Q1 2027 Aditya Birla Lifestyle Brands Ltd Earnings Call
Speaker #1: Ladies and gentlemen, good day and welcome to the fourth quarter earnings conference call of Aditya Birla Lifestyle Brands Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes.
Speaker #1: Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded.
Speaker #1: The call will begin with a brief discussion by the company's management on the Q1 FY27 performance, followed by a question-and-answer session. We have with us today Mr. Ashish Dixit, Managing Director, ABLBL; and Mr. Dharmendra Lodha, CFO, ABLBL. I want to thank the management team on behalf of all the participants for taking valuable time to be with us.
Speaker #1: I must remind you that today's discussion may include certain forward-looking statements and must therefore be viewed in conjunction with the risks that the company faces.
Speaker #1: Please restrict your questions to the quarter performance and to strategic questions only. Housekeeping questions can be dealt with separately by the IR team. With this, I now hand the conference over to Mr. Dharmendra Lodha.
Speaker #1: Thank you. And over to you, sir.
Speaker #2: Thank you. Good afternoon, everyone. Thank you for joining us today. I would like to welcome you all to the Q1 FY27 earnings call for Aditya Birla Lifestyle Brands Limited.
Speaker #2: As we reflect on the quarter, domestic demand conditions remain broadly consistent with the trend witnessed in the past two quarters. Despite continued global macroeconomic uncertainty, continual traction remains healthy and well-distributed across categories and channels.
Speaker #2: Occasionally, we have experienced a modest moderation, primarily due to the big markdowns which temporarily impacted demand during peak trading periods. Against this backdrop, our business delivered its third consecutive quarter of double-digit growth, driven by healthy performance across brands and channels.
Speaker #2: Importantly, this growth was accompanied by continued improvement in profitability and margin expansion during the quarter. Now, moving to the Q1 performance of our business, ABLBL's revenue grew 11% year over year to ₹2,046 crore. Within segments, Lifestyle Brands grew 10% year over year, with revenue at ₹1,725 crore, whereas Emerging Brands grew at 19% versus last year to ₹332 crore.
Speaker #2: Within channels, retail continued to perform strongly, delivering 10% growth during the quarter. Supported by healthy lifestyle growth of 8%, SMEs sustained growth momentum for seven consecutive quarters.
Speaker #2: E-commerce continued to build on the strong momentum established in Q3 last year, delivering robust growth of 23% during the quarter. While wholesale channels grew only 4% this quarter, underlying secondary growth was also double-digit, reflecting an overall strong performance across all the channels.
Speaker #2: Consolidated EBITDA increased by 14% year-over-year to ₹327 crores, compared to ₹286 crores in the corresponding quarter last year. Meanwhile, EBITDA margin expanded by 50 basis points to 16%.
Speaker #2: CAP grew 21% year-over-year, to ₹29 crore. During the quarter, we opened more than 65 new stores across the portfolio. At the end of the quarter, our retail footprint stood at 3,362 stores, spanning nearly 5 million square feet across more than 800 cities and towns.
Speaker #2: The expansion momentum is expected to continue more aggressively, supported by a healthy pipeline across key markets and catchment areas. We are confident of achieving our targeted expansion of more than 300 stores during this fiscal year.
Speaker #2: Now, our lifestyle brands in the business delivered a strong performance during the quarter, with revenue growing 10% year-over-year to ₹1,725 crore. EBITDA stood at ₹319 crore, translating into an EBITDA margin of 18.5% and an expansion of approximately 40 basis points over the corresponding quarter last year.
Speaker #2: Retail continued its consistent performance, supported by healthy lifestyle growth of 7% across an extensive store network of almost 3,000 stores. Our small-town network continued to perform strongly, delivering double-digit growth for the fifth consecutive quarter.
Speaker #2: E-commerce also maintained strong momentum, led by companies' own digital platforms, which recorded growth of over 50% during the quarter. This strong performance was supported by a broader occasional assortment, channel-specific offerings, and disciplined go-to-market execution across both stores and digital channels.
Speaker #2: Earnings of the emerging business portfolio, comprising Reebok, Van Heusen Innerwear, and American Eagle, delivered 19% year-over-year growth, supported by healthy performance across brands.
Speaker #2: Performance remained healthy across channels, with retail lifestyle growth of 11% and e-commerce growth of over 30%. Profitability also improved meaningfully, with EBITDA margin expanding by 240 basis points year over year to 4.3% during the quarter.
Speaker #2: The portfolio retail network has now crossed 400 stores, supported by continued expansion across brands, with Reebok leading new store additions and the overall network footprint.
Speaker #2: In conclusion, the quarter reinforces our confidence in the underlying strength of our business and the resilience of our portfolio. While the external environment remains dynamic, our diversified, disciplined execution and continued focus on driving efficiency position us well to navigate near-term fluidity in the market.
Speaker #2: Cost pressures remain manageable during the quarter, with limited impact on performance. We will continue to respond through disciplined sourcing, prudent management of operating expenses, and appropriate business action wherever required to maintain financial discipline.
