Detailed Narrative
Q2 FY26 Performance Overview
Metro Brands reported a 12% growth in its standalone business and an 11% growth in consolidated numbers for Q2 FY26. Gross margins expanded by 40 basis points year-over-year. EBITDA also saw healthy growth, with standalone EBITDA up 12% and consolidated EBITDA up 10%. The company noted challenges from prolonged monsoons and customers delaying purchases due to anticipated GST benefits, but also benefited from an earlier festive season.
Store Expansion and New Formats
The company added 42 new stores and closed 4, resulting in a net addition of 38 stores during the quarter. This included 4 high-profile Foot Locker stores and a record 10 Walkway stores. Metro Brands continues to invest in its core business, opening a reimagined Mochi store format in Ghatkopar. The impact of Ind AS 116 accounting on these new store openings dampened PAT by almost 1% in Q2.
Brand Integration and Repositioning (FILA, Clarks)
FILA's repositioning is underway, with the brand carried in over 100 Metro Mochi doors. The first standalone FILA store is expected to open by the end of the calendar year, following a 12-18 month repositioning phase. Clarks footwear was launched in 200 Metro and Mochi doors and performed well, with plans to expand to 300 doors next quarter and start new store growth in H2 FY26. Supply chain stabilization for Clarks is expected in the next 2-3 quarters.
E-commerce Growth and Strategy
The e-commerce business demonstrated strong performance, growing 39% across multiple digital channels and now contributing 14% to total revenue. This growth is attributed to significant investments in D2C capabilities, omnichannel technology, and digital marketing. Management aims for e-commerce to contribute 15-20% of revenue in the longer term, focusing on value rather than discounting.
GST Impact and Demand Outlook
GST changes have positively impacted the business, with an 11% reduction for footwear priced between INR 1,000 and INR 2,500, and a 6% reduction for footwear under INR 1,000. While this may lead to lower realization per square foot, it is not expected to impact profitability. Management anticipates a more stable demand environment in the coming quarters⏳, free from the erratic events of previous years like COVID and elections.
Financial Discipline and Future Outlook
Despite challenges, the company maintains operational rigor and financial discipline. Management expressed confidence in achieving a 15%+ revenue growth rate, 15% PAT, and 30% EBITDA margin in the future. They also target ROCE of 20-25% for Foot Locker and 20-30% for Walkway formats in the medium-to-long term, alongside mid-to-high single-digit SSG growth.