Company Update : Metro Brands by Motilal Oswal Financial Services Ltd
Revenue growth in line; higher expenses on account of store acceleration hurts profitability
* Consolidated revenue grew ~11% YoY to INR6.5b (in-line), driven largely by ~10% YoY area additions as revenue/sqft was stable YoY at INR4,300.
* In-store sales at ~10% YoY saw a pick up (vs. ~4% YoY in 1Q), driven largely by 11% YoY store additions.
* The company added 42 new stores and closed four stores, bringing the total count to 966 stores. Format-wise, MBL added 10 stores each in Mochi and Walkway, 8 stores in Metro, 4 stores each in Foot Locker and New Era, and 1 store each in Fitflop and Crocs.
* E-commerce continued witnessing robust traction, with ~39% YoY growth, reaching INR900m, with share in revenue rising to 14.2% (vs. 11.4% YoY).
* Gross profit grew 12% YoY to INR3.6b (inline) as margins expanded ~20bp YoY to 55.3% (~25bp beat), likely led by lower discounting during EoSS and an improvement in the product mix (87% product sale above INR1,500, vs. 85% YoY).
* Employee costs grew 11% YoY (4% ahead) and other expenses jumped 14% YoY (3% ahead).
* As a result, EBITDA at INR1.7b grew 10% YoY and came in ~3% below our estimate.
* EBITDA margin contracted ~25bp YoY to 26.2% (~75bp miss).
* Elevated depreciation (+26% YoY, 13% ahead) and finance cost (+35% YoY, 13% ahead), primarily on account of accelerated store expansions, impacted profitability.
* As a result, adj. PAT at INR698m declined 3% YoY (13% miss).
Store acceleration leads to higher WC and capex, thereby impacting cash generation
* Working capital days increased to ~83 days (vs. 78 days in 1HFY25), driven by a modest increase in inventory days to 111 (from 108 YoY) and a reduction in payable days to 44 (from 47 YoY).
* Cash flow from operations (post leases) declined to modest INR31m (vs. INR1.7b in 1HFY25), largely driven by adverse working capital changes (buildup of ~INR1.8b vs. release of INR5m YoY).
* As a result of higher WC intensity and an uptick in capex (INR0.6b up 29% YoY, driven by acceleration in store additions), MBL had an FCF outflow of ~INR580m (vs. generation of INR1.2b YoY).
Update on new business formats
1. Foot Locker
a. During 2QFY26, the company added four new stores (one in Noida, three in Mumbai), bringing the overall Foot Locker store count to five.
2. Fila
a. To counter BIS-related challenges, local manufacturing of FILA products has commenced.
b. FILA’s repositioning is progressing as per plans and the company is on track to open new EBOs for FILA in 2HFY26
3. Launch of New Era
a. The first kiosk opened in Bengaluru (Oct 2024), followed by Hyderabad and Mumbai, with the New Era India website going live in 4QFY25.
b. During 2Q, the company opened one new store in Lucknow and added three kiosks in Delhi, Chandigarh, and Bengaluru.
4. Clarks partnership
a. MBL signed a long-term partnership with Clarks to become its exclusive licensee and distributor (across all channels) across India, Nepal, Bangladesh, Bhutan, Sri Lanka, and Maldives.
b. MBL introduced Clark’s Cloudstepper ladies’ range in ~ 200 MBOs and has observed encouraging customer response.
c. The company plans to launch a complete assortment in 2HFY26 and open Clarks EBO in 1HFY27.
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