Speaker #2: As we look ahead, our priorities remain clear in terms of strengthening ABLBL's business model to deliver the desired financial outcomes: sustained double-digit growth, higher margin expansion, and continued cash generation through sharp focus on execution.
Speaker #2: We are now open to questions. Thank you.
Speaker #1: Thank you. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone.
Speaker #1: If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question.
Speaker #1: Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Archana Menon with Morgan Stanley.
Speaker #1: Please go ahead.
Speaker #3: Hi. Thank you for the opportunity, and congratulations on the double-digit top-line growth. My first question is on the lifestyle brands business on the wholesale side.
Speaker #3: Could you help us understand what is the reason for the divergence between primary and secondary sales this quarter? And how should we be thinking about that going ahead?
Speaker #2: Hi, Archana. You've actually shared—I think the primary difference was a slight marginal delay in the festive period this time, which pushes a lot of primary billing into the second quarter.
Speaker #2: It's a shift of 10-15 days. So when you look at Q2, you will find Q1 plus Q2. And as strong a place as the rest of the channels.
Speaker #2: And that's why we mentioned the secondary continues to remain strong. You'll see it even out between Q1 and Q2.
Speaker #3: Okay, understood. Also, on the cost side, what kind of inflation are you seeing for your portfolio right now? And has any price hike been taken?
Speaker #3: Also, how should we be expecting margins to shape up in the coming quarter?
Speaker #2: Archana, as far as the first quarter is concerned, there's been marginal to no cost pressure because most of this was committed much earlier. So we haven't seen any part of that, or only a very small part of it.
Speaker #2: For the second half of the year, particularly between Q2 and Q3, we expect a 3 to 4 percent cost increase. This is a function of both higher raw material prices, higher logistics costs, and in some cases, higher labor costs also due to the minimum wage impact.
Speaker #2: The overall impact that we have assessed at this point in time ranges between 3% to 4%. We expect a large part of that, especially the upfront component, to come through productivity, and the rest through cost rationalization.
Speaker #2: So, we don't feel a material change in margin on account of this.
Speaker #3: Understood. Also, just two bookkeeping questions from my side: Would it be possible to break down the 19% growth for emerging businesses by brands? And what would be your overall marketing expense as a percentage of revenue this quarter and in the base quarter?
Speaker #2: So the brand-wise revenue, we don't reveal, you know, Archana. But to give you comfort, the two main businesses, which are Reebok and Innerwear, are closer to the overall high double-digit number.
Speaker #2: American Eagle is slightly lower on that. On marketing expenditures, it's slightly lower than last year because last year we had invested in IPM; this year we've moved primarily to digital advertising.
Speaker #2: But still about 3 to 4 percent of sales. About 3 and a half percent at this in this quarter.
Speaker #3: Understood. Thank you so much, Ashish. I'll get back in the queue.
Speaker #1: Thank you. The next question comes from the line of Vidisha Seth with Ambit Capital. Please go ahead.
Speaker #4: Hi. My first question is: can you talk about the consumption landscape in the month of July? Have you seen any— I mean, have you seen the broader trend sustain or improve, especially in the context of Q1 being impacted to some extent by other brands?
Speaker #2: So I don't see a dramatic shift, other than the seasonality factors which happen. There is the ESS period which happens in July, and therefore it's difficult to figure out underlying demand.
Speaker #2: So, I would say the broader trajectory that you've seen in Q4 last year is pretty much continuous.
Speaker #4: Sure. And in the case of the small-town store network, this is the second quarter wherein you have delivered double-digit LTL. What is driving this, and could you help us with the overall revenue contribution or store presence salience of the small-store format?
Speaker #2: We have offered network in more than 500 stores in small towns. We have, as you correctly noted, for almost a year plus, been finding much stronger growth in our smaller town network.
Speaker #2: A part of it is execution, but I would also say a part of it is these markets have recovered from, and we are finding it.
Speaker #1: I'm sorry to interrupt. There's a bit of disturbance from your end, and you're not audible. Vidisha, please stay connected.
Speaker #4: Sure.
Speaker #2: I don't know, Vidisha, if you got the earlier part of my answer.
Speaker #4: Is it possible to repeat the same one part—you mentioned execution—but even with execution, is it more about new launches being focused on the lower price points, or is it about a faster pace of innovation?
Speaker #2: So I would say that's the integral part of the small-town side. We have revised the merchandise mix over the last several years to clearly address this.
Speaker #2: So that's not changed at all. I think it's the environment and the market conditions in small towns which are the bigger drivers of the shift.
Speaker #2: And we've stayed very confident about growing this part of the business for almost a year, a year and a half—almost the fifth quarter of strong double-digit growth.
Speaker #4: Correct. Second, just driven this shrinkage in gross margin that we see by considering the fact that wholesale as a channel has underperformed versus the retail piece.
Speaker #4: So, is there anything particular that you'd like to call out here?
Speaker #2: No, not really. This quarter is much lower than last year. Most of it happens because of provisioning that we do quarter on quarter, depending on the business situation.
