Bata India

Bata India reported a challenging Q1 FY26 with revenue declining marginally by 0.3% year-on-year to ₹942 crores. Gross margins contracted by 133 basis points, and PAT, before exceptional item^📎s, saw a 112 basis points decline, settling at 5.5%. Management attributed the flat growth to a 'relatively tough' quarter, noting ongoing stress in the mass and middle consumer segments due to inflation. The company also mentioned that geopolitical situations impacted store expansion momentum in the first half of the quarter.

The Zero Base Merchandising (ZBM) project has been implemented in close to 200 stores by June 2025, with 50 stores added in Q1. This initiative has led to a 33% line reduction and a 22% inventory reduction in ZBM stores. While the pace of ZBM implementation was modulated to ensure smooth system operation, the company aims to accelerate it to 65-70 stores per quarter. Concurrently, Bata is driving value proposition, introducing key price points like ₹399-₹499, which boosted checkout rates from 3.5% to 8% across 800 doors, with plans to expand to 1,200 stores.

The Floatz portfolio continued its strong momentum, achieving over 30% growth and contributing significantly to volumes. The Power athleisure segment, particularly with price points of ₹1,699-₹1,999, showed initial success with 6.6% checkout rates. Hush Puppies is expanding its premium offerings, now with close to 150 exclusive brand outlets (EBOs), and has seen significant additions like 'Office Sneakers' to its portfolio. The brand is also undergoing a refresh with a new, brighter store concept, with 36 stores already converted.

Bata India has made significant strides in inventory agility, with total inventory across the full network dropping by 25% year-on-year. Aged inventory has been reduced to less than half, and the stock turn improved to 2.1 on a trailing 12-month basis. The company targets to further improve stock turns to 'almost 2.5 plus' in the next 12 months through its 'Customer First' project, which focuses on end-to-end inventory forecasting and lead time improvements.

The franchise store network expanded to 644 stores, with a target of adding 30-40 stores per quarter. For COCO stores, the company aims for 70-80 gross additions annually, with a minimal net expansion of 10-15% in the short term. Overall, Bata's longer-term guidance for total store additions is 130-150 stores per year, maintaining an 80:20 ratio of franchise to COCO. Approximately 60% of new franchise additions are coming from existing partners.

The decline in gross margins was primarily attributed to the clearance of aged and discontinued inventory in previous quarters, a process now largely complete. Management expects to realize benefits from this clean-up, though some margin will be redeployed for value proposition initiatives. On the cost front, structural initiatives on fixed costs have led to an approximate 45-50 basis points benefit. Store closures, typically loss-making, are expected to contribute 40-50 basis points improvement to overall operating margins from year two onwards.