also the finances. So anything to read on these trends, especially the other income because it has dipped quite sharply in Q3.

Gaurav, you are right in terms of other income, but this is purely the effect of payout of special dividend that happened in Q4 of last financial year. In the first half, although our treasury was lower by INR 450 crores, but we saw benefits of fall in interest rates that happened in H1 of this financial year. So if you see for entire 9 months in absolute amount, our treasury income is still higher than last year, though at a much lower investable surplus fees. So that's -- this quarter vis-a-vis Q3 of last year, broadly, return in terms of percentage has been same. The delta is purely on account of lower treasury funds, post payout of special dividends.

And just on the potential for the dividends. Because there are multiple store openings, the delta has also happened. So ideally, because this finance cost will also have an element of the finance cost, but still it has gone down. So anything to read there?

No. So if you're comparing you said last quarter, if you remember, we had mentioned that in that particular quarter, we opened 4 Foot Locker stores. And hence, absolute hit on account of Ind AS was higher in Q2 as compared to, say, Q1 or, say, when you compare this 9 months as a whole. If you see 9 months versus 9 months, our notional cost on account of Ind AS is almost close to about INR 39 crores, INR 40 crores versus INR 28 crores, INR 29 crores last year.

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

I wanted to better understand this growth improvement from 11% in Q2 to 15% in Q3. So the main aspect, right? So in terms of revenue per square feet, we were flat in Q2, we are flat in Q3. Our omnichannel growth was about 30% in Q2, this time around it is 25%. So what exactly has driven this growth improvement. So I guess within the core retail aspects, the performance is more or less in line with Q2. In addition, we report these channel-wise revenue, that indicates that the RM sales that we do plus some subsidiary sales have near doubled on a combined basis. So also, if you could comment on the sustainability of growth in these segments.

All right. Devanshu, first things first, while you refer to a flat square foot growth, it is disguise because we opened up 100 stores this year, right? And new stores sell them come in at the same rate of sales as your base stores do. So 10% of our chain is actually that was new came in below. So the fact that we are flat to last year is a sign that we're actually doing well in our existing doors to maintain and keep that cropped up. So that's number one, right? Number two, we also have 0 wedding days in January this year, right? So we should see that impact in December, and that should have affected our sales in December. And while I'm not going to single out a single month, it didn't have an impact to us, not because it wasn't an impact, but it was because we were able to mitigate it through our performance of our regular products and what we're doing out there, right? There are no extraordinary subsidiary sales. There is no sales that are hidden in there. These are all our stores performing, getting better at performing both at an SSG level, both at a square foot level, though you won't see that at the total numbers. Overall performance has started to improve, and that's the bottom line to it.

Devanshu, just wanted to clarify on the first point on sales per square feet, and this is for everyone. Our formula is very simple. We are dividing total sales by total square feet-age for the entire company at the end of the period. So although for all the stores that we opened in current year, we might just have 4, 5 months of sales coming in, in this financial year, but the denominator is full, entire square footage. We're not using average here.

No, so Kaushal my question was a growth pickup between Q2 and Q3, right? So obviously, you've added stores, that 100 stores on an LTM basis was true for Q2 also, and that is true for Q3 also. But in Q3, our growth was 11%. And in Q3 -- in Q2 our growth was 11% and in Q3 our growth is 15%. So ideally when there is no pickup in revenue per square feet in both the quarters, and then in online channel, omnichannel also, we reported 30% growth in Q2 and this time around it is 25%, so I just wanted the bridge as in between Q2 and Q3, what has led to this improvement?

Well, yes, anchoring -- you're anchoring what you're saying, Devanshu on sales per square foot, right? And that's the entire anchor that you're basing it on. It's obvious that we are having comp store growth. We are having new store growth as well, but we're having comp store growth. So you cannot hinge it on per square foot sales when as Kaushal mentioned, if I opened this store at the very last day of the quarter, we're taking all year revenue, dividing it by that square footage, right? And all quarter revenue and dividing it by that quarter. So it's always going to be a little bit muted if you open new stores. I think your entire formula would be reversed if we just did it on a comparable store basis, which as you know we don't disclose. But I think you should be able to infer that quite easily.

