Go Fashion (India) Limited — Q3 FY25 earnings call

Call held 27 Jan 2025

Management summary

Go Fashion (India) Limited reported a cautious Q3 FY25, with revenue growing 6% YoY to ₹215 crores and EBITDA up 3% to ₹70 crores. The quarter was impacted by a weaker-than-expected festive season and subdued consumer spending, leading to flat same-store sales growth. Despite the challenging demand, the company maintained strong profitability with a 32.5% EBITDA margin, driven by strategic cost control and disciplined discounting. Management remains confident in its expansion strategy and expects demand recovery in coming quarters.

Highlights

  • Revenue from operations for Q3 FY25 stood at ₹215 crores, a growth of 6% YoY.

  • EBITDA for Q3 FY25 grew by 3% YoY to ₹70 crores, with an EBITDA margin of 32.5%.

  • Profit after tax (PAT) for Q3 FY25 was ₹24 crores, growing 4% YoY, with a PAT margin of 11.3%.

  • For the 9 months FY25, revenue grew 11% to ₹643 crores, and EBITDA grew 9% to ₹206 crores.

  • Same-store sales growth (SSSG) remained flat in Q3 FY25 due to a subdued market environment.

  • Full price sales ratio accounted for 95.1%, indicating strong consumer loyalty despite challenges.

  • The company plans to open 80 to 90 net new stores in FY25 and 120 to 150 in FY26.

Concerns

  • Sluggish Demand Environment

Key financials

3 periods

Headline

  • Cash & Equivalents (Dec 2024)
    ₹231 Cr

Q3 FY25

  • Revenue
    ₹215 Cr
    YoY +6%
  • EBITDA
    ₹70 Cr
    YoY +3%
  • EBITDA Margin
    32.5%
  • PAT
    ₹24 Cr
    YoY +4%
  • SSSG
    0%
  • Gross Profit Margin
    64.1%

9M FY25

  • Revenue
    ₹643 Cr
    YoY +11%
  • EBITDA
    ₹206 Cr
    YoY +9%

What they filed

Q1 FY27: revenue up 0.0%, net profit down 27.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue209 215 205 223 224 +7%195 −9%196 −4%223 +0%
EBITDA64 70 62 69 67 +5%52 −26%50 −19%61 −12%
Net profit21 24 20 22 22 +5%7 −71%8 −60%16 −27%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Store Expansion

  • Small Store Closures Store Expansion · Q1 next year · High confidence 10 to 15 stores
    We continue to rationalize our smaller stores and plan to phase out another additional 10 to 15 stores in Q1 this year. This will be the last set of small stores closures.

    — Gautam Saraogi

  • Net Store Additions Store Expansion · FY25 · High confidence 80 to 90
    And for the full year, we plan to do a total between 80 to 90 net additions.

    — Gautam Saraogi

  • Net Store Additions Store Expansion · Next year (FY26) · Medium confidence 120 to 150
    Going forward, next year, we aspire to open anywhere between 120 to 150 net additions for the next year.

    — R. Mohan

  • New Store Location Mix Store Expansion · Ongoing · High confidence 40% from existing clusters and 60-65% from newer markets

    Previously 50-50 approach → 40% from existing clusters and 60-65% from newer markets

    Maybe now it's a 40-60 approach, where 40% might come from existing clusters and 60%, 65% would come from newer markets.

    — Gautam Saraogi

Inventory Management

  • Inventory Days Inventory Management · Full year · High confidence 90 and 95 days
    For the full year, we anticipate our inventory days to stabilize between 90 and 95 days, ensuring operational efficiency and healthy working capital management, generating decent, high operating cash flows.

    — R. Mohan

Profitability

  • Operating Cash Flow Conversion Profitability · FY25 · High confidence more than 50%
    Our strong focus on inventory and working capital efficiency will help us achieve our target of converting more than 50% of our EBITDA into operating cash flows. We are on track to achieve the same for FY '25.

    — R. Mohan

  • Pre-IndAS EBITDA Margin Profitability · Steady state · High confidence 18% and 20%
    So on a steady state basis, I think we will target a pre-IndAS EBITDA of between 18% and 20%, with at least being 18% going up to 20%.

    — Gautam Saraogi

  • Pre-IndAS EBITDA Margin Profitability · Next year · High confidence 18%-plus
    Considering, next year, I'm not going to have too many closures and demand also will pick up a little bit, I think we should aspire to do 18%-plus EBITDA margin next year.

    — Gautam Saraogi

  • Gross Margin Profitability · Moving forward · High confidence 62% and 63%
    I don't think it will be to the extent of the 64%, what you saw in Q3, but I think between 62% and 63%, we'll maintain in moving quarters, which in fact, earlier times used to be at 61%. Now it will be between 62% and 63%.

    — Gautam Saraogi

Growth

  • SSSG Growth · FY26 · Medium confidence low single-digit
    Way forward, our first step is to achieve low single-digit SSSG in FY '26.

    — R. Mohan

  • SSSG Growth · Q4 FY25 · Medium confidence low single SSSG
    And for Q4, we will target a low single SSSG.

    — Gautam Saraogi

Market context

  • Company Revenue Growth Growth · Next year (FY26) · Medium confidence double-digit
    I think, next year, we're looking at a double-digit company revenue growth with a mid-single-digit SSSG.

    — Gautam Saraogi

Risks & concerns

  • Sluggish Demand Environment

    high

    Apparel retail demand remained weaker than expected, driven by an underwhelming festive season and decreased consumer spending on discretionary items, leading to flat SSSG.

    Management acknowledged

  • LFS Partner Payment Delay

    medium

    One large format store (LFS) partner delayed a payment of INR9-10 crores, impacting debtor days and operating cash flow in Q3 FY25.