Speaker #2: I don't think this is material or meaningful in any sense.
Speaker #4: Sure. And just one small clarification to the earlier comment. You talked about how there could be a 3 to 4 percent cost increase in the remaining part of FY27.
Speaker #4: So how could you end up mitigating the same in terms of avoiding margin compression? I did hear that you had called out sourcing, or the sourcing efficiencies, or the productivity part of it playing a role.
Speaker #4: But are you looking to take any price hikes in the portfolio?
Speaker #2: Yes, we have taken smaller price hikes. We are not very large, but we have taken price hikes to compensate for that.
Speaker #4: Okay. Is it possible to call out the content of the price hike, ballpark?
Speaker #2: It varies across brands and categories, but it is primarily to take care of a large part of this increase—primarily to offset this. So, there is no other parameter.
Speaker #4: Okay, got it. I'll get back in the queue. Thanks a lot.
Speaker #1: Thank you. A reminder to all participants: you may press star and one to ask a question. The next question comes from the line of Sameer Gupta with IIFL Capital.
Speaker #1: Please go ahead.
Speaker #5: Hi everyone, good evening, and thanks for taking my question. Firstly, I know this was discussed partly, but there is still a gross margin contraction of around 150 basis points this quarter.
Speaker #5: And you mentioned that the RM pressure hasn't really reflected in this particular quarter. So what exactly is driving this GM contraction? Is it more of a mix thing?
Speaker #5: Is it higher discounting or provisioning that has led to this issue? Could you elaborate on that, sir?
Speaker #2: Yeah, I think, as I mentioned before, this quarter has not seen raw material prices increase in any tangible manner. So that's not the reason driving it.
Speaker #2: It's a combination of channel mix, because different channels have different gross margins, and slightly higher provisioning, which also keeps moving quarter on quarter. Our policy is consistent, but its application delivers slightly different results.
Speaker #2: So, this quarter, we seem to be on the slightly adverse side, but it's not material. It'll even out as we progress during the year.
Speaker #5: And the higher provisioning is also influenced by the change in festive timings, etc.?
Speaker #2: Not really. Actually, we have a consistent policy of taking a certain level of provisioning depending on the age of the inventory, and it keeps moving on.
Speaker #2: So, some quarters you find it higher, some quarters lower. I don't think I can attribute it purely to that. And a part of it is across channel mix.
Speaker #5: Sure, sir, no worries. Second question, and again, you mentioned it in some ways, but just wanted you to elaborate on this. So most of the plants are located in Karnataka, and the government there has announced a very sharp increase in minimum wages.
Speaker #5: What we understand from the industry is that it is yet to be affected. But in any case, garment is currently excluded. But let's say, if the hike was to include garmenting as well, what kind of impact do you foresee in the near term?
Speaker #5: And what kind of measures would be taken to mitigate the same?
Speaker #2: So we have a diverse, diversified, now increasingly more diversified, portfolio of manufacturing base. First of all, a large part of our sourcing happens outside. Manufacturing constitutes about 40% of our overall production.
Speaker #2: That manufacturing has also diversified in the last few years between Tamil Nadu, Andhra Pradesh, and Odisha, so there is a diversified base. As you know, the current increase is withheld and it's still at the High Court level.
Speaker #2: We will respond appropriately as we find, and as a decision comes on that.
Speaker #5: I got it, sir. And just to clarify, the increase which is withheld basically was— the garment was never a part of it in any case, right?
Speaker #2: Yes, yes. So it is never a part of it. Therefore, we are out of it, and that's been our stance. But in any case, longer-term diversification is also underway, and that's what we've been doing over the last several years.
Speaker #5: And the minimum wages which you were referring to in your opening remarks, that was basically to do with other trades like UP, Haryana, and others.
Speaker #2: Yeah. Yeah. Yes. Yes. Yes. Primarily other trades.
Speaker #5: Got it, sir. Got it. Last question, if I may squeeze it in. So, e-commerce as a channel has lifestyle brands. This is for at least the last three quarters that we are talking about.
Speaker #5: And can you tell us about the economics of this channel a bit? Where does it sit in the overall profitability piece? Is it on an EBITDA or a contribution-per-piece level?
Speaker #5: Across channels, where does it rank and how has it moved over time? I understand that you weren't meaningfully participating in this channel a few years back.
Speaker #5: So, what really has changed, maybe in the industry landscape or from your own efforts, which is leading to this kind of growth?
Speaker #2: Yeah, I would say it's a good question, and thanks for highlighting this. If you look at the overall trend over the last three to four years, you would have heard commentary from me and Vishak over the years on how we have sort of let some of the growth opportunity in e-commerce pass.
Speaker #2: A prime part of it is, a large part of this growth is driven by cheaper discounts, very competitive pressure, which at some level gets you growth, but the quality of growth is suspect.
Speaker #2: And we have therefore been very disciplined about it. Over the years, we have managed to bring this channel's profitability very close to our retail profitability.
Speaker #2: It's just marginally lower than our retail profitability. And now that we have got to this level, having exercised a very disciplined and patient approach to building this channel, you are starting to see the growth on that base.