I'll discuss this offline. The second play was -- the second question was on sports and athleisure space. So there is new player Agilitas, who has deep funding, manufacturing capabilities. There are celebrity endorsements as well and they have recently come up with a unique format like SportsYard in Bangalore. While I agree that we play across the consumer needs for fashion, comfort, functional, et cetera, what our salience towards this particular category is currently lower. So how are we sort of working towards improving the internal agility so that our portfolio salience is also aligned to the evolving needs of the consumers?

So first of all, I think the market size for athletic is big today, both for performance and for fashion, and I think it's going to continue to grow. So that's number one. So we're not talking about a static or a shrinking market, we're actually talking on the contrary growing market. That's number one. Number two, what we are our retailers first and foremost, right? And if you notice the concept of the Foot Locker and MetroActiv, they are retail concepts. These concepts carry brands that are in that sports space to create that salience for themselves. And then we capitalize on it by giving them an avenue to sell and reach different parts of India, different consumers in India, right? So necessarily for us to have that, where it is of utmost necessary for us is in the FILA business, right? We have to have the competence in the FILA business. We have invested heavily in design studios. Have we been a little set back on FILA because of the BIS norm. Absolutely. Do I believe that we've got all the right things in place to capitalize on that growth, absolutely there, too. So you've got to look at it holistically and as opposed to -- I hope there's many players that come into this space because the space is huge and the more players that come into it, we actually increase the size of the market more than you realized, right? So it is something that we're very good at, which is a retailing part of it, which all said and done, every brand comes to life only because it has an amazing retail presence, right? So I think we got -- it's not like we're missing the entire formula here. There are bits and pieces we don't have, specifically for our FILA business that we're growing, that we've invested. We have a design office in China. We have design teams here. We have marketing stack. We have agencies working on it. So it is putting that ecosystem together.

No, really encouraging besides just that the BIS-related challenges are just getting extended quarter-by-quarter. So that reflection is still not happening. So that was the main concern here.

What is being extended quarter-by-quarter?

The BIS-related challenges.

No, because we work seasons out, right? So we don't -- in that business, you're not working on a next-day delivery program. We have to quite simply put, we have to by componentry from around the world and assemble them in India, some of which there isn't the technical expertise to do so. So there are some obstacles to it, absolutely, more than just a BIS reasons, but it is a challenge. And we're okay with that because we're here for the long run with FILA.

Sure. And just couple of bookkeeping questions. The store closures were a bit higher in Q3. Is this a one-off or are we making some strategic portfolio corrections and disclosures can continue in the next few quarters as well? And secondly, there must be some loss related to these write-offs. So then which light -- in which line item does this get recognized?

On first question on store closure, Devanshu, nothing much to read about. If you see overall store closures for 9 months, it's around 18 on a base of almost 1,000 stores, it is still up 2% and we don't expect our store closures to change significantly from here on. Broadly, every year, it would be in that range of around 2% to 3%, which is -- there is a basic cleanup that we keep doing every year. In terms of your second question on loss related to store closures, this will all go into other expense line items.

Is the amount significant Kaushal, or can you call that out for this quarter maybe?

No, it's not significant. It's not material. Otherwise, I would have called it as I did for other expenses.

Sure. And last question from my end. From a pre-IND AS PAT margin that you've reported, the difference is 1.5% for 9 months. But for Q3, the difference is 1.1%. So going forward, what is the run rate to go ahead with. And also placing a request, if you can consider sharing the detailed pre-IND AS P&L like most other retail companies do in the listed space.

On an ongoing basis, I think it should be around at 1.2%, 1.3%. YTD, that percentage is higher because, as you remember in Q2, we opened 4 Foot Locker stores. So whenever we open the big size stores where the entry periods are slightly higher, because the stores are higher and -- are bigger and it takes more time for -- in the fit out of the store. That's why you get that higher hit. If you take Q2 exceptional get on account of opening those 4, 5 Foot Locker stores, broadly, it should be in that range of around 1.2% to 1.3%. Obviously, if we increase our store -- new store openings, it will move in line.

Sure. Kaushal, please consider that P&L requests. So if you can provide a detailed P&L across line items, it would be very helpful to better analyze your performance.

Sure.

[Operator Instructions] The next question is from the line of Rahul Agarwal from Ikigai Asset.

This is Rahul from Ikigai Asset. So just 2 questions for Kaushal. Firstly, just on the top line, right? I mean positive surprise on the growth side of it, the incremental color on SSGs or bill cuts average order value will really help just to understand the volume and pricing bit. If you could just throw some more light in terms of how are the cohorts looking across India and across categories that will help. That's question number one. Question 2 was on the inventory held. Last quarter, we were about INR 785 crores of inventory. If you could throw some light on how is that moving into December? And how do you see that settling down over the course of the year? And thirdly, just as a bookkeeping question. Just wanted to know the exact square foot area you've used to calculate the revenue per feet question. Those were my 3 questions.

