Release Date: November 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Bata India Ltd (BOM:500043, Financial) reported strong growth in its premium brands, with Bata Comfit and Hush Puppies showing significant double-digit growth.
- The company expanded its retail footprint by adding 34 new franchise stores, bringing the total to 600 franchise stores and 1,355 COCO stores.
- Digital commerce continues to be the fastest-growing channel, with significant contributions from brands like Floatz and Bata Comfit.
- The company is focusing on supply chain efficiency by consolidating sourcing partners, aiming to reduce complexity and improve quality and cost-effectiveness.
- Bata India Ltd (BOM:500043) is implementing a zero-based merchandising initiative, which has shown promising results with a 20% increase in sales per square foot in pilot stores.
Negative Points
- Overall revenue growth was muted at 2.2%, with the company acknowledging a challenging consumption environment.
- Gross margins saw a contraction of 140 basis points, attributed to a mix of increased franchise and e-commerce sales and efforts to clear inventory.
- The mass portfolio, particularly products priced below INR1,000, has underperformed, with its contribution dropping significantly from pre-COVID levels.
- The company faces challenges in the value segment, with competition from private labels and modern retailers impacting market share.
- There is a noted increase in receivables, attributed to seasonal factors and marketplace business dynamics, which the company expects to normalize.
Q & A Highlights
Q: Can you provide insights into the overall consumption environment for the quarter and any trends observed between metro and Tier 1 cities versus smaller towns?
A: We observed sequential improvement throughout the quarter after a challenging previous quarter. Lower-tier towns showed slightly better responses, but premium segments continue to perform well. Price points above INR1,000 have increased, indicating a shift towards premium products.
Q: With the focus on affordable propositions, how do you expect the premium versus mass portfolio to perform, given the underperformance of the mass portfolio?
A: Consumers across all price points are seeking value. For instance, our EasySlide Power series, priced higher than our average selling price, offers great value compared to competitors. We aim to provide value propositions that may still drive premiumization.
Q: What impact do you expect from the Zero-Based Merchandising (ZBM) initiative on growth over the next one to two years?
A: The pilot stores have seen a 20% increase in sales per square foot, indicating improved like-for-like sales. The initiative enhances consumer experience by reducing retrieval time for alternative products, which has dropped from 2 minutes to 45 seconds. We plan to scale this initiative to 20% of our network.
Q: What factors contributed to the 140 basis point contraction in gross margin?
A: The contraction is due to a mix of factors, including increased franchise and e-commerce sales, which typically have lower gross margins. Additionally, efforts to clear inventory impacted margins. However, we are confident in managing gross margins in the medium term.
Q: What is the current capacity utilization at your manufacturing units, and is there any outsourcing involved?
A: Our sourcing footprint includes in-house manufacturing and sourcing partners, with a ratio of about 25% in-house and 75% from partners. We are consolidating sourcing partners to improve quality, service, and cost efficiency. Investments in automated, less labor-intensive technologies are ongoing.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