Speaker #2: And that's a result that's going through. I'm very confident from here on, we'll be able to grow this channel in line with the growth and organic opportunity this channel offers.
Speaker #2: Without having to pursue margin-diluted or very, very highly discounted growth.
Speaker #5: Got it, sir. That's all from me. Thanks, and all the best.
Speaker #1: Thank you. Participants, please press star one to ask a question. The next question comes from the line of Devanshu Bansal with MK Global Financial Services.
Speaker #1: Please go ahead.
Speaker #4: Hi, sir. Thanks for the opportunity. The PPP mentioned that inflation needs to be washed out, right? So, from a consumption perspective, across various consumption aspects, the consumer is facing inflation.
Speaker #4: I wanted to check, as per your experience, what can be the possible impact on demand because there is inflation across several categories, and we have also taken some price hikes, right?
Speaker #4: So, how do you view the upcoming quarters from that perspective?
Speaker #2: So, I think we have called out a small bit of caution around it. We were nervous about it even as we entered Q1, and entering Q2.
Speaker #2: So far, we haven't seen a shift—at least a meaningful shift—in the demand trajectory. But we are cautious that this may play out in the second half of the year, and therefore we have called out in our commentary that as and when it plays out, we will obviously have to respond to that.
Speaker #2: At that point in time, there is a benefit of small price increases. We have made sure that those are very, very minimal. And at least from the price side in apparel, you won't see meaningful inflation.
Speaker #2: But yes, in consumers' overall wallet, there is inflation. So that's the only point. At this point in time, we have not seen, on ground, an impact of it.
Speaker #2: And we will keep watching as we go along.
Speaker #4: Got it. Sorry. And sir, you typically do this study on brand recall, right? So, in our investor day, we highlighted that some of the brands stand low.
Speaker #4: If you have done any recent study, if you could highlight what are the key takeaways from that across our key lifestyle brands, it will be helpful.
Speaker #2: So I think there's nothing big here because these equity results build equity over a long period of time, and the performance has been stable.
Speaker #2: We've been doing it over 20, 25 years. We do it annually. I don't see a big shift. Some of our bigger brands obviously have benefited from larger exposure and over a longer period of time.
Speaker #2: Continue to remain strong. There is nothing that has changed dramatically for us to call out at this point.
Speaker #4: Got it. And you addressed this online part in terms of improved profitability for this channel. Now, quick commerce is also gaining strong traction, right?
Speaker #4: So, if we see our positioning on that particular channel, if you could highlight which brands can gain a good amount of traction in that channel, it will be helpful.
Speaker #2: So, we work with all the large and meaningful operators in quick commerce. At this point in time, considering our size, quick commerce is a very, very small part—very small—unlike the regular consumption category. The fashion business has remained small, at least the premium fashion has remained small.
Speaker #2: We continue to participate, but the overall size of the business has not been very significant at this point for us.
Speaker #4: Sir, which consumption occasions can be catered to, as in maybe formal or casual? What's your initial sense as in what all consumption demand can be catered to?
Speaker #4: Which all, maybe, of the brands can benefit specifically in your portfolio? If you have any initial sort of things that you can highlight?
Speaker #2: I think, in a way, it is the largest part of our current business as far as quick commerce is concerned. There is a small bit of regular formal wear, but it's very small at this point.
Speaker #2: I don't think I can call out any new EPs. There may be other occasions, like parties or going out, which probably have the tendency and potential to move to quick commerce at a slightly higher level.
Speaker #2: But all those, cumulatively, at this point of time, are small.
Speaker #4: Okay, so just one last question from my end, because we have sort of beamed the business recently. Based on your historical understanding, typically from a revenue path salience perspective, what is the ballpark percentage that this quarter contributes to the overall year?
Speaker #4: If you could throw any kind of light on this front.
Speaker #2: So, this quarter is typically about 18—no, slightly higher—between 20 to 21, 22 percent.
Speaker #4: And this is on revenue, you're saying?
Speaker #2: Yes, I'm talking about revenue.
Speaker #4: Okay. Anything on the EBITDA pack perspective, as in, because I guess margins also keep changing. If you...
Speaker #2: Yeah, as you know, the business has high operating leverage. So, 20% of revenue comes down to less than half of that—around 10%, or even less than that—as far as profitability is concerned, either at the EBITDA or PAT level.
Speaker #2: Very ballpark numbers. I mean, you will have to look at the past closely, but.
Speaker #4: Got it, sir. Thank you for taking the questions. A reminder to all participants: you may press star and one to ask a question. The next question comes from the line of Jiganshu with Bernstein.
Speaker #4: Please go ahead.
Speaker #5: Thanks. Good evening, and thank you for the opportunity. I wanted to sort of ask if you can add some more color on the lifestyle detail channel performance.
Speaker #4: I'm sorry to interrupt. Jiganshu, your voice is breaking up. Could you please change your location and use your phone in handset mode, if it is not already on handset?
Speaker #5: Am I audible now?