    Management acknowledged

  • Increased Promoter Pledge

    medium

    Promoter pledge increased by 1% in Q3 FY25 due to an 'urgent requirement within the family,' with no specific timeline for reduction provided.

    Analyst acknowledged

  • Competition from Value Fashion Retailers

    low

    Analyst raised concerns about value fashion retailers like Zudio potentially taking market share; management emphasized Go Fashion's quality and range as differentiators.

    Analyst downplayed

Areas of evasion (2)

  • Specific timelines for pledge reduction
  • Exact quantification of product mix vs. cotton price impact on gross margin

Q&A highlights

2 direct
Reasons for muted growth and regional divergence in Q3 FY25 Direct
I think festive was far lesser than expectations. And we've done our channel checks as well, and it has been consistent across different retailers we have checked, that festive was quite disappointing this time. ... South has been a little bit of a drag for us. One of also the reasons for South having a little bit of an underperformance in Q3 is because of extended rains.

Management directly attributed flat SSSG to a weak festive season and regional weather impacts, providing context for the quarter's performance.

Asked by Devanshu Bansal

Sustainability of gross margins and reasons for increased employee costs Direct
on the GM part, Sameerl I think it's a product mix perspective also. I mean, some of our products which had a slightly higher multiplier and higher GM, those products sold a little more than our other products. That had one impact on the GM, to go up. And on the cotton prices as well. I think we've had cotton prices coming down. ... we've added 3 LFS partners in this entire 9 months. We added Lifestyle, we added Shoppers Stop, we added Pantaloons.

Management explained the drivers behind gross margin expansion (product mix, cotton prices) and the temporary increase in employee costs due to new LFS store additions, with an expectation of stabilization.

Asked by Sameer Gupta

Increase in promoter pledge and timeline for reduction Partial
We had an urgent requirement within the family. And we had to do this, unfortunately. And this also continues to remain short term in nature. Now when will the old pledge and the new pledge get cleared, I will come back soon with timelines and I'll give them to the market. Right now, I'm not having timelines in my hand, unfortunately.

An analyst raised a red flag regarding increased promoter pledge, to which management provided a reason but no specific timeline for resolution, indicating uncertainty.

Asked by Aradhana Jain

3 min read 7 chapters

Detailed narrative

Q3 FY25 Performance Overview

Go Fashion (India) Limited reported a Q3 FY25 revenue of ₹215 crores, marking a 6% year-on-year growth from ₹202 crores in Q3 FY24. EBITDA grew 3% YoY to ₹70 crores, achieving a 32.5% margin. Profit after tax (PAT) increased by 4% YoY to ₹24 crores, with a PAT margin of 11.3%. For the nine months of FY25, revenue reached ₹643 crores (up 11% YoY) and EBITDA was ₹206 crores (up 9% YoY), maintaining a 32% margin. Same-store sales growth (SSSG) remained flat, reflecting a challenging market.

Demand Environment and Regional Trends

The apparel retail demand was weaker than expected in Q3 FY25, primarily due to an underwhelming festive season and decreased consumer spending on discretionary items. Post-December 15, demand showed some improvement. Regionally, North and West India reported positive SSSG, while South India experienced a drag, partly attributed to extended monsoon rains into December, particularly in Tier 2 and Tier 3 cities like Tamil Nadu and Karnataka.

Store Expansion and Consolidation Strategy

The company continues to rationalize smaller, underperforming stores, with plans to close an additional 10 to 15 stores in Q1 next year, marking the last set of such closures. For FY25, Go Fashion aims for 80 to 90 net new store additions, and for FY26, it aspires to open 120 to 150 net additions. The expansion strategy is shifting towards more horizontal growth, with 60-65% of new stores expected in newer markets and 40% in existing clusters, moving from a previous 50-50 approach. The focus is also on opening mid-sized stores (400-500 sq ft) for an enhanced customer experience.

Profitability and Cost Management

Gross profit for Q3 FY25 stood at ₹138 crores, an 11% YoY growth, with a GP margin of 64.1%. This improvement was attributed to a favorable product mix with higher-multiplier products and a benefit from lower cotton prices. Management expects to maintain gross margins between 62% and 63% moving forward. Employee costs increased by 26% due to the addition of new large format store (LFS) partners (Lifestyle, Shoppers Stop, Pantaloons) whose stores are yet to stabilize, with stabilization expected by Q1 next year. The company is also implementing a variable component for front-end employees linked to SSSG and overall growth, effective from Q1.

Working Capital and Cash Flow

Inventory days stood at 99 days as of December 2024, with a full-year target to stabilize between 90 and 95 days. The company aims to convert more than 50% of its EBITDA into operating cash flows for FY25. Cash and cash equivalents were ₹231 crores as of December 31, 2024. However, debtor days increased due to a delay of ₹9-10 crores in payment from one LFS partner, which was received in January.

Outlook and Future Growth Drivers

For Q4 FY25, the company targets a low single-digit SSSG. Looking into FY26, management anticipates double-digit company revenue growth with a mid-single-digit SSSG. They aim for a pre-IndAS EBITDA margin of 18-20% on a steady-state basis, and 18%-plus for next year. The company is also on track to open its first store in Dubai by April 2025 through Apparel Group, marking its international expansion.

Promoter Pledge and Other Financial Notes

Promoter pledge increased by 1% in Q3 FY25 due to an 'urgent requirement within the family.' Management stated this is short-term and committed to providing timelines for clearing the old and new pledges soon, though no specific dates were available during the call. ROCE and ROE (excluding IndAS impact) as of 9 months FY25 stood at 20.3% and 15.8% respectively.

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