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Weak trends, but outperformance endures; maintain BUY

GO’s Q4 print was weak, albeit results were largely in line and outperformance (vs. peers) continued with 15% topline growth. SSG was low at +1%/0% in Q4/FY24 and GO is targeting 2-3% SSG for Q1. Given the muted macros, FY24 has been a year of WC optimization, as GO generated Rs1.1bn operating cash vs. cash-breakeven in FY23, which addresses a key concern. Encouragingly, the benefit of RM moderation also percolated with ~100bps GM gains in FY24, 50bps more is expected in FY25. After a slow FY24, network expansion is also expected to improve with 120-150 net additions in FY25 (vs. 84 in FY24). Factoring-in near-term low SSG leads to a 6-7% EBITDA cut, giving us a revised TP of Rs1,300 (vs. Rs1,350). GO remains our top idea in the apparel space, with earnings growth reviving in FY25 and 25% correction from recent highs. Faster SSG turnaround and early closure of promoter pledge are potential upsides.

Soft but in-line Q4 amid weak macros; relative outperformance endures

Q4 revenue grew 15%, led by 20%/11%/11% growth in the LFS/EBO/Online channels, while MBO channel grew 3x on a low base. EBO SSG was muted at ~1%, which was the combination of a 2.1% realization gain and a 1.5% volume decline. Net store additions at 10/84 in Q3/FY24 were slow, but GO expects an improvement with 120-150 additions expected in FY25. Cash flows improved significantly with optimization of inventory (both, finished goods and raw material). WC reduced by 22 days (over FY23) and the company targets further reduction of ~10 days gradually. EBITDA margin declined 180bps to 29.7%, largely led by negative leverage on account of low SSG and one-off higher store closures in Q4. Pre-IndAS EBITDA declined 310bps to 12.9%, due to additional rental de-leverage.

Earnings-call KTAs:

1) Demand trend was sluggish in Jan-Feb; however, March witnessed improvement in the trend. Q1TD trends are encouraging on MoM basis; however, on a YoY basis, weakness still persists. 2) GO is targeting 2%-3% SSG for Q1FY25, gradually taking it to the 5%-6% range by FY25-end. 3) Volume SSG was negative for Q4 and the full year at -1.5%/-3.5%. Overall, volume growth stood at ~9% for FY24. 4) ASP improvement of ~2% to Rs752 was largely mix-led with no price hikes; GO aims to steadily increase ASP by 4-5% annually from the current levels through mix-premiumization. 5) Net-store adds guidance for FY25 was at ~120-150 stores with closures expected to be in the low single digit. Net-store adds in FY24 remained low at 84 stores vs. revised guidance of 110-120, due to closure of 23 stores and 10-15 store relocations. 6) GO further aims to optimize inventory to 88-90 days; FY24 improvement of 20 days was led by reduction in warehouse inventory, while store inventory remains intact. 7) A&P spends are expected to remain in line with FY24 at ~2%. 8) LFS channel growth was ~30%, excluding oneoffs due to credit note from partners. 9) GO’s own website contributes ~33% to overall online sales, and it is likely to launch an app in FY25 with targeted online sales, to contribute ~5% of sales vs ~3% in FY24. 10) GO is also planning to increase sales-linked incentive component for front-end staff to boost sales vs. the current regime. 11) Churidar-Leggings (core category) contributed ~45% of the revenues, while contribution of value-added products inched-up to 55%.

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