Speaker #4: A little better. Yes, go ahead, please.
Speaker #5: Okay, sure. So I wanted to...
Speaker #4: You are breaking up again, Jiganshu.
Speaker #5: Okay. Let me join. Sorry.
Speaker #4: Okay, sure. The next question comes from the line of Heman Shah with NMAMC. Please go ahead.
Speaker #5: Good evening. Thank you for the opportunity. I just wanted to understand, on record here, we could get about 38,000 to 40,000 trade-off rates. Where do you see this going in the medium to long term?
Speaker #2: Sorry, I couldn't hear you clearly. Are you asking where I see the distribution network going?
Speaker #5: Yes.
Speaker #2: So I think at this point of time, we will continue to, because compared to the overall size of the market, we are still underpenetrated with 38,000 to 40,000.
Speaker #2: So, over the next couple of years, we expect, in line with the overall growth, about a 20% kind of addition in the network as well.
Speaker #5: Secondly, again on the vendor side, where do you see the traction? So, is it in the...
Speaker #4: I'm sorry to interrupt, Hemantha. Your voice is not audible; it's quite muffled. Please change your location and use your phone in handset mode, in case it's currently on hands-free.
Speaker #5: Are you OPM?
Speaker #4: Yes, but your voice is quite muffled. It's not clear.
Speaker #5: Is this better?
Speaker #4: A little bit, yes. You may go ahead.
Speaker #2: Go ahead. Go ahead. Ask your question, if you can.
Speaker #5: I just wanted to understand the traction in the price points. Whether entry-level price points are being well-premium? What is the current market scenario in terms of price points?
Speaker #2: So I don't think I can talk about the market as much as far as our business is concerned. As you know, we are the largest part of our business at the premium end.
Speaker #2: And that's the part which is growing with us. We still have opportunity at the entry price points, but the current traction is more at the mid to premium end, which is the higher end of the market.
Speaker #5: Just one last question: I wanted to understand whether we are facing any VIS-related issues, and if you could also explain the sourcing in brief.
Speaker #2: So, BIS does remain a problem. As you know, the factories have to get the BIS approval on an ongoing and annual basis. We are still continuing to operate with a couple of factories outside India.
Speaker #2: But as part of our overall long-term strategy, we have built a very strong domestic base so that we are not impacted when regulatory changes come in.
Speaker #2: For international imports, we are constantly creating substitutes and inventorying vendors. Our factories, from which we import, are currently BIS-enabled. So, that's a process that we'll have to update every year because it comes up for annual renewal.
Speaker #2: So, we are basically continuing to diversify, while our current operations and current source—which is from outside India—is very stable.
Speaker #5: Yeah. Thank you so much.
Speaker #4: The next question comes from the line of Mohammed Harris with ES Securities. Please go ahead.
Speaker #3: Yeah, hi, sir. Thank you for the opportunity. I just wanted to ask—you mentioned that the traction is there in the mid to premium price point, while the overall growth in rural stores has been good as well.
Speaker #3: So, shouldn't the growth be more from the value format side, right? And not from the lifestyle brand side, for my understanding.
Speaker #2: No, actually reported the lifestyle brands are going this is seventh quarter of strong like-to-like growth. So consistently said stores and a large part of the network and lifestyle brands business is in bigger cities, let's say top 30, 40 cities which contribute to significant part of it.
Speaker #2: So they're going extremely well. They're solid, robust, well-rounded growth, consistently delivered over a long period of time. The only point is, the smaller parts of the business—currently, the smaller town portfolios—are relatively small as an overall portfolio, but they're growing even faster.
Speaker #2: It is a long-term growth driver, small format, and therefore we continue to talk about it as it has emerged from a period of relatively low base in, let's say, '23 to '25.
Speaker #2: Last year, we are in half year beginning to find very strong growth coming in small town as well. But still small parts of it.
Speaker #3: Right. Understood, sir. And these in smaller towns should be the Peter England stores mostly, right? The value format.
Speaker #2: No, I think Allen Solly, Van Heusen, and in some cases even Bruce Lee have these small-town stores. So, while Peter is the largest, the other premium brands also have distribution there.
Speaker #3: Okay, sir. And roughly, in terms of FY26 numbers, if you can give that brand-wise, what is the size currently? I know you don't give very detailed numbers, but any ballpark figures per brand?
Speaker #3: That would be very helpful, sir.
Speaker #2: So, we get—I mean, there's a reason we have stayed consistent at the level of reporting that we do. I don't think I want to give further split.
Speaker #2: We don't give at that level.
Speaker #3: Okay, sir. Understood. Thank you. Thank you for answering that.
Speaker #4: Participants, please press star one to ask a question. The next question comes from the line of Bernstein. Please go ahead.
Speaker #3: Hi. Hello. Am I audible now?
Speaker #2: Yes, right here.
Speaker #3: Okay, great. Thank you for the opportunity, and sorry for the disturbance earlier. I wanted to take your help and double-click on the lifestyle brand LFL growth that we have seen, I think, as you mentioned, actually, is quite consistent now over a few quarters.
