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Retail momentum offset by online pullback; overall growth recovery key

• Despite a weak base and benefit of higher wedding-related footfalls, Aditya Birla Lifestyle Brands’ (ABLBL) overall revenue growth was tepid at ~3% YoY (weaker than peers).
• Retail like-to-like (LTL) improved to 15% YoY, but was offset by continued store consolidation and weaker performance in the online channel (-19% YoY).
• Accelerated brand-building efforts during IPL (A&P spends ~280bp higher YoY) hurt profitability, with EBITDA declining ~2% YoY to INR2.6b (in line).
• ABLBL opened ~50 gross stores, but overall store count declined by ~23, driven by continued store rationalization. However, management continues to aim for 250+ new store additions in FY26.
• Management is targeting to double revenue (11%+ CAGR) over FY24-30 through sustained high-single-digit LTL growth and an accelerated rollout of 250+ net store additions annually (on a base of ~3,200+ stores).
• We fine-tune our FY26-27 forecasts with modest change in revenue and EBITDA. We build in a CAGR of 8%/11%/24% for revenue/EBITDA/PAT over FY25-28.
• We ascribe a 12x Sep’27E EV/EBITDA multiple to Lifestyle brands and a ~1.2x EV/Sales multiple to Emerging brands. We reiterate a Neutral stance with a TP of INR150 (implies ~25x Sep’27 pre-INDAS 116 EV/EBITDA).

Tepid performance; revenue grew 3% YoY, while EBITDA declines 2% YoY

• Revenue at INR18.4b grew 3% YoY (2.5% below) despite a weaker base and weaker vs. branded apparel peers (+16% YoY for Arvind Fashions).
• Lifestyle brands’ revenue grew 6% YoY, as 15% retail LTL growth was offset by continued store consolidation and weaker performance in the online channel.
• Emerging brands’ revenue declined 2% YoY due to the closure of Forever21.
• Gross profit rose ~10% YoY to INR11.5b (5% beat) as gross margin expanded ~375bp YoY (+460bp ahead), driven by a better sales channel mix, closure of unprofitable stores, and lower markdowns.
• Other expenses spiked 19% YoY (11% ahead), primarily due to higher A&P spends (up 280bp YoY), while employee and rental expenses rose 8-9% YoY.
• Reported EBITDA at INR2.6b declined ~2% YoY (in line with our estimate), as EBITDA margin contracted ~75bp YoY (35bp ahead) due to higher A&P spends.
• Depreciation rose ~6% YoY (9% below), while interest costs declined ~3% YoY.
• Reported PAT at INR241m rose ~5% YoY, significantly ahead of our estimate of INR167m, largely due to lower depreciation, higher other income (+60% YoY), and lower tax rate (~15% vs. our est. of 25.2%)

Key highlights from the management interaction

• Demand environment: The overall consumption environment during 1QFY26 remained sluggish, with selective pockets of growth, largely driven by higher wedding-related demand. Management indicated that despite cautious sentiments, ABLBL delivered strong double-digit LTL retail growth across its Lifestyle brands portfolio, aided by strong brand recall, widespread network, and improved retail execution.
• Growth guidance: ABLBL aims to deliver early double-digit growth in Lifestyle brands through retail network expansion and robust LTL growth, while Emerging brands are likely to see higher ~18-20% growth on a relatively lower base.
• Store additions & distribution expansion plans: ABLBL added 50 stores on a gross basis in 1QFY26. However, on a net basis, overall store count declined by ~23. However, management reaffirmed its target of adding 250+ net stores in FY26 across all brands. Expansion will be portfolio-wide, including Lifestyle brands, Reebok, and youth brands, with strong opportunities to expand the network in tier-2 and tier-3 towns. The major heavy lifting in correcting the department store network is complete, with only minor closures expected going forward.
• Debt & cash generation: Net debt rose INR2b to ~IN7b in 1Q due to inventory build-up ahead of the upcoming festive season. However, management expects annual debt reduction of INR2-3b, targeting to become net-debt free in the next 2-3 years. Cash generation is sufficient to fund retail expansion in both Lifestyle and Emerging brands.

Valuation and view

• ABLBL is a pioneer in India’s branded apparel sector with over three decades of operating history. Its four Lifestyle brands have each scaled beyond the INR10b mark, having established a widespread presence through 2,800+ retail outlets, MBOs, LFS, and online channels.
• While Lifestyle brands have achieved scale and healthy profitability, the company is now focused on scaling up its Emerging brands, such as American Eagle (denim), Reebok (footwear), and Van Heusen Innerwear (innerwear and athleisure). This provides a compelling retail play with balanced growth, profitability profile, strong cash generation, and robust return ratios.
• Management is targeting to double revenue (11%+ CAGR) over FY24-30 through sustained high-single-digit LTL growth and an accelerated rollout of 250+ net store additions annually (on a base of ~3,200+ stores).
• We fine-tune our FY26-27E forecasts with a modest change in revenue and EBITDA. We build in a CAGR of 8%/11%/24% for revenue/EBITDA/PAT over FY25-28E.
• We ascribe a 12x Sep’27E EV/EBITDA multiple to Lifestyle brands and a ~1.2x EV/Sales multiple to Emerging brands. We reiterate a Neutral stance with a TP of INR150 (implies ~25x Sep’27 pre-INDAS 116 EV/EBITDA).

