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Demand remains tepid, all eyes on 2H

Quick Pointers:

* 2Q sales remain affected, 2H sales expected to pick up led by wedding and festival demand

* FY25 Sales growth guidance cut from 15-18% in 4Q24 to 12-15% in 1Q25 to 10-15% in 2Q25 We cut our FY25/26/27 EPS estimates by 3.1/4.6/5.1% given 1) below estimate revenue/earnings led by tepid demand 2) drag in margins amid selling fila inventory at extreme discounts 3) lower revenue guidance for FY25 from 12- 15% to 10-15% and 4) BIS issues affecting high-end international brand imports. However, MBL operating parameters are on track with 1) addition of 3 new cities in 2Q (2 in Q1) 2) increase in online/ Omni channel salience to ~11.4% of sales and 3) increase in share of >3000 MRP sales by 3ppt YoY to ~53% of sales. Long- term growth strategy is in place led by 1) geographical and store expansion (225 stores in 2 years) 2) brands licenses/acquisitions (Crocs, Fitflop, Birkenstock, New Era) 3) re-launch and scale up in FILA/ footlocker from FY25/26. We believe that valuations at 62.7xFY27 do not leave any upside in near term. We retain Hold, with back ended returns expectations in the current volatile demand scenario.

Consol Revenues grew by 5.4% YoY to Rs5.9bn. Gross margins contracted by - 177bps YoY to 55%. EBITDA declined by -0.4% YoY to Rs1.5bn (PLe:Rs1.66bn). Margins contracted by -151bps YoY to 26.4%. (PLe:28.0%). Adj PAT grew by 4.6% YoY to Rs0.69bn (PLe. Rs0.73bn). Added 20 net store taking total store count to 871. ASP came at Rs1500 flat YoY/QoQ while volume increased by 5% YoY to 3.9mn pairs.

Concall highlights: 1) MBL Continue to face demand challenge in athleisure & sports segment while walkway seeing some green shoots. 2) Q2 saw less than expected sales as demand remained tepid; however, there was marginal improvement QoQ. 3) 2H is expected to continue the uptrend led by festive season & higher marriage days. 4) Gross margins were impacted by 100bps amidst liquidation of Fila inventory at higher discounts 5) E-commerce sales (including Omni-channel) was Rs640rmn vs Rs580mn in Q1FY25, with 11.4% contribution to the total revenue. 6) 2Q ASP remained flat YoY as higher sale of accessories dragged the realizations. 7) As per the final notification on BIS, entire legacy stock as at 31st July, 2024 will be allowed to be liquidated till 31st July, 2026. 8) Fila has been launched in Metro/Mochi stores and EBO’s are expected in 2H26 only. 9) MBL is on course to open ~225 store over FY24-FY26. 10) Revenue for FY25 to witness growth of ~10-15% with long-term CAGR guidance maintained at ~15-18%. 11) EBITDA guidance stands at ~30%-33% & PAT margin guidance at ~15-17%. 12) MBL has opened first Footlocker store in Delhi (Select Saket) with 3 more stores likely by end of FY25. 12) Sales/sqft in 2HFY25 will be better than 2HFY24.

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