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Network optimization to drive a revival in productivity

* Retail demand improved sequentially in 1QFY27, with SSSG recovering gradually, albeit remaining negative. Management expects FY27 revenue growth to return to single digits, supported by improving footfalls and consumer sentiment.

* Go Fashion is undertaking a network-led reset through store consolidation, merchandising upgrades, and targeted brand investments. Early results are encouraging, with larger-format stores delivering 10–20% higher customer acquisition than the legacy network.

* The transition remains execution-intensive, with near-term disruption from store closures. However, management expects demand migration to larger formats to improve throughput, productivity, and unit economics over time.

* Product diversification continues to reduce dependence on leggings, with newer categories now contributing more than 60%. This broadens the addressable market and creates added growth levers beyond its core category.

* Improving demand, network optimization, and margin recovery provide a credible path to earnings recovery.

* We trim our revenue estimates by 3-5% for FY27/28 to reflect a slower recovery trend. However, valuations remain attractive at 15x TTM pre-Ind AS EV/EBITDA. We reiterate our BUY rating with a TP of INR450 (based on 15x pre-Ind AS FY28 EV/EBITDA).

Store consolidation underway; economics remain attractive

* Go Fashion is consolidating legacy smaller stores into larger 700-800 sq.ft. formats. Management attributes the recent negative SSSG largely to weaker customer acquisition in smaller stores, where limited assortment visibility restricts browsing and discovery.

* Early results are encouraging, with larger-format stores delivering 10-20% higher customer acquisition. Management expects demand to migrate within existing catchments as the network is optimized.

* The program will continue through FY27, with ~50-55 store closures in 1QFY27 and ~12-13 in 2QFY27. While the store count could decline over the next 12 months, the total trading area is still likely to increase by 10%.

* Larger stores generate ~15-20% higher revenue with lower manpower and similar utility costs, supporting payback periods despite the shift toward larger formats. Management continues to maintain strict rent-to-revenue thresholds when evaluating new stores.

* The top-wear pilot across 12-15 large-format stores is showing encouraging traction, with productivity of ~INR1,100-1,200 per sq.ft/month. Higher ASPs (~INR1,200-1,500) vs. bottom-wear provide an additional lever for store productivity and basket expansion.

Valuation and view

* FY26 marked a reset year for Go Fashion, with revenue declining ~1% and EBITDA dipping ~32% amid weak SSSG and negative operating leverage.

* While recovery remains gradual and execution risks around the ongoing network transition persist, management is focused on restoring store productivity, improving customer acquisition and driving operating leverage.

* We model a revenue/Pre-Ind AS EBITDA/PAT CAGR of 7%/17%/14% over FY26- 28E, supported by gradual demand recovery, improving store economics, and margin normalization from a low base.

* Despite limited near-term visibility, valuations remain attractive at ~15x TTM Pre-Ind AS EV/EBITDA, and the company maintains a strong balance sheet, with cash equivalent to ~10% of market capitalization. We reiterate our BUY rating with a TP of INR450, based on 15x 1-year forward pre-Ind AS EV/EBITDA.

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