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Ethos delivered 4% better EBITDA led by strategic curtailing of marketing spends. Despite operating challenges across the entire retail spectrum, Ethos has outperformed with strong 19% revenue growth (12.3% SSG) in Q1 vs single-digit growth for most retailers. With the return of normalcy, Ethos' outperformance is likely going to further accelerate with 28% growth in Jul-24, along with better gross margin. Ethos added 4 stores in FY25TD with faster expansion in coming quarters; it has retained its annual outlook to add ~20 stores. The company expects continued momentum over the medium term, supported by TAM expansion/own brand, ramp up of the Lifestyle vertical, and faster growth in pre-owned watches. Ethos also has tangible margin/WC tailwinds via gradual reduction in customs duty, higher exclusive mix, lower discounts, and better credit terms from brands. Our estimates remain largely unchanged, but we are increasing TP multiple by 5% to 37x Sep-26E EBITDA. We retain BUY with revised Sep-25E TP of Rs3,700/share (vs Jun-25E earlier).

Strong performance despite operating challenges; Q2TD sees robust pickup: Q1 revenue grew by a healthy 19% to Rs2.7bn led by 12.3% SSG, with the balance growth coming from network expansion. The ASP grew ~25% in Q1 implying 5-6% de-growth in overall volumes which is mainly due to reduced focus on Rs250k) was healthy at 9.5%. Exclusive brands mix remained flat at ~30% in Q1. Exclusive brand count reached ~55 with 2 new added in Q1 – ID Geneve and Singer Reimagined. The CPO business clocked ~Rs0.2bn for Q1, registering a strong 31% growth. Ethos is seeing good traction in new Lifestyle business with Rimova witnessing ~Rs20mn monthly run-rate. Gross margin declined by 80bps to 29.6% in Q1, led by higher discounts/promotions amid the challenging operating environment. Despite dip in GM, the lower employee costs (- 60bps) and curtailed marketing spends led to a ~110bps higher EBITDA margin at 15.8%. Pre-IndAS EBITDA improved by 60bps to 11.1% in Q1 vs 10.5% last year. The delay in mall constructions led to slower store add of 3 in Q1 (66 total stores currently), but the outlook remains intact with 20-25 additions in FY25.

Strong commentary keeps us optimistic:  Q1 realizations were up ~25% with Messika store in New Delhi.  Gross margin dip in Q1 was largely due to higher discount offers/price matching; however, the discounting has likely reduced with Ethos indicating a strong gross margin performance in Jul-24. vi) Favre Leuba’s first collection will be launched at Geneva Watch Days (Aug-24 end). vii) Ethos expects to retain the entire margin benefit from duty reduction for ~90% of exclusive brands, and share margin benefits with the remaining 10% of exclusive brands. Ethos is also negotiating with non-exclusive brands to share the waiver benefit. viii) While the pre-owned business has the potential to grow even faster vs current growth trends of ~30%, the growth is being restricted due to shortage of skilled watchmakers. With the Delhi center running at full capacity, Ethos is opening a second service center in Bengaluru to cater to the same. It has also tied up with a Swiss training organization to improve availability and training of watchmakers.

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