S D Retail Limited (SDREAMS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the S D Retail Limited FY '27 Results Earnings Conference Call hosted by Kirin Advisors Private Limited. Before we begin, a brief disclaimer. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on date of this call. These statements are not guarantee of future performance and involves risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand over the conference to Mr. Ganesh from Kirin Advisors Private Limited. Thank you, and over to you, sir.

Thank you. On behalf of Kirin Advisors, I welcome you all to the conference call of S D Retail Limited. From management team, we have Mr. Hitesh Uruparelia, Chairman and Managing Director; Mr. Utpal Ruparelia, Managing Director; and Mr. Ritesh Saraogi, Chief Financial Officer. With that, I now hand over the call to Mr. Hitesh uparelia, Chairman and Managing Director of the company for the opening remarks. Over to you, sir.

Good afternoon, everyone, and thank you for joining us. I'm Hitesh Ruparell, Chairman and Managing Director of S D Retail Limited. It's pleasure to welcome you to our earnings call for the half year ended September 30, 2026. Let me begin with a simple thought every night millions of Indians spend 8 to 10 hours in sleep and yet most of them never think of it as a real wardrobe choice. That acquired gap is the reason sweat dreams exists. We call it our 3W framework. Fleeter accounts to about 42% of our wear time, close to 70 hours a week, but only around 10% of the wardrobe and about 6% of the wallet. Closing the gap on thoughtful design and on welcoming store at a time is the opportunity we are building towards. Now I will share with you the half yearly numbers. Revenue from operations was INR 91.33 crores, a growth of 16.6 percentage or INR 78.30 crore in H1 FY '26. Gross profit increased to INR 51.10 crores while gross margin remained stable at approximately 56 percentage. Although a higher contribution from our own stores would typically have supported margin expansion the benefit was offset by rising fabric costs driven by geopolitical uncertainties. EBITDA before an exceptional item was INR 2.06 crores against INR 2.18 crores last year, with the margin -- with the margin at 2.26 percentage. During the half year, we increased our marketing investment with greater emphasis on digital marketing, social media campaign, influencer partnerships and CRM initiatives to enhance brand visibility and strengthen customer engagement. During -- driven by these marketing investments, the company's website revenue recorded a robust 68% growth over H1 of the previous year. We are building a stronger team across sales, retail operations and support functions to support our next phase of growth. These are investments in brand awareness customer acquisition and in the capability needed to scale and we believe they will pay back over time. The exceptional item of INR 22 lakhs relates to the write-off of capital expenditure on stores we closed. Profit after tax stood at INR 3,300,000 up from INR 1,300,000 and our finance costs came down to INR 6,900,000 from INR 1.90 crores. Our own stores lead the story. The real highlight of this half is our exclusive brand outlet. That sales grew by 65%. And they're now bringing more than 1/3 of our revenue compared with about a quarter a year ago. Multi-brand outlets, which were half of our business last year now stands at 38%. We shifted this balance on purpose because in our own stores, the customer sees the full range, the brand shows up the way we intend and the economics are better. We opened 15 stores and parted ways with it that we are not delivering, which takes us to 84 stores now. Our stores are not only expanding in number but also growing stronger in performance and productivity. The average customer now spends about INR 4,400 per bill, roughly 17% more than last year. And every square foot of store space is earning about 8% more a stronger balance sheet. Better working capital management turned our operating cash flow from an outflow INR 70 lakhs of last year to an inflow of INR 9.46 crores. Short-term borrowings have fallen to INR 6.76 crores from INR 16.05 crores at March end, for a business that is expanding its store network, this discipline matters a great deal to us, the environment and what we control. The half was not an easy 1 for this sector. Inflation and higher fuel prices kept distutionary spending muted across India, and we expect the situation to continue for some time. while remaining prudent on cost, we continue to invest in areas within our control, such as product quality, innovative design portfolio expansion and enhancing our in-house design capabilities to stay ahead of evolving fashion trends. Our stores are built around the idea of what and rest -- and what customers tell us and the counter now feeds directly into design and raise planning, where we are growing. North and West India remains a stronghold with 71 stores, while the South and East are gaining steady traction with 13. On the technology side, we are strengthening our own e-commerce platform and integrating inventory delivery and personalization so that the customer gets the same Sweden experience, whether she walks into a store opens our website or shots on a marketplace. The people behind it. None of this happens without our team. I would like to thank our store managers and frontline colleague to bring the Sweatdream spirit to every customer every day. We have also added specialists in merchandising, customer insight and visual merchandising so that we can grow with discipline. Looking ahead, we remain confident in the long-term story of this category. As the lines between sleep, lounge and leisure were, we believe Sweatdream is well placed to lead. We will keep adding stores in Tier 1 and Tier 2 markets, especially in airports, high streets and premium malls that still lack a dedicated with lead destination. -- and we will continue to invest in coordinated set and fabric innovation. Our aim is simple, a Sweden store in every major shopping district. To our shareholders, customers and partners. Thank you for your continued trust with your support. We are confident that the best chapters of this journey are still ahead of us. Thank you. And we now welcome your questions.

