Go Fashion (I)

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.

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.

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.

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.

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.

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 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.