GOCOLORS - Go Fashion (India) Limited Share Price

Management Outlook:
Go Fashion anticipates a rebound in demand despite current challenges, targeting low single-digit same-store sales growth (SSSG) in Q4 FY25 and mid-single-digit SSSG in FY26. The company plans aggressive store expansion (120"“150 net additions in FY26) and aims to stabilize inventory days at 90"“95. International expansion is underway, with a Dubai store opening by April 2025. Management expects improved EBITDA margins (18"“20% pre-IndAS) through cost control, product mix optimization, and operational efficiency. The organized women's bottom-wear segment is poised for growth, driven by urbanization, disposable income, and shifting fashion trends.

Major Points:

1. Financial Performance:

   • 9M FY25 revenue grew 11% YoY to Rs.643 crore; EBITDA rose 9% to Rs.206 crore (32% margin).
   • Q3 FY25 revenue up 6% YoY; gross margin at 64.1% (product mix, lower cotton costs).

2. Demand & Strategy:

   • Subdued festive demand impacted Q3, but recovery seen post-December 15. Regional divergence: North/West positive SSSG; South lagged due to rains.
   • Focus on mid-sized stores (400"“500 sq. ft) for better customer experience; phased closure of smaller stores (10"“15 in Q1 FY26).

3. Operational Metrics:

   • Full-price sales at 95.1%; minimal discounting.
   • EBO channel revenue up 8.5% YoY; LFS partnerships expanded (Pantaloons, Shoppers Stop).
   • Inventory days at 99; target 90"“95.

4. Growth Drivers:

   • Product diversification: Reduced reliance on leggings/churidars; emphasis on value-added products (denims, shorts).
   • Cluster-based expansion with horizontal growth (new cities) to avoid cannibalization.

5. Margins & Costs:

   • Gross margins to stabilize at 62"“63%.
   • Employee costs rose due to new LFS store additions; variable pay structure to align with growth targets.

6. Market Confidence:

   • Long-term optimism in India's urban middle-class growth and preference for versatile, comfortable apparel. Cash reserves at Rs.231 crore support expansion plans.

Question 1: "Firstly, wanted to understand the trends. Growth trends have remained muted. It is also slightly weaker than our own expectations during the course of the year. What are the reasons for this? And also if you could highlight if there is any significant growth divergence across regions for you."

Answer: Muted growth in Q3 FY25 was driven by a weaker-than-expected festive season and reduced discretionary spending. North and West India reported low-to-mid single-digit SSSG, while South India faced challenges due to extended monsoon rains impacting sales. Post-December 15, demand improved, but overall Q3 SSSG remained flat.

Question 2: "I noticed that, particularly for Q3, the full price/mix is 95 versus last year it was closer to 98. So this demand environment which you're indicating after December 15, is this also due to a start of early EOSS this time around?"

Answer: Early End-of-Season Sales (EOSS) in the broader market contributed marginally to the lower full-price sales ratio (95.1% vs. ~98% YoY). Go Colors maintained disciplined discounting but noted competitors initiated EOSS earlier due to weak festive demand.

Question 3: "In other categories...is your space also seeing store closures for competition as well because of this prolonged slowdown?"

Answer: Industry-wide consolidation is occurring due to weak SSSG. Go Colors closed 23 small stores in 9M FY25, with plans to shut 10"“15 more in Q4. Future closures will normalize to mid-single digits annually, targeting 120"“150 net store additions in FY26.

Question 4: "You mentioned about SSG being muted. What is really hitting SSG? How do the next few quarters look? Are there initiatives to boost demand?"

Answer: Flat SSSG reflects subdued discretionary spending. Strategies include optimizing cluster-based expansion (opening larger stores in new geographies) and targeting low-to-mid single-digit SSSG in Q4/FY26. Revenue growth will focus on horizontal expansion and cost control.

Question 5: "Gross margins are up 264 bps, employee costs up 26%, and other expenses up 16%. What drove these trends?"

Answer: Gross margin improvement (64.1% in Q3) stemmed from favorable product mix and lower cotton prices. Employee cost growth was due to hiring for new LFS partnerships (e.g., Pantaloons, Shoppers Stop). Other expenses rose from store closures (INR4 crore vs. INR2.28 crore YoY) and mall maintenance costs.

Question 6: "If SSSG stays flat, where do you see pre-IndAS EBITDA margins stabilizing?"

Answer: Pre-IndAS EBITDA margins are projected at 18"“20% for FY26, supported by reduced store closure costs and operational efficiency. Mid-single-digit SSSG is targeted, but even low single-digit growth can sustain margins via cost control.

Question 7: "How is competition from value retailers like Zudio impacting demand?"

Answer: Go Colors' core customer base prioritizes quality/comfort, limiting direct overlap with value retailers. Demand challenges are attributed to macro weakness, not competition. Product differentiation and larger store formats aim to enhance customer experience.

Question 8: "How are newer product categories (denims, shorts) performing?"

Answer: New categories like denims are seeing positive traction but contribute minimally to overall sales. Focus remains on expanding product mix within the 400"“500 sq.ft. store format to improve browsing and drive incremental growth.

Question 9: "Why did small-store closures increase despite the hub-and-spoke model's initial success?"

Answer: Smaller stores (150"“200 sq.ft.) were consolidated into larger formats (400"“500 sq.ft.) to enhance customer experience and display value-added products. Closures were selective, targeting overlapping stores, while standalone small stores in underserved areas remain profitable.

Question 10: "What drove the increase in creditor days?"

Answer: Creditor days rose due to delayed payments from an LFS partner (INR9"“10 crore), resolved in early January. Working capital pressures are temporary, with normalization expected in Q4.