ARVINDFASN - Arvind Fashions Limited Share Price

In the earnings call for Q4 FY25, management highlighted a positive outlook for Arvind Fashions Limited (AFL) going forward. The management anticipates a gradual improvement in the demand environment, driven by various macroeconomic factors and initiatives in the financial budget. They project growth rates for the upcoming fiscal year to exceed the 8.5% growth achieved in FY25, with aspirations of attaining 12% to 15% growth in FY26.

Key forward-looking points include:

1. Revenue Growth: Management reported FY25 NSV of INR 4,620 crores, up 8.5% year-on-year. They expect this trend to continue into FY26 with higher uplifts, aiming for double-digit growth rates.

2. Margins: EBITDA margins improved by 100 basis points to nearly 14%, with a commitment to further enhancing margins by 100 basis points annually moving forward.

3. Return on Capital Employed (ROCE): AFL crossed the milestone of over 20% ROCE, and they aim to sustain or improve this level.

4. Lower Tax Regime: Transitioning to a lower tax regime of 25% is expected to positively impact reported PAT, cash flow and ROCE.

5. Corporate Strategy: Continued investment in marketing at over 4% of revenue is underscored to sustain brand strength. The focus includes an uptick in square footage expansion of around 1.5 lakh square feet planned for FY26.

6. Product Diversification: Adjacent categories like footwear and innerwear are projected to contribute over 20% of revenue, with a target for footwear revenue to reach INR 500 crores.

7. Retail Channel Growth: Direct channels such as EBO retail and online B2C are noted to grow robustly, with expectations of online B2C growth exceeding 25%.

8. Cost Management: The management emphasized ongoing cost optimization and effective inventory management to support operational efficiency.

Overall, the management appears cautiously optimistic about increasing growth momentum in FY26 while focusing on profitable growth, margin enhancement, and strategic brand positioning amidst broader market conditions.

Here are the major questions from the Q&A section of the earnings call transcript along with detailed answers in first person.

1. Question from Chetan on adjacent categories: "Could you elaborate on the individual profitability profiles of adjacent categories like footwear, women's, kids, and innerwear relative to our core apparel business? Are any currently operating at significantly lower margins?"

Answer: All adjacent categories maintain profitability without being margin dilutive. Footwear is particularly strong, outperforming core apparel. Innerwear has significantly improved due to its pivot online, and our re-launched women's line is also performing well. While we may invest more in marketing, fundamentally, these categories are comparably profitable.

2. Question from Chetan on new format stores: "What is the store count of new formats like Club A, Stride, and Megamart? How much of the planned 15% square footage addition will come from these formats?"

Answer: Currently, we have around 5 Club A stores, 50 Megamart stores, and 15 Stride stores. Megamart is rapidly expanding and performing well. While new formats will account for 10-15% of our square footage addition, the bulk will come from mono-brand stores.

3. Question from Manish on store openings and closures: "Can you provide a breakup of brand-wise store additions and deletions over the last two years?"

Answer: In FY25, we added 120 stores gross and closed around 70, resulting in a net addition of 50 stores. We expanded by 1.22 lakh square feet, a record for us. We shut smaller, less profitable stores, focusing on larger, more strategic openings.

4. Question from Manish on Arrow and Flying Machine: "What is the progress in the profitability journey of Arrow and Flying Machine?"

Answer: Both brands made good progress in profitability, moving from low single-digit EBITDA to mid-single-digit targets. In H2 of FY25, their performance improved noticeably, and we're on track to achieve our profitability goals for these brands.

5. Question from Sameer on revenue from accessories: "What revenues are being generated from adjacent categories like innerwear and footwear, and what's the online channel's contribution?"

Answer: Footwear has crossed INR 300 crores, aiming for INR 500 crores, with a strong online presence. Innerwear is set to exceed INR 200 crores soon. Both categories are seeing robust online growth due to our strategic pivot towards digital sales.

6. Question from Surya Narayan on store performance: "How do you judge a new store's performance, and how long before deciding to close it?"

Answer: We evaluate new stores based on sales density, customer conversion, and sell-through rates, typically assessing their performance over two seasons before making closure decisions.

7. Question from Soumya about EBITDA margins for Arrow and Flying Machine: "Can we expect mid-single-digit EBITDA margins for Arrow and Flying Machine soon?"

Answer: Yes, we aim for mid-single-digit margins for both brands. They currently operate in low single digits, but with ongoing improvements, we're optimistic about achieving our targets.

8. Question from Devanshu on demand trends: "Are current trends reflecting expectations of 12%-15% growth for FY26?"

Answer: So far in Q1, we see an uptick in growth and are hopeful for continued momentum as we tackle square footage expansion. A supportive market could help us surpass the 8.5% growth we achieved in FY25.

These responses encapsulate the key elements discussed during the earnings call.