[Operator Instructions] The first question is from the line of Kaila from Cala Ventures.

Sir, I have some questions. So the company has opened 15 new stores and close to 6 underperforming stores during the H1 FY '27, okay? So what were the key learnings from this, like steel earnings from these closures and how they have influenced the approach towards selecting new retail locations?

Yes. So, thank you for your question. Yes, every store that does not perform brings a rich amount of learnings for the company and the brand because we are still in our fourth year of retail. So our learning phase continues. What we closed is 2 airport stores, where we learned that if the average departure traffic of an airport if it is less than 8,000 or it does not make a profitable venture airport for an apparel brand. So we closed our Vizag airport store, which had a passenger capacity of 4,000 as we closed our Chennai airport store Air India terminal, which has a capacity of about 2,500 departures. There was 1 store at airport, Mumbai Airport, which had to be the tenure bot over and we have been promised that we will be allotted the store as soon as the space is available. So these are 3 airport stores. We also closed 1 store, which is at Shaheenbagh, Delhi. Now we realize that if the market is not an established market on a high state right. This category is not ready for deep delegation. So what are learning is that it is if we open a store in the main markets, so our main market stores like large Fortune Imperial large court. These are main high-stage stores, which are performing well. But if we open a store at Shaheenbagh, in Delhi, -- it takes a lot of time and more than retail is not worth waiting in spending -- keep on spending money. So these are our learnings that we are taking into our stride.

Okay. Got it sir. So apart from the company has presence across 65 large format store locations. So how is the channels are performing? And what opportunities do you see for expanding the partnerships with large retail chain?

In the last call also, we said that the profit margin in this large format stores is not so great. It is more for visibility and . So our aggressive growth is not happening in that channel as of now. Though this first 6 months, we have grown by meager 6.4 percentage in this channel, but we are not aggressively pushing expansion of this channel, primarily due to profitability concerns. So there is enough and more opportunity there, but we are holding on at the moment.

Okay. So companies expanding into more like a Tier 1 and Tier 2 markets. So how it is identifying locations where demand for organized premium sleep where is still under a look?

Yes. So we have very simple goal. One is, we know the top malls in the country, right? We have numbers of all the top malls. So our first effort is to capture the top performing mall in the city, in the state or in the zone. That's the first priority. The next priority is High Street. Now there are also established 200-plus high streets, which are performing for other national brands. So we have data of all such national brands where what numbers the competition brand is doing and we keep on evaluating almost about 30 to 40 locations every month and trying to close 2, 3, 4 out of it. So this is our normal practice that we are following.

Okay. Okay. So Also, the companies like focusing on coordinated sleepwear set to improve the basket value and average selling prices. So -- can you tell what proportion of current sales comes from this? And how has the customer response been so far?

Coordinated you are asking for a specific channel that is EPO or company-wide?

Company-wise?

So company-wide, we will be about 50% set and 50% separate. This is quantity-wise. And value-wise, it would be about 65% to 35%.

Okay. Okay. And how is the customer response so far, sir?

I would like to add here is that in our EPO, we sell 98% set -- only 2% sees is what we are selling as we would want to maintain the high ASP and better margins.

Okay -- and Also, I have just checked out the investor presentation highlights. So S D moved the company's athleisure and active range. So what is the current rollout strategy for this segment? And how does the company see it contributing to the overall business?

So S D Move has been part of our portfolio for many years -- we have not focused on that particular segment as much, except that some of our stores like airport stores, these are selling this S D Move set very well. We will keep on deciding on the product mix and brand -- sorry, the subcollection as we move forward based on the data.

The next question is from the line of Sahil Gupta, Individual Investor.

Sir. My first question is when I was recently checking my investor presentation Presentation highlights more than 3 in-house Lockwood application and AI-based workflow -- so which business functions are seeing the maximum benefit from the initiatives and what improvements have been achieved in terms of productivity and cost efficiency.

