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We maintain BUY on Metro Brands, while clipping our TP by ~7% to Rs1,300 from Rs1,400 (60x Jun-27E EPS), on prolonged demand weakness and delayed store additions. We uphold our positive stance on the back of strong mid-teen growth prospects bolstered by growth in the existing portfolio (Metro/Mochi/Walkway/Crocs), new scalable exclusive partnerships (FILA/Foot Locker/Clarks), and potential optionality with Metro emerging as a go-to-partner for incoming global brands (~Rs8bn net cash at FY25-end). Factoring in the ~4% Q1 EBITDA miss, we trim our near-term earnings by ~5%, on prolonged slowdown and slower network expansion. Against a weak backdrop, Q1 revenue/PAT growth of 7-9% appears decent (vs peers). Encouragingly, there are initial signs of ramp-up, with 4/2 additions for Walkway/Foot Locker in FY26TD, as back-end challenges are mostly resolved with team investments and easing of local/global supply-chain blockades (BIS implementation). Also, expansion for FILA is expected to pick-up in H2FY26.

E-com channel leads growth; MBOs see sluggish trends on weak macros

Q1 revenue grew 9%, led by ~45% growth in the e-com channel (~14% of sales), while rest of the business saw a weaker ASP-led growth of ~4%. Revenue performance, however, was 3% below expectation, as volumes in physical channels were impacted by festive preponement, geopolitical tensions/rains in the interim, and protracted demand weakness. Among regions, the North and East are seeing relatively better growth trends while the West was impacted by early rains and the South by IT slowdown and suppressed economic activity in select states like Telangana. Net store additions at 20 in Q1 were slower (vs expectations), though Metro is seeing incremental signs of normalization of rentals which augurs well for expansion in remaining-FY26. On a positive note, initial signs of ramp-up are being witnessed, with 4/2 additions for Walkway/Foot Locker in FY26TD, as back-end challenges are largely resolved. Further, expansion at FILA is expected to pick-up in H2FY26. Gross margin saw slight moderation to 59.3% (down by ~20bps), mainly on account of higher online mix. EBITDA margin dip of ~40bps was on account of higher marketing and brand-building spends undertaken in Q1, to support long-term growth.

Ramp up of Walkway/Foot Locker enhances medium-term prospects

With firming up of back-end supply chain and team investments (projects/buying), valuebrand Walkway is seeing incremental focus, which is visible in the 4 additions in Q1 itself (vs 4 additions in FY25). Walkway has a large growth opportunity in the long term, as it caters to the below-Rs1,000 price points, which form ~80% of the total footwear volume in India. Metro acknowledged that Walkway stores may be margin dilutive (value format), albeit returns of mature stores are expected to be fairly decent, at ~30% (vs 40-45% for Metro/Mochi stores), thereby ensuring effective capital deployment.

Earnings call KTAs

• After a lengthy period of high rentals in the market, Metro indicated that rental costs are now stabilizing to reasonable levels which augurs well for increase in store expansion.
• Metro reiterated its long-term revenue CAGR guidance of 15-18%, underpinned by midto-high single-digit SSG, disciplined store expansion, and selective addition of synergistic premium brands. EBITDA margin is also expected to remain above 30% and PAT margins in the mid-teens
• Revenue-per-square-foot was impacted by calendar shifts/operational disruptions (Eid preponement/rains) and significant store additions over the past 12-15 months (~100 new stores). Despite cannibalization risks from adding stores in proximity to existing stores, Metro is prioritizing market share gains over the short term vs same-store growth.
• FILA incurred losses of Rs580mn in FY24 which shrunk ~40% in FY25 and are expected to reduce further by a similar amount in FY26 too, with break-even expected in FY27. Rollout of FILA stores was delayed by the BIS implementation, thus necessitating settingup of local supply-chains. With the local set-up for a significant share of the inventory, Metro expects FILA store rollouts in H2.
• Metro’s ASP for footwear stood at ~Rs2,700 (up 3.5-4.0%) in Q1, whereas overall ASP (including accessories) stood at Rs1,575 (up ~3%). ASP for the new exclusive and premium brand Clarks is expected to be in the ~Rs3,500-4,000 range.
• Expansion of Foot Locker stores has picked up after smoothening of supply chain issues following delays due to BIS implementation. Metro expects to add 3 Foot Locker stores before the start of the CY26 festive season.

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