Speaker #3: So sort of a few questions to understand that growth better. One, what is our assessment? Are we gaining market share in those micro markets or are we sort of growing in line with the industry?
Speaker #3: Second, is the growth driven more by sort of footfalls, conversion, or price? How are we thinking about this in the future, and what are the sort of North Star metrics for this?
Speaker #3: Yeah. Thank you.
Speaker #2: So I think if you look at retail channels, we do believe our growth is definitely marginally ahead of the industry, because we are talking of seven or eight quarters of consistent high single-digit—and in some quarters, double-digit—growth for lifestyle brands.
Speaker #2: So that's been very robust. This is over 3,000-plus stores across the country—north, south, east, west—with different formats, small-sized streets. So, fairly robust and well-rounded growth over a long period of time.
Speaker #2: I think the largest driver, to my mind, has been—and that's been the story of these brands—is really around continuously contemporizing merchandise, improving store experience and service. Part of it also comes from continuous premiumization, which comes with superior products, better fabrics, and, equivalently, price increases.
Speaker #2: So it would be split between price increase and footfall, but probably, even if I don't have the exact breakup, over the longer term when I see it, at least half of it would be coming through premiumization.
Speaker #3: Okay, okay. And this is helpful. Would this be across all our four major lifestyle brands, or would you say one is more geared towards premiumization, versus one towards more volumes?
Speaker #2: So I think the three premium brands, mostly Van Heusen, Allen Solly, definitely are more prime for premiumization, and you see that in the products.
Speaker #2: Peter England has both sides to it. There is a premiumization in the brand, and at the same time, there is a sharper value proposition which drives the small town business, which is larger than Peter England.
Speaker #2: So, it plays at both ends of the mid-premium market.
Speaker #3: Great. And just quick follow-up to this. Are we also seeing any I think the last time that we did the last two times in our investor days, when we have presented the mix of categories between these brands, between formal and informal, very broadly, informal share has been increasing.
Speaker #3: Since we sort of presented this data at the Investor Day last, has there been a meaningful further shift, or is it broadly stable now?
Speaker #3: Just click between formal and informal there.
Speaker #2: I think it continues to grow—the share of casual wear continues to grow. So, I wouldn’t say it’s stable. We have seen, even in a period of one year, you would typically find between two to three percentage point increase in the share of casual wear.
Speaker #3: Okay, very helpful. Thank you. I think that’s the question I had. Thank you so much.
Speaker #4: The next question comes from the line of Aditya Bansal with Motilal Oswal Financial Services. Please go ahead.
Speaker #3: Thanks for taking my question. Can you first confirm the gross store additions for this quarter? Did I hear it correctly—it was 65?
Speaker #2: It was 68. 68, right?
Speaker #1: 68.
Speaker #2: 68 was the gross store.
Speaker #3: And if I look at our net basis, the numbers are quite low. So can you just explain in terms of what is still driving this elevation of closures?
Speaker #2: So typically, what we do is at the beginning of the year, we take on the actualization of the network. Somewhere around January or February, when we have seen the season—post-Diwali and value performance.
Speaker #2: And between February and July, which is before the peak season, is when we actually implement the closures, because some of them have notice periods, etc.
Speaker #2: So you'll always find that this part of the year will have more closure, while the expansion is actually more towards the second half of the year.
Speaker #3: Sure, that's helpful. And when we talk about 300 store additions, I presume we are talking about gross. Can you just help us understand what that would be on a net basis?
Speaker #2: On a net basis, I think we will close the year with between 120 to 140-odd stores. Sometimes a little higher, sometimes a little lower.
Speaker #2: And therefore, the net number would be a function of where we end up with that. So, somewhere, the net number would be between 150 to 200 stores. Was this a gross number closer to 300 stores?
Speaker #3: So, like, if I look at it in terms of store opening, that would be—I'm also assuming some increase in the store size—so that would hardly contribute to a mid-single-digit sort of growth.
Speaker #3: So, what are our views in terms of this LFL sustaining even though we are doing a lot of closures? What is it that we are building so that we can deliver consistent double-digit growth here?
Speaker #2: So, to do the math—200 stores in a 2,000-store network, typically slightly larger than the base network—should give us higher than a 5-6 percent kind of network-related growth.
Speaker #2: We also believe we have demonstrated, over a long period of time, between 7% to 8% kind of like-to-like growth. So, sometimes some numbers are higher, some numbers are lower, but that gives us confidence retail can grow at an early double-digit.
Speaker #3: Sure, thank you. All the best.
Speaker #4: A reminder to all participants: You may press star and one to ask a question. The next question comes from the line of Prerana Junjunwala with Elara Capital.
Speaker #4: Please go ahead.
Speaker #1: Thank you for the opportunity. I just wanted to understand how your brand portfolio is catering to the Gen Z target audience, and how you are planning to add stores across tier one, tier two, and tier three cities, given that tier two and tier three are actually driving growth across brands currently.
Speaker #1: So, I need clarification on these two.