Sorry, I lost you in Welding. Can you repeat the question, please sale?

Yes, sir. Sir, recently, when I checked the investor presentation of the company. So there, I found that the company has 13-houselockhood application and workflow which business portions are seeing maximum benefits from this initiative and what improvements have been there in terms of productivity and cost efficiency?

This is a very good question and 1 of my favorites. So I think AI is going to change a lot of ways every leading category leader company is going to function in times to come. So we have currently started using AI on some of our front-end business. So typically, everything related to our website business, which has grown by 65%, it is H1. Everything is converted right from inventory restocking, making the inventory live performance marketing, all the functions we have built modules and they are getting automated. And the management information system is being delivered every morning through AI agent without intervention of any human whatsoever, and this comes with not only management information, but insights on business on a typical channel and what is happening in the environment. So I wouldn't be able to quantify because this is the first half year in which we have taken up this initiative. And AI is new for the world and for us -- but we see that this is going to deliver a very high level of efficiency. While we discussed, we are also working on project called S D Brey. Now this is a complete of technology integration right from production sourcing design to the consumer consumption. It's an end-to-end implication where every thread will be connected. So we are also working on that project. But yes, it's very exciting to see AI coming on the platform and various applications of AI being used in the company.

Got it. Sir, my next question is like the company is working towards integrating inventory, visibly and personalization across its stores and digital platforms, what are the key milestones for achieving a fully integrated omnichannel model, particularly in terms of inventory visibility and faster order file?

So we have done this in 2 phases. The first phase was that we implemented omnichannel. So for our online customers of marketplace and our own website, we enabled 30 of our stores to enter into a quick delivery arrangement. So that was Phase 1 of our integration of omnichannel drive. The Phase 2 is, of course, expanding the number of stores from 30 to 45 and so on and so forth. -- but also reverse engineering. So whatever inventory is available in our warehouse or in our other stores will be visible more technology platform to all our store managers or sales executives. So if a customer walks in into my say, Lajpathnagar stores and the inventory is lying at say by unit on Elegant Mall, the store manager will be able to show that inventory that this is available. We fast that inventory and deliver it to customer at their home. -- or while they are spending there, maybe if they are in the same markets, they can collect it after 1 hour of 5. So that facilitation also is under trials, and we should -- we are looking forward to streamlining that very soon.

Okay, sir. Got it. Sir, just 1 last question. as I was checking the operating cash flow of the business in H1 FY '27, the operating cash flow was INR 9.46 crores compared to an outflow of INR 70 lakhs in previous years. So what are the major contributors to this improvement? And how business is the cash generating going forward?

I will answer whatever I have understood, but if I need CFO, he will join me. See, what we have done is we were a little high on inventory during March and results. And we have tried to liquidate those over stock inventories during this first half, which has primarily resulted into relies of lot of cash in business. That's 1 of the functions. Any other thing Ritesh bhai?

Will be has happened from receivables. We have been able to recover almost more than INR 11.5 crores from our receivables. -- and that has been the main contribution for reducing our opiate cycle. Going ahead, we are trying to further tender receivables recovery figure, and we hope to keep reducing our actuation and we have committed to the market before.

Our working capital cycle has also become efficient, right?

Yes. We have submitted that we will reduce time base every year. This first half, we have been able to reduce for almost.

The next question is from the line of Swaraj Mehta from Perpetual Capital Advisors.

Congrats on this on a great set of numbers. I just had 1 question on EVs. We started in 2022. So is it possible to give a cohort wise or breakup of how the mature stores have done, let's say, your wise? How are stores open on each year coming under 2026?

So I'll give you some numbers I have already in front of me starting H1 '24, '25, we had 34 stores. 56, we became 64 stores and H1 '26,'27, we are 84 stores. In terms of the cohort, the older -- because our SSC is positive and double digits every time, it's very clear that the older stores are making more money than the stores which we launch in the current year or maybe the immediate past year. So as the stores keep on getting older, our profitability keeps on into. That's the trend we have seen.

Okay. And if you could quantify how much do older stores do versus old newers?

I have some numbers. The stores sit at -- so I have 1 parameter is sales per square feet annualized of like-to-like stores, right? That is 1 year and more is 21,266 and the sales per square feet for the stores opened in last 1 year is about 14,559. The blended average is 17,647.

Right. Okay. Got it. And so -- and how much time do new stores break even?