Segment-wise results summary

Lifestyle brands: Strong retail LTL in Lifestyle brands offset by lower online sales

• Revenue at INR15.7b grew 6% YoY (in line with estimates), driven by doubledigit LTL growth across all brands.
• Retail (incl. outlets) grew 12% YoY, driven by strong 15% LFL growth and a double-digit rebound in small towns, offsetting the decline in store count (gross store adds 40+, offset by consolidations).
• Wholesale growth rebounded to ~6% YoY, supported by healthy underlying secondary L2L growth despite a temporary drag from the consolidation of a department store partner.
• Online revenue declined 19% YoY, with growth deliberately moderated to prioritize profitability.
• EBITDA stood at INR2.8b (-1% YoY) and was marginally below our estimate.
• EBITDA margin at 17.8% contracted 125bp, impacted by a 2x jump in A&P spends.

Emerging brands (Reebok, American Eagle, and Van Heusen Innerwear): Growth

hurt by the closure of F21; margins expand as Innerwear losses halve YoY

• Revenue at INR3.1b declined 2% YoY (7% below), hurt by the closure of Forever21.
• EBITDA stood at INR90m (vs. INR36mn YoY) as VH Innerwear losses halved YoY in 1QFY26.
• American Eagle: Strengthening denim/casual wear positioning; 67 stores and 230+ counters; 2 new stores added in 1Q (3 closures).
• Reebok: Profitable and expanding; 10 new stores in 1Q; footprint of 175+ stores and 950+ offline touchpoints.
• Van Heusen Innerwear: Losses halved YoY; multi-channel growth led by retail; presence in 37,000+ trade outlets and 100+ exclusive stores; added 500+ counters in 1Q.

Detailed takeaways from earnings call

• Demerger: The demerger from ABFRL was completed effective 1st May’25 and all operations have fully transitioned to the new company across front-end, back-end, and employee systems.
• Demand environment: The overall consumption environment during 1QFY26 remained sluggish, with selective pockets of growth, largely driven by higher wedding-related demand. Management indicated that despite cautious sentiments, ABLBL delivered strong double-digit LTL retail growth across its Lifestyle brands portfolios, aided by strong brand recall, wide-spread network and improved retail execution.
• Growth guidance: ABLBL intends to deliver early double-digit growth in Lifestyle brands through retail network expansion and robust LTL growth, while Emerging brands are likely to see higher ~18-20% growth on a relatively lower base.
• Store additions & distribution expansion plans: ABLBL added 50 stores on a gross basis in 1QFY26, but on a net basis, overall store count declined by ~23. However, management reaffirmed its target of adding 250+ net stores in FY26 across all brands. Expansion will be portfolio-wide, including Lifestyle brands, Reebok, and youth brands, with strong opportunities to expand the network in tier-2 and tier-3 towns. Major heavy lifting in department store network correction has been done, and only minor closures will happen going ahead.
• E-commerce: E-commerce channel sales declined ~19% YoY in 1Q, driven by strategic corrections and reduced discounting to ensure uniform pricing across channels. Management indicated that a large part of corrections is behind and online channel should stabilize over the next two quarters. Excluding ecommerce, 1Q revenue growth would have been 10%+. E-commerce remains an important channel, but a large part of growth over the long term will be fuelled by the retail channel.
• Marketing Investments: Marketing spend spiked to ~5.5% of revenue in 1Q due to increased advertising spends during the IPL, which boosted brand visibility and helped deliver strong retail LTL growth. ABLBL will continue its significant investment in advertising to improve brand relevance and customer engagement. However, for the full year, ad spends are likely normalize to ~3- 3.5% of sales.
• Reebok: Reebok posted 9% retail LTL growth, though overall revenue growth was marginal due to lower primary sales. The channel mix is ~50% retail, 20-25% e-commerce, 10–15% wholesale, and a small institutional business. Unlike Lifestyle brands, 60% of the sales in Reebok are billed as primary sales to franchise partners, which leads to some quarterly volatility. However, since acquisition, Reebok has doubled its retail footprint (from ~90 EBOs) and grown ~2.5x in sales to ~INR5b sales, despite the clean-up of old inventory and challenges posed by BIS implementation. Management intends to deliver 20%+ growth for Reebok over the long term.
• Innerwear Business: Innerwear business grew marginally, though its losses have halved YoY in 1Q, reflecting improved cost control and operational efficiency. Management has guided for breakeven in FY27. The premium segment is seeing recovery in demand, with expectations of a gradual growth rebound despite the competitive intensity.
• Debt & cash generation: Net debt rose INR2b to ~IN7b in 1Q due to inventory build-up ahead of the upcoming festive season. However, management expects an annual debt reduction of INR2-3b, targeting to become net-debt free in the next 2-3 years. Cash generation is sufficient to fund retail expansion in both Lifestyle and Emerging brands.
• Working capital & capex: The capex guidance for FY26 was maintained at ~INR2.5b, mainly for retail expansions, store refurbishments, and smaller allocations to upgrading warehouse infrastructure and technology. Working capital remains in the range of 13-15% of sales, with slight quarterly variations.

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