IGI Logo

Due to challenging market dynamics in the Fashion retail segment, SSSG and sales per store have moderated over the past few quarters across players, especially in the value segment. Our checks suggest that demand for bottom-wear was tepid in 2QFY24E, like it was in 1QFY24. To that extent, we expect SSSG growth to be in low-single digit in 2QFY24E, lower vs. earlier expectation of mid-single digit growth. However, on relative basis, overall revenue trajectory is still likely to be ahead of its peers, in our view. RM environment remains stable to benign; this, along with better product mix will, we believe, continue to aid gross margin. Further, store additions continue to be healthy and company is on track to achieve its FY24E guidance. We believe near-term issues are more transient in nature; industry opportunity in bottom-wear and Go Fashion’s capabilities in it remain strong which, we believe, will ensure it stays ahead of the pack (link). This, along with the company’s aim to reduce working capital and the promoter’s assurance on pledge closure by end-FY24 allays key investor concerns. Any volatility in the near term should be seen as an opportunity to add.

* Demand trends remain challenging: Given tepid consumer sentiment, we expect the SSSG trend in 2Q to remain broadly similar to that seen in 1Q (Exh:1). However, the company remains strong on the innovation front (salience of value-added products at c.50% of sales now vs. c.20% 4-5 years back). Also, given that these products are priced c.20-25% higher vs. base ranges, the benefit is visible in healthy ASP growth over the past few quarters; we believe this trend will continue in the coming quarters. So, despite subdued volumes in the near term, we expect low-single digit SSSG led by mid-single digit ASP growth in 2QFY24. While it is weaker than our earlier expectation of mid-single digit SSSG, we believe it will still be relatively better compared to peers in the value fashion segment such as V-mart, Pantaloons, etc., due to essential nature of the bottomwear category, and better product and geography mix (higher presence in Metro/Tier1 for Go Fashion where demand conditions are relatively better vs. small towns).

* Better mix & lower A&P to aid margins in near term: While input cost has moderated and recent purchases have been at lower prices, the full benefit is still not visible given that the company is utilising high-cost inventory. Higher ASP growth due to favourable product mix (Exh:3/4) and better channel mix (higher growth in EBO channel) will, we believe, continue to drive gross margins. Also, A&P spend in the base quarters was high (1HFY23 A&P as % to sales was c.4.5%) while it was sub-2% in 1QFY24 and is likely to remain at that level in 2Q too, thereby driving EBITDA margin (Exh:6/7).

* Pace of store expansion to remain healthy, on track to achieve FY24 guidance: In terms of EBOs, the company remains on track (added 25 in 1Q, and we expect 28-30 store additions in 2QFY24) to achieve its guidance of additions of c.120 stores p.a. Further, given the thrust on value-added products, the newer stores are larger in size (c.450+ sqft) to provide optimum space for these product lines. It is also in the process of beefing up its business development team, in line with its strategy to accelerate store expansion to 150- 170 stores p.a. from FY25 (higher vs. our current estimate of 120 stores p.a.). 

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361