Management line has been dropped. Please stay connected, we'll connect with the management. We have connected with the management. Yes, sir, go ahead.

Sorry for this inconvenience, I think as the line got dropped. Rahul, on your first question on top line, on a medium- to long-term scale, we have always guided that our average CAGR should be around 15%. And broadly, if I could give you a back of the envelope calculation as to how we reach that, it's basically broken into 3 parts. The first one being like-to-like growth broadly in that mid- to high single-digit range. Every year, if we open, say, 100 stores on a base of 1,000 that is about 10%. That 10% is expected to give you half revenue for the first year in which you open, so that is another 5%. And then the last 1/3 is impact of annualization for the stores that we opened last year, which will have full 12 months revenue this year. So broadly, that's the breakup. So when you see a number, you would broadly be able to gauge as to what particular quadrant has performed. Though we don't give specific numbers, but we give enough details to sort of gauge in terms of the overall top line. With respect to inventory, as of December, we have seen slight buildup of inventory, which is in line with the season, Q3 being the season, and also considering our store opening plan. So broadly in line, nothing much. We don't see anything abnormal there, broadly in line with what we saw -- what we see year-on-year.

Got it. And just a bookkeeping question on the exact square footage you've used to calculate the revenue per square feet, please.

It is 13,90,000-odd square feet. And sales per square feet, we only take store revenue.

Got it. That's the stand-alone store revenue, right?

Overall store revenue. And that is something that I was trying to explain that even if we open stores, say, on last day of December, we will not have anything in top line, but what -- the denominator will have square footage of that particular store.

Got it. And best wishes to surpass the 1,000 store milestone next quarter.

The next question is from the line of Sameer Gupta from IIFL Capital.

I'll just have 2 questions. Firstly, I understand there is some benefit of GST reduction this quarter. And last time around, you had pointed out that 40% of Metro Mochi and 90% of Walkway typically will benefit due to the GST cut. Now if you could help us understand this quarter, if you just gross up the sales, let's say, you include GST and you calculate growth, what would that number be?

So broadly, if we take that 40%, it would be about 3% higher, broadly. For the whole business.

Lower -- 3% lower, you mean the growth?

Growth would be 3% higher.

Higher. There is no impact on the net sales, Sameer, because the entire GST amount is now broken up into 2 parts. One is GST that we pay, and remaining is been offered as discount to the customers.

Sameer, we recognized gross sales lower. If GST was not there, we would have had gross sales that were 3% higher.

Okay, let me rephrase my question. Let's say, in 3Q, you had a INR 811 crores of sales. And in 3Q of the base, you had INR 703 crores of sales. If I gross both up and then calculate the growth, which is 15% on net, what would this number be?

I want to make sure I understand your question exactly correctly, right? So if you took last year's growth and this year's growth, what was the delta caused by the GST, right?

No, I'm just interested in the total growth number, and how it will imply to the GST, yes.

Sameer, let me try and explain. On a net sales basis, that is what I was trying to explain you. On a net sales basis, there is no difference because earlier it was gross sales minus, say, 18% GST for simplification, right? That is how we were getting net sales. Right now, it is -- we are selling at MRP, offering discount to the customers for differential GST and the remaining GST has been paid to the government. So on a net sales basis, there is no difference at all between pre, post-GST numbers. And that is the number that you are seeing in the financials.

I understand Kaushal. What basically I'm trying to understand is the what the consumer at the end of the day is paying, what is the growth in that number? Because ultimately, post 4 quarters, that is the sustainable number. This anomaly is because you're paying lesser GST to the government versus what you were paying last year?

So around 3% to 4% less is what the customer is paying on our entire portfolio. On specific sales, if it is below 2,000 -- if the item was -- with MRP was below INR 1,000, the overall differential would be around 6%, 7% from a customer point of view. And if it was between INR 2,500 to INR 1,000, the differential would be somewhere in the range of 11%. So this is -- these are the percentages based on which customers would pay slightly lower.

Got it. So it is suffice to say that on a consumer level, the growth will be somewhere in the ballpark of 12% versus the reported 15% that you have clocked.