Release Date: May 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Arvind Fashions Ltd (BOM:542484, Financial) delivered a strong Q4 financial performance with quarterly sales growing by 4%, aided by a healthy like-to-like (LTL) growth of 4%.
- The company achieved an improvement in EBITDA margin by 150 basis points to 13.5%, despite higher investments in advertising.
- Full-year FY24 sales grew by 5%, driven by a sharper focus and execution across the retail channel.
- EBITDA for FY24 grew by 15% with an improvement of almost 120 basis points.
- Return on capital employed (ROCE) improved by 400 basis points to more than 16%, with a target to achieve 20%-plus ROCE in the near term.
Negative Points
- The macroeconomic environment remained subdued, impacting overall growth.
- Wholesale channel sales were negatively impacted due to a shift between Q4 and Q1.
- There was a large de-growth in the online B2B business, affecting overall sales growth.
- The footwear business faced short-term challenges due to new government regulations (BIS), impacting inventory levels and assortment.
- The performance of the Arrow brand remained muted, with EBITDA at low single digits, requiring further corrective actions.
Q & A Highlights
Q: Can we get some perspective on individual brand performance for the full year, not just the quarter?
A: Shailesh Chaturvedi, MD, CEO & Director: The brand-wise performance is similar to what was discussed in the last investor call. Tommy Hilfiger and Calvin Klein have delivered strong top-line and bottom-line results. U.S. Polo Association had a good quarter in terms of EBITDA. Arrow has shown good traction and remains profitable at low single-digit EBITDA. Flying Machine has been reenergized with new merchandise and store identity, showing early signs of improvement.
Q: What has impacted Arrow's EBITDA performance, and what further actions are required?
A: Shailesh Chaturvedi, MD, CEO & Director: Arrow's progress has been good despite tough market conditions. The brand has gained traction and improved its ranking in department stores. The journey of Arrow is ongoing, and we expect it to reach mid-single-digit EBITDA soon as market conditions improve.
Q: Can you elaborate on the innovative store formats and their investments?
A: Shailesh Chaturvedi, MD, CEO & Director: We have introduced multiple store formats like Megamart for outlet sales and Club A for premium high-street locations. The investment in these formats will be asset-light, primarily through the FOFO model. These formats will help in expanding our retail network and improving profitability.
Q: What is the size and margin of categories like footwear, kidswear, innerwear, and womenswear?
A: Shailesh Chaturvedi, MD, CEO & Director: Kidswear and footwear have each crossed INR 200 crores in revenue, with close to double-digit EBITDA. These categories are growing in double digits and have the potential to reach 20% of AFL's revenue in the medium term. Womenswear and innerwear are also showing good promise.
Q: Is the destocking in online B2B done, or is there still room for improvement?
A: Shailesh Chaturvedi, MD, CEO & Director: The industry is transitioning from B2B to B2C in the online space. While B2B is currently larger, B2C is growing rapidly and showing good traction. This transition will continue over the next few quarters, stabilizing and growing the overall online business.
Q: What is the advertising expense for the whole year, and how do you see it going forward?
A: Shailesh Chaturvedi, MD, CEO & Director: Advertising expenses are close to 4% of sales, which is 100 basis points higher than the previous year. We expect this to remain stable but are open to increasing it if needed to keep our brands top of mind.
Q: How do you look at the overall market and growth prospects for FY25 and FY26?
A: Kulin Lalbhai, Non-Executive Director: We have built a strong platform for growth with investments in brands and retail experiences. We expect significantly better growth in FY25 compared to FY24. Once market conditions become neutral or positive, achieving 12%-15% growth is very achievable.
Q: What is the channel mix target going forward, and which channel offers the best ROCE?
A: Shailesh Chaturvedi, MD, CEO & Director: We aim to increase the share of retail and online B2C channels, which offer better margins and cash conversion. Retail and MBO channels provide the best ROCE, with retail offering the highest absolute EBITDA.
Q: What are the revenue, EBITDA, and PAT for PVH brands (Tommy Hilfiger and Calvin Klein) for FY24?
A: Ankit Arora, Investor Relations Officer: While we don't disclose brand-wise financials, PVH brands have grown better than the company-wide average, benefiting from premiumization. Tommy Hilfiger and Calvin Klein have delivered record performances in terms of top line and bottom line.
Q: What is the outlook for Flying Machine, and when do you expect it to break even on EBITDA?
A: Shailesh Chaturvedi, MD, CEO & Director: Flying Machine is in the early stages of improvement with new merchandise and store identity. While it's premature to set a break-even timeline, we are confident of performance improvement and are focused on putting the right inputs behind the brand.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
