Footwear retailer Metro Brands posted an almost fourfold jump in revenue and its net profit surged to a record in the quarter ended June.
Metro Brands said revenue in the June quarter was Rs 508 crore, up 288 percent year-on-year (YoY), from Rs 131 crore in the same period last year. The company turned to a net profit of Rs 106 crore from a loss of Rs 12 crore in Q1 last year.
The company sells footwear and accessories under in-house brand names such as Metro Shoes, Mochi, Walkway, and partner brands such as Crocs, and launched an initial public offering in December.
“Metro Brands’ first quarter performance was good with 26 percent quarter-on-quarter growth in revenues and highest-ever gross and EBITDA margins of 59.7 percent and 36 percent, respectively (expected to normalise though),” ICICI Securities wrote in a note.
EBITDA is short for earnings before interest, tax, depreciation and amortization, a measure of corporate profitability.
According to ICICI Securities, Metro Brands’ mix of brands provides a growth runway for store additions.
“Its focus on financial discipline along with balance sheet strength provides confidence on the execution. It has an optimized mix of in-house brands and third-party brands in MBOs to drive customer footfalls, improve sales density and gross margins. Besides, a platform of choice for international brands aids confidence on new avenues (of growth),” added the securities firm.
MBOs is short for multi-brand outlets.
ICICI Securities maintained its ‘buy’ rating on the stock with a DCF (Discounted Cash Flow)-based target price of Rs 850.
Although the company’s performance came on the back of a low base of the last year, when operations were interrupted by the second wave of the pandemic, the management stressed that it was also backed by internal factors.
Sequentially, the company’s revenue jumped 28 percent from Rs 396 crore in the last quarter of the financial year 2021 and net profit surged 56 percent from Rs 68 crore.
“We had reported our highest-ever number in Q3 and now in Q1 again we have reported our best quarter ever. This shows that there's a lot of financial discipline, operational rigour, and sales momentum has picked up at Metro Brands,” said Metro Brands Chief Executive Officer Nissan Joseph.
Online surge sustains
According to Joseph, the company experienced growth across categories and product segments in the last quarter. Online momentum, which has sustained post-pandemic, too, helped its performance.
The company drew over 1 percent of its sales from online channels pre-pandemic, and now the channel contributes about 10 percent of sales.
“We are very excited to see the growth of e-commerce. If we compared Q1 to the Q4 of FY21, we have seen growth on 106 percent,” said Joseph.
“But our excitement also comes from the fact that omnichannel is also growing rapidly. Customers are shopping online and the products are shipped from our shops under this model and all those sales are at full price,” he added.
According to the management, about 25-30 percent of Metro Brands’ online sales are contributed by the omnichannel avenue.
Joseph said the reopening of shops and malls helped its performance in Q1. “Consumers are back in stores and since they understand that footwear styles change every year, every season, they want to check it out. We think offline retailing continues to be important to the consumer in this business,” he added.
Inflation and demand
The company experienced a surge in sales across product categories of formal shoes and casual footwear. A small dip in demand was witnessed in the lower price segments due to the impact of inflation and the Goods and Services Tax.
“We have seen demand erosion in the lower price points, but that is because the sub-500 category for us has slowed down. The prices have moved into the 500-to-1000 category because of the GST going up,” said Joseph.
The government had hiked GST on apparel and footwear from 5 percent to 12 percent, effective from January 1, 2022 which resulted in price hikes by the manufacturers.
Metro Shoes caters to the family segment and the products are priced in the range of Rs 1,000-10,000. Mochi targets the young and offers products from Rs 1,000 to Rs. 10,000. The company addresses the value segment (Rs 350-3,500) through its MBO Walkway launched in 2009.
Inflated prices of raw materials remain a concern for the industry and have shown no signs of easing so far, indicated the CEO of Metro Brands.
The company in the June quarter hiked prices by 7 percent and may consider further increases of 4-7 percent if raw material inflation continues at the current levels.
The demand in the quarters ahead, however, looks strong given the imminent onset of the festival season.
“The momentum at Metro Brands started as early as Q3 of last year and has continued into Q4 and Q1 of this year, as is evident from our performance last quarter. We remain optimistic about the upcoming festive season in India because there's still a lot of demand. There is also the wedding season coming up, which again is a major demand generator for the industry. We feel very optimistic and are planning for any potential supply chain disruptions,” said Joseph.
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