Speaker #2: So as far as the Gen Z customers are concerned, I think each of the brands has a proposition which is more reflective in the merchandise individually.
Speaker #2: It is, arguably, smaller parts are current business, but brands are focusing on ensuring that customers—somebody we don't lose out on. A significant part of our effort in merchandising shift is actually built around that.
Speaker #2: On the.
Speaker #1: Could you elaborate on this? How are you looking forward to increasing the share of Gen Z? How much could it reach going forward, and what other factors are you considering?
Speaker #2: I don't have the numbers to share that with you, but this is the effort of each of the brands as they create designs and merchandise for the customer, because a lot of it is about the kind of products that we make.
Speaker #2: And because that's something that's an ongoing process, each of the brands has been working on that. And that's a part of our business. Of course, some brands are more tuned to it.
Speaker #2: Brands like Reebok, etc. Similarly, Peter England has a sub-brand called Vibe, a collection in Alonsoli. So, each of the brands has a part of their portfolio which is dedicated to addressing these customers.
Speaker #2: And over a period of time, we expect this part to grow. Some have clear sub-brands, some have collections or parts of merchandise, but that's a part of the portfolio that will grow with time.
Speaker #2: As far as your second question, which was around distribution expansion, see, we have distinct strategies for large metros and big cities versus small-town customers. A part of what you heard in today's conversation about the fifth consecutive quarter of double-digit growth in small towns is primarily a reflection of our ability to uniquely address those markets in terms of retail format, price proposition, and the kind of merchandise assortment.
Speaker #2: So we understand that India is tiered and different customers are looking at different kinds of merchandise selection. We have created that ability in the system to operate both at the metro and tier-one level, and at the tier-three and tier-four level, at another level.
Speaker #1: So, what will be the growth currently in these markets—tier one versus tier two and tier three?
Speaker #2: So, tier three and tier four markets, where small towns are—which is a small part of our business—are growing in excess of 15%, while metros and tier one are growing closer to 10%.
Speaker #2: So that's the kind of difference that we have. Last year, we had a half; the picture was slightly different. Two years back, two and a half years back, the smaller towns were actually under pressure, and some of them were declining or growing very marginally.
Speaker #2: But that's changed in the last 18 months.
Speaker #1: Understood, sir. Thank you for this session.
Speaker #4: The next question comes from the line of Devanshu Bansal with MK Global Financial Services. Please go ahead.
Speaker #3: Sir, hi. Thanks for the follow-up opportunity. This question is to better understand the business performance of Reebok. We are seeing a very strong revenue growth trend for this particular business.
Speaker #3: So firstly, I wanted to check whether secondary growth trends are, ballpark, in line with the current primary growth trends, or if this primary growth is also being helped by the network addition that we are doing, right?
Speaker #3: And secondly, it's more from a medium- to long-term perspective, as in how do you see this brand evolving, right? So, what are the key channels of growth that we anticipate for this particular brand?
Speaker #3: Maybe from a product value proposition perspective, what are the kind of consumers or price points that we are targeting? Which can help to ramp up this brand?
Speaker #3: So, these were the two questions that I wanted to understand.
Speaker #2: Okay, thanks. On the first part of the question regarding how organic this growth is—I’m not sure if you mentioned it before—but Reebok has the highest like-for-like growth in the network, close to mid double digits in the last few quarters.
Speaker #2: And that tells you the organic strength and momentum that the business has. Even secondaries and department stores and other channels are in high double digits.
Speaker #2: So, very strong secondary performance is actually fueling organic growth across the channels. The business continues to, as we had mentioned, the entire emerging portfolio itself is growing at 20%.
Speaker #2: And we expect Reebok to lead that portfolio slightly higher growth rate. That's the trend we're watching for last three four quarters. And we think on an annual basis also, that's the kind of growth that we can deliver.
Speaker #2: In terms of channel, it's a very strong brand which is hugely underpenetrated. So, I would say the opportunity exists across all the channels. We are rebuilding retail for a brand of this size and nature. Our other premium brands have between 500 to 700 stores.
Speaker #2: So Reebok is still in 200-odd stores at this point of time, so there is a long runway on retail. The wholesale business also, as we have been building channel distribution, is growing very, very rapidly.
Speaker #2: We have mentioned in the past that we have also now started to take Reebok to smaller towns with a slightly differentiated product and price proposition, exactly what we have done with the rest of the other brands.
Speaker #2: So we started opening unique retail concepts for smaller towns, and we are developing that over a period of time. That would allow Reebok to travel much deeper in this country versus where the typical sportswear brands have been in the past.
Speaker #2: So, multiple growth opportunities. We have once again come up with a business where we have been very disciplined in the way we are building that channel.
Speaker #2: It's again a large part of our portfolio. So it's a brand which has huge potential, but currently, the footprint across all channels is still very small.
Speaker #2: That's why it has allowed us to grow this business from ₹250 crore to ₹500 crore. And we still feel confident that, over the longer term, a growth rate closer to 20% is possible for this business.
