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Go Fashion June-Q operating performance was better than our expectation. Revenue performance was inline but resilient in current challenging market context – primarily driven by store additions in EBOs and strong performance in LFS channel. SSSG was flat (+0.2%) for EBOs due to sluggish demand, but relatively better vs peers who have reported so far (Shoppers Stop saw SSS decline of c.5-6% in 1Q). However, initial signs of recovery were visible with some improvement seen in June/July; management remains cautiously optimistic on trajectory and expects the same to pick up from H2 with onset of festive season (targeting 4-5% SSSG by end of FY25E). On store expansion, management reiterated its guidance of 120-150 net additions in FY25E. On profitability side, benign RM continues to aid GMs and further 40-50bps expansion for FY25E is possible which along with cost saving initiatives & gradual uptick in SSSG should drive operating performance (targeting Pre-IND AS margins of 19-20% vs 17.7% in FY24). Execution on inventory reduction remains healthy with further optimisation seen in the quarter. From long term perspective, given that Go Fashion is way ahead of the pack in the bottom-wear and its intrinsic strengths remain intact, this provides assurance on its ability to navigate the tough environment. SSSG uptick in FY25, faster store expansion & pledge reduction (targeting to fully release over Aug-Dec period) will be key monitorables, in our view.

* Resilient revenue performance in challenging operating environment: Sales grew by 15.8% yoy to INR 2.2bn, while EBITDA and PAT grew by 12.3% and 9% yoy to INR 721mn and INR 287mn respectively. Net sales were largely inline, driven by store additions as SSSG remained flattish (harsh summers/elections had impact on retail footfalls). Although GMs were lower than envisaged, well-controlled other expenses drove a 1.5% beat on operating profits. EBO sales grew by 9.5% yoy led by 12.1% growth in store count (added 20 stores taking store count to 734), as sales per store declined by 2.9% yoy. SSSG was 0.2%, ASPs were up marginally (up c.1%) on yoy basis. LFS channel growth (+43.2%: led by door additions +26.9% & sales/store +13.6%) was aided by higher footfall due to offer run by one of the partners. Management expects door additions and growths to normalise in coming quarters. MBO channel grew by +32.3% yoy while online channel sales were down 29% yoy

* Favourable input cost benefit more than offset by scale deleverage: Gross margins (incl sub-contracting charges) were up 44bps yoy aided by lower cotton prices. Staff cost (+20.6%) grew at faster pace vs revenue growth, owing to store additions. Growth in other expenses (+23.5% yoy) was higher too – a function of store additions as well as increase in ad spends (c.+82% yoy to 2% of sales). Hence, reported EBITDA margins were down 100bps yoy to 32.8% (JMFe: 32.5%). Going ahead, management expects benign RM-led benefit to continue (expects 40-50bps GM expansion for FY25E) which along with leverage benefit & improving SSSG trajectory in coming quarters should drive EBITDA margins. On the balance sheet side, inventory days saw further reduction to 97 days (on TTM sales) from 104 days as on Mar’24 led by reduction in inventory (both RM & FG) at warehouse level.

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