Arvind Fashions.

Arvind Fashions reported a strong Q3 FY25, with sales growing by approximately 7% to INR 1,203 crores and an impressive 11% like-to-like growth despite muted market conditions. The company achieved its highest-ever quarterly EBITDA of INR 174 crores, marking a 16% growth and a 110 basis point improvement in EBITDA margin to 14.5%. PAT saw a significant 71% increase in Q3 and more than doubled (133%) in the YTD period for continuing businesses, reflecting effective strategic interventions and a focus on profitable growth.

The company's strategic pivot towards direct channels (brand stores, websites, online B2C) is yielding results, with these channels now contributing nearly 55% of revenue, a 4% increase in share. Retail channel growth accelerated to 15% in Q3, supported by strong like-to-like growth, square foot expansion, and store renovations. Online B2C business grew by 20% in Q3, compensating for a planned 10-12% decline in B2B online channels, leading to overall online business growth of close to 10% profitably.

All five power brands (US Polo, Arrow, Flying Machine, Tommy Hilfiger, Calvin Klein) have been re-energized, contributing to the healthy performance. Focused interventions included higher advertising, increased square foot expansion, and product innovation. Celebrity collaborations, such as Disha Patani for Calvin Klein, Maharaja Padmanabh Singh Pacho for US Polo, and Orry for Flying Machine, were successful in driving consumer engagement and premiumization, leading to reduced discounting and a 160 basis point increase in Q3 Gross Profit to 55%.

While the underlying growth potential for the wholesale channel is estimated at 8-10% in the near term, Q3 saw some moderation. This was attributed to a one-off^📎 exit from a large department store chain and strategic de-stocking. However, management noted that consumer sales in department stores showed double-digit like-to-like growth, similar to retail, and expressed optimism for a rebound in wholesale business, potentially aided by recent tax cuts.

Adjacent categories, including womenswear, kids wear, and innerwear, are growing at a faster pace, with womenswear doubling on a small base and innerwear growing in mid-teens. The footwear business, a significant segment, was impacted by BIS implementation, causing inventory and assortment issues and a sharp decline in some brands. However, management believes the worst is over, with new factories coming online and production increasing, targeting a return to over 20% growth.

The company maintained tight control over balance sheet KPIs, with gross working capital days remaining stable. Inventory saw a 5-day reduction compared to the previous year and a decrease of INR 40 crores over September 2024, leading to inventory stock turns of over 4. Debtor value also reduced by INR 180 crores post-festival trading, with NWC days at a healthy 60. This focus on efficiency contributed to the Return on Capital Employed crossing 19%.

Arvind Fashions is committed to its medium-term aspiration of 12-15% revenue growth and aims to take ROCE beyond 20%. The company expects EBITDA margins to continue improving by at least 100 basis points annually. With growth engines firing across direct channels, square foot expansion (targeting 1.5 lakh net square feet annually), and adjacent categories, and an anticipated improvement in economic indicators, management is confident in achieving its profitable growth targets.