Credo Brands Marketing Q4 FY26 earnings call

Credo Brands reported a 6% year-on-year revenue growth in Q4 FY26, reaching INR162 crores. This performance was attributed to an improved product mix, disciplined inventory management, and continued focus on premiumization and brand building. EBITDA for the quarter remained stable at INR42 crores, resulting in an EBITDA margin of 25.6%. Profit after tax (PAT) saw an 11% increase, reaching INR15.3 crores, with the PAT margin improving by 40 basis points to 9.4%.

For the full fiscal year 2026, Credo Brands' revenue remained flat year-on-year at INR592 crores. Despite the flat revenue, the Gross Profit Margin expanded by 110 basis points to 58.4%, primarily driven by product mix. The company achieved an EBITDA of INR154 crores for FY26, with an EBITDA margin of 26%. Return on Capital Employed (ROCE) stood at 13.8% and Return on Equity (ROE) at 11.2%, while cash flow from operations was robust at INR132.4 crores.

In Q4 FY26, the company opened 7 new stores and closed 24 underperforming stores, resulting in a net reduction. The strategy for FY27 involves closing approximately 20 underperforming stores and opening a similar number of new, premium format stores, aiming for a flat store count. The capex for each new premium store is estimated at INR40-45 lakhs. This initiative is part of the 'Mufti 2.0 transformation journey' to strengthen the brand's long-term foundation by focusing on experience-led stores and elevated merchandise.

The company's website business demonstrated strong growth, increasing approximately 75% year-on-year in FY26. This growth was supported by improved brand visibility, stronger content, and a more seamless omnichannel experience. While online average order value is currently lower than in-store, the digital platforms are crucial for brand visibility, interaction, and storytelling, contributing roughly 5% of overall revenue from the company's own platform.

Advertising and branding investments in Q4 FY26 amounted to approximately INR13 crores, representing nearly 8% of revenue. For FY27, these investments are projected to increase further, ranging from 8% to 10% of revenues. This higher marketing spend is expected to result in a slightly lower EBITDA margin for FY27, estimated at 23-24%, compared to 26% in FY26. Management aims for mid-single-digit revenue growth in FY27, focusing on improving throughput per store rather than aggressive store expansion.

Gross margins have remained stable for many years, with FY26 seeing an increase of 110 bps to 58.4%, primarily due to product mix. Management expects gross margins to remain in the 56-58% range in the coming years. However, current fabric input costs are described as 'astronomical high' due to global commodity and trade disruptions. The company does not use forward contracts but relies on long-standing supplier relationships and hopes for price normalization for Spring/Summer '27 orders.

The 'Muftisphere' loyalty program, with 2.5 million members, contributes significantly, with 35-40% of EBO revenue coming from loyalty members. The average spend per ticket size for these members is INR5,200. Debtor days, currently around 140-146 days, are considered normal for the company's business model, which involves a risk absorption approach supporting partners with inventory flexibility. Management expressed satisfaction with the working capital days and continuously endeavors to improve them.