Speaker #3: Understood. Sir, this is very helpful. A subpart way time also wanted to understand as in from a category perspective, within Reebok, are we also sort of focusing on women or maybe from apparel perspective which can be a key differentiated offering?
Speaker #3: So if you could throw some light there also, women and apparel within Reebok.
Speaker #2: So yes, both are growth drivers. And apparel because we have intrinsic deep capability when we acquired the business, which was less than about a fourth, a little more than a fourth of the business.
Speaker #2: As we progress, we have brought it to almost a third of the business—so, 30 to 33 percent of the business in apparel, up from 26 or 27 percent when we acquired the business.
Speaker #2: So that itself is growing quite strongly. Women, we are still small. I think that opportunity is a much larger opportunity. We are working on products that are specific collections that we are launching, focused on it.
Speaker #2: But again, it's new to Reebok in its current form, and currently, it's very small. But that's another large growth driver that's available for us.
Speaker #3: Okay, I just wanted to double-check. You said the current scale is ₹250 crore—is that what you said? Or was it 250 stores to 500 stores?
Speaker #2: No, no. I was talking about when we acquired this business two and a half years back.
Speaker #3: Okay. Okay. Okay. Okay.
Speaker #2: We more than doubled in less than three years. And I think the current trajectory just gives us confidence that we can further double it in another two to three and a half years.
Speaker #3: Got it, sir. Got it. Thank you so much. The next question comes from the line of Rajiv Bharti with Nuwama Wealth Management. Please go ahead.
Speaker #3: I'm sorry to interrupt. Rajiv, you're not audible.
Speaker #2: Can you hear me?
Speaker #3: Yes, now I can. Please go ahead.
Speaker #2: Yes. Now we can. Yeah.
Speaker #3: You are not audible, Rajiv. Hello? Rajiv, you're still not audible.
Speaker #2: Yeah. Is it better now?
Speaker #3: Yes, much better.
Speaker #2: Yeah, I'll just try. So, on the emerging business side, can you give what is the classification in terms of channel mix there? Because we don't have a history of how it used to be earlier.
Speaker #2: So I don't think it's dramatically different, except that the share of retail, I think, for Lifestyle overall portfolio, is about 65%. In the emerging business, it's a little lower.
Speaker #2: As far as the retail business is concerned, wholesale and e-commerce are a little bit higher, primarily because of innerwear, which is a large wholesale business.
Speaker #2: And Reebok, which is a uniquely large e-commerce business. So I think the only difference versus the overall profile is a slightly smaller retail segment compared to the overall size of the business, and a slightly larger wholesale and e-commerce segment.
Speaker #3: Sure. And coming to innerwear in particular, just on how the growth is—one second, the audio is breaking up again.
Speaker #2: Sorry about this.
Speaker #3: Are you there, Rajiv?
Speaker #2: I tried to. Hello?
Speaker #3: Sure. Thank you. The next question comes from the line of Bharat with MC Research. Please go ahead.
Speaker #2: Yes, sir. Thank you for the opportunity. I just missed two data points. At the gross level, what is the store addition that we plan, and what is the consequent figure for the net store addition?
Speaker #2: Every year. Repeat that. Hello? Hello? Yeah. Can you repeat the question? You said network addition is gross and net level. Is that what you said?
Speaker #2: So
Speaker #3: The audio is breaking up. Could you please change your location and use your phone in handset mode, please?
Speaker #2: Okay, sure, sure. Sir, I was saying that on the gross and net store addition every year that you plan, what would be the rough figures that we should work with?
Speaker #2: So, I had mentioned that for this year, we'll have more than 300 stores as far as gross is concerned, and between 150 to 200 stores as far as net is concerned.
Speaker #2: Okay. Okay. Okay. And sir, you talked about the small commercials that we are specifically targeting for the small towns. So what would that be, what would that proportion be in the overall network currently?
Speaker #2: And what is your strategy going into the medium to long term on that? So, overall retail revenue, it is about 16 or so in small towns.
Speaker #2: So it's still small, although the network is about 500-odd stores. But the overall revenue is about 15–16 percent. That portion is growing faster.
Speaker #2: And you know, the opportunity is also larger. Over the next three to four years, I think it will be more than 20 percent of our portfolio.
Speaker #2: So you said 15 to 16 percent of revenues, but what was the profile of the store count? What would that be? And is that—?
Speaker #2: About 500 stores.
Speaker #3: 500 stores. Okay. And over the next three to five years, we estimate approximately this much in revenues.
Speaker #2: Yeah, 20 percent in terms of revenue.
Speaker #3: Okay. Okay. Thanks a lot. Thank you. The next question comes from the line of Rajiv Bharti with Nuwama Wealth Management. Please go ahead. Rajiv, you're still not audible.
Speaker #2: Okay. Maybe I'll try to be offline. Sorry.
Speaker #3: Sure. Thank you. Ladies and gentlemen, that was the last question for today. On behalf of the management, we thank all participants for joining us.
Speaker #3: In case of any further queries, you may get in touch with Mr. Amit Devedi Thank you for your participation, and you may now disconnect your lines.
