Metro Brands Limited — Q2 FY25 earnings call

Call held 24 Oct 2024

Management summary

Metro Brands delivered a resilient Q2 FY25, characterized by steady premiumization and strategic expansion despite broader retail headwinds. The company successfully navigated a significant inventory cleanup for the Fila brand and mitigated BIS-related supply chain disruptions for its core labels. Management remains confident in achieving double-digit growth for the full year, supported by a strong festive and wedding season outlook.

Highlights

  • Revenue grew by 5.4% YoY, with standalone revenue up 5.1% despite a 'lumpy' recovery environment.

  • Premiumization continues with products priced above ₹3,000 representing 53% of sales, up from 50% in FY24.

  • EBITDA and PAT remained constant YoY on a standalone basis, maintaining financial discipline during inventory cleanup.

  • Fila inventory liquidation impacted gross margins by approximately 100 basis points (₹5-5.5 crores).

  • Net store additions reached 40 for H1 FY25 (45 openings, 5 closures), keeping the company on track for its 100+ store annual target.

  • E-commerce business remains robust, contributing over 10% of total sales.

  • In-house brands continue to dominate the multi-brand outlet (MBO) segment, representing over 70% of sales.

Concerns

  • BIS Compliance for Premium Imports

Key financials

2 periods

Headline

  • Revenue Growth
    5.4%
    YoY +5.4%
  • Premium Product Mix (>₹3000)
    53%
    YoY +6%

H1

  • EBITDA Margin
    29%
  • ASP Growth
    1%
    YoY +1%
  • Net Store Additions
    35 units

What they filed

Q1 FY27: revenue up 14.6%, net profit down 4.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue585 703 643 628 651 +11%811 +15%773 +20%720 +15%
EBITDA155 225 197 194 171 +10%265 +18%238 +21%215 +11%
Net profit72 95 95 99 69 −4%130 +37%118 +24%95 −4%
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.

Segment breakdown

  • Crocs
    Strong growth qualitative PerformancePeak monsoon demand context Seasonality
  • Fila
    100 bps Margin Impact₹5.5 Cr Liquidation Loss
  • Walkway
    Building qualitative Momentum

Guidance & targets

Revenue

  • Annual Revenue Growth Revenue · FY25 · Medium confidence 12-15%

    From 12-15% today

    I still think we're going to go with our guidance that we provided earlier in the previous quarterly call of about 12% to 15%.

    — Nissan Joseph, CEO

Other

  • Net Store Openings Other · FY25 · High confidence >100
    We're confident that we are on track to open over 100 stores in this fiscal year.

    — Nissan Joseph, CEO

  • Foot Locker Store Count Other · Immediate Future · Medium confidence 3-4
    In the immediate future, we want to get them up to about three to four stores, just so we can get a read.

    — Nissan Joseph, CEO

Margin

  • EBITDA Margin Margin · H2 FY25 · Medium confidence ~30%
    Q3 is the biggest... we are still running for EBITDA margin in that 30% range.

    — Kaushal Parekh, CFO

Risks & concerns

  • BIS Compliance for Premium Imports

    high

    High-end technical products (sports/athleisure) are difficult to replicate in India immediately, potentially slowing Foot Locker and Fila expansion.

    Both acknowledged

  • Rental Inflation

    medium

    Management slowed store openings in H1 to avoid signing long-term leases at peak rental rates.

    Management acknowledged

  • Lumpy Consumer Demand Recovery

    medium

    Post-COVID recovery has not been a straight line, with volatility across different months and regions.

    Management acknowledged

Areas of evasion (2)

  • Specific revenue targets for Foot Locker stores
  • Detailed regional volume dispersion beyond general trends

Q&A highlights

2 direct
Confidence in 12-15% Growth Guidance Direct
We have all indications... that the business is there and there's no reason we shouldn't come at that guidance range.

Analysts were skeptical given the muted H1 performance; management's firm stance suggests a very strong H2 expectation.

Asked by Videesha Sheth

Impact of Fila Inventory Liquidation Direct
So broadly, the impact would have been around 100 basis points... somewhere close to INR5 crores, INR5.5 crores.

Quantifies the one-time drag on margins, allowing investors to see the underlying health of the core business.

Asked by Aditya Khetan

BIS Regulation Impact on Supply Chain Partial
The exposure is minimal in the sense that we've forward bought enough and anything at all we've swapped the production to India.

BIS is a major sector risk; management's proactive sourcing shift to India mitigates potential stock-outs in core brands.

Asked by Sameer Gupta

2 min read 5 chapters

Detailed narrative

Premiumization Trend Accelerates

Metro Brands continues to see a structural shift toward premium products, with the contribution from items priced above ₹3,000 rising to 53% of total sales. This is driven by strong performance in brands like Crocs and Fitflop, where high-ASP items like ₹8,000 slippers are seeing good traction. Management noted that even with a 1% rise in Average Selling Price (ASP), volume growth remains the primary driver of the 5.4% revenue increase.

Strategic Store Expansion and Rental Discipline

The company added 40 net new stores in H1 FY25, reaching a total of 871 stores across 199 cities. Management intentionally moderated the pace of openings in the first half due to high rental demands in the market, choosing to wait for rental rationalization. They remain committed to their target of over 100 net additions for the full fiscal year, citing a strong pipeline of leases and LOIs for the second half.

Navigating BIS Regulatory Hurdles

Bureau of Indian Standards (BIS) regulations have created supply chain disruptions, particularly in the sports and athleisure segments. Metro Brands has mitigated this for its core brands (Metro, Mochi, Walkway) by moving sourcing to India or forward-buying inventory. However, the impact remains a challenge for premium imported lines like Foot Locker and Fila, leading to a more cautious expansion strategy for these specific banners until supply chains stabilize.

Fila Inventory Cleanup and Brand Relaunch

The quarter saw the near-completion of the Fila inventory liquidation process, which resulted in a ₹5-5.5 crore impact on gross margins. Despite this 100 bps drag, overall margins remained within the company's guidance range. Management is now pivoting Fila toward a more premium positioning, launching new India-manufactured footwear collections in select Metro and Mochi stores with positive early feedback.

New Growth Levers: Foot Locker and New Era

The company successfully launched India's first Foot Locker store in Delhi and signed a new agreement with global headwear leader New Era. While Foot Locker's expansion will be measured (3-4 stores initially) due to BIS influences on premium imports, management sees significant long-term potential. New Era kiosks are expected to open in the coming weeks, further diversifying the company's accessory and athleisure portfolio.

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