Metro Brands Q1 FY27 earnings call

Metro Brands reported a 14% growth in its standalone business for Q1 FY27, accompanied by a 9% increase in EBITDA and a 13% rise in PAT. The quarter saw initial softness in April and May, attributed to the U.S.-Iran conflict and a shift in marriage dates, but June experienced a strong recovery, leading to a mid-teen double-digit gain. The company maintained robust gross margins at nearly 60% and EBITDA margins at 30%, aligning with its guidance.

The digital segment demonstrated strong performance, with the D2C website and marketplace omni business each growing by 60% year-on-year. However, the overall digital growth was moderated to 9% due to the SOR 3P business. This moderation was a conscious decision to reduce lower price points and discounts in the 3P segment, with management anticipating overall e-commerce growth to be in the 'double digits' or '20% to 30%' on an ongoing basis.

In Q1, Metro Brands opened 13 new stores and closed 4, resulting in a net addition of 9 stores. While this number is lower than previous quarters, the company remains committed to achieving 'usual triple digit' store openings for the full year, emphasizing opening 'the right stores.' The Walkway format, despite a 50% growth rate in store count, is being evaluated for its ROCE target of 25-30% in the medium to long term, acknowledging its lower margin profile.

Gross margins were sustained at almost 60%, the highest in the past five quarters, due to proactive management of input costs and inventory control. However, PAT margins were impacted by strategic investments in brand-building marketing, increased occupancy costs from new formats, lower treasury income, and talent/technology. These are viewed as necessary investments for future growth, with management guiding for a full-year PAT in the 13-15% range.

Clarks women's collection, launched late last year, expanded to 350 MBO doors this spring and will see dedicated EBOs opening in Q3 FY27, with a potential to reach 100-150 stores in the foreseeable future. The FILA brand, after opening 3 new EBOs, is still in a 'work in progress' phase, with acceleration expected towards the end of FY27. The sports division, including FILA, Foot Locker, and MetroActiv, aims to contribute 10-15% of total sales, with a target of 300-500 stores in 5-7 years.

The company continues to navigate challenges from BIS regulations, particularly concerning the erratic approval and renewal processes for imports from ASEAN countries, especially for high-end athletic products. Management noted that while some factories are being approved, the inconsistency remains a concern. Despite this, consumer sentiment is seen as improving across various price points and geographies, with demand responding well to promotional campaigns and seasonal factors.