Credo Brands Marketing Limited (MUFTI) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Creo Brands Marketing Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Kamal Khushlani, Managing Director. Thank you, and over to you, Mr. Khan.

Thank you, Anushka. Good afternoon, everyone, and thank you for joining us. I have with me Mr. Rasik Mittal, our Chief Financial Officer; and SGA, our Investment Relations Advisers. I hope you all have received the investor deck. If not, it is available on the stock exchanges and our company website. Before we get into the numbers, I would like to briefly talk about where Muti stands today. FY '26 was a year of resilience and focused execution. In Q1 FY '27, we continued to advance Mufti 2.0 with a focus on premiumizing the brand, elevating the customer experience across our stores and strengthening Muti's influence as the aspirations of the Indian consumers continue to evolve. Coming to the operating environment, we saw healthy consumer interest through April and part of May. which moderated towards the mid of May. As indicated earlier, we continue to remain measured about near-term demand. The broader global environment also remains uncertain with geopolitical tensions likely to keep consumers cautious and selective in their discretionary spending. At the same time, we remain confident about the long-term opportunity. India's growing aspirations and the evolution of casual lifestyle segment provides significant headroom, and we believe Mufti is well positioned to participate meaningfully in this opportunity. Coming to our performance. Q1 FY '27 revenue grew by 5% year-on-year to approximately INR 125 crores, reflecting steady performance despite continued softness in discretionary spending. As part of our retail transformation strategy, we opened 5 new stores across leading malls and high streets while closing 7 underperforming stores, taking our total count to 427. Our focus is on improving the quality and productivity of our network by progressively replacing lower productivity locations with stronger experience-led stores, thereby improving output per store while enhancing customer experience and brand salience. Gross profit grew 5% year-on-year to INR 77 crores with gross margins at 62%. EBITDA stood at INR 27 crores approximately compared to about INR 31 crores in the same period last year, primarily due to higher investments in advertising, brand building and retail transformation. Marketing investment during the quarter was approximately 8.5% of revenue, which is in line with our full year guidance of 8% to 10% through FY '27. We see this as an important investment in building Mufti's long-term salience and aspiration. A growing proportion is being directed towards digital platforms such as Google and Meta to strengthen visibility, understand consumer behavior and support engagement across online and offline channels, particularly among new consumers. Alongside this, we continue to build our D2C business, bringing us closer to our consumers and their evolving preferences. Our long-term Mufti 2.0 transformation remains firmly on track. We will continue to elevate our retail experience, strengthen our merchandise offering and invest behind the brand. These initiatives are aimed at deepening consumer engagement, improving footfalls and conversion and progressively rekindling growth. Our ambition remains clear to build Mufti into one of India's most loved and enduring homegrown menswear brands, growing in a disciplined, profitable and sustainable manner. While near-term demand visibility may remain uneven, we believe Mufti 2.0 is building a stronger foundation for the brand's next phase of growth. With that, I'll hand over to our CFO, Mr. Rasik Mittal, for the detailed financial performance for the quarter.

Thank you, Kamal. Good afternoon, everyone. I will give you financial highlights for Q1 FY '27. Revenue for the quarter stood at INR 125.3 crores. Gross profit stood at INR 77.2 crores with a GP margin of 61.6% for the quarter. EBITDA stood at INR 26.6 crores. Our EBITDA margin stood at 21.2%. Profit after tax for the quarter stood at INR 2.3 crores. Our PAT margin stood at 1.8% for the quarter. With this, we will now open the floor for question and answer. Thank you.

We will now begin the question and answer session. [Operator Instructions] We take the first question from the line of Sakshi Pratap from Pratap Securities.

Thanks for the question. Are you seeing any early signs of improvement in discretionary consumption? Or is it just the current environment still largely dependent on the festive season was my first question.

Sakshi, hi. We certainly see some positive signals from the renovated new stores and the new retail identity that we have created in the new stores. But it's a little too early to be able to extrapolate them and put any kind of projections on this. We would refrain from doing that. But as of now, certainly, we are seeing positive signals, and we will continue to make these changes to our stores, renovate our stores and open new stores and shut some of the underperforming stores.

Understood, sir. Sir, my second question would be what would be the key milestones over the next 12 to 18 months that we can see and say that mostly 2.0 is working [basically]?

Like I said, Sakshi, this is going to be a long-drawn process. The environment is changing. The competition is intense. And at this point, we are making -- we are going through a transformation phase, and it may not immediately translate into visible numbers within the next few quarters. But we are -- we've seen these times in the past, people come, people go, but you have to build a sustainable brand, which can grow profitably. And that is what we are looking to do and to do that, we are making changes in our product. We are making changes in our retail identity. We are making changes in our customer experience and improving that, and we are making changes in our brand communication to the consumers. And all of these changes will surely impact the brand positively, but it's going to be a longer drawn impact and not something that will be seen in a couple of quarters or 2, 3 quarters like that and difficult to extrapolate it to that. I mentioned earlier also that this is for the next 2-odd years, it's going to be very difficult for us to say what exactly the numbers will pan out.

Understood, sir, thank you so much for the detailed answer.

[Operator Instructions] We take the next question from the line of Jay Jain from [JC] Capital.

Hi sir thanks for the opportunity. Sir, I have 2 questions. First is with around 59% of the store network located in Tier 2 and 3 cities, do you see the premiumization strategy working equally well across this market? Or will premium stores be concentrated more towards Tier 1 high street mall locations?

Great question, Jay. So premiumization is happening all across India. It's not something that is isolated to the Tier 1 cities. However, premiumization is relative. What we are doing is we are tooth combing through all our stores and looking at each one of them and looking at the competitor environment in each market and accordingly making the changes to stand ahead of the competition proactively. So the point I'm making is that the store that we renovate on Linking Road or we open on Linking Road would have a certain different level of premiumization and expenditure that we would incur. And a store, for example, if we do in a small town, there the expenditure and the relatability of premiumization would [indiscernible] to that market and the environment in that market and what we expect it to be in the next few years.

Thanks for this. Sir, the second question would be, do we believe the current investment is primarily strengthening brand recall among existing customers or helping Mufti acquire a younger new customer base?

So it's both. We intend to do both. See, as a brand to remain healthy and sustainable through its growth journey, what we need to do is we need to retain our customers and we need to acquire new customers because there's a certain level of retention that every brand can do in its cycle of year-on-year growth and progress. So it's both ways to improve retention and to increase new footfalls into the stores.

Thank you sir for the detailed answer.

Welcome.

[Operator Instructions] We take the next question from the line of Jay Kothari from Kothari Capital.

Good afternoon, sir. So my question was the presentation indicates average annual revenue per EBO of around INR 75 lakhs in FY '26. So what level of revenue do you believe the new premium format stores can achieve once they mature?

Okay. The average annual revenue per EBO is reflected as INR 75 lakhs. And we see what we're looking to do in this year, we are looking to increase the same-store revenue in the mid-single-digit numbers. That's what we are aiming to do for this year.

Yes. Okay. Understood, sir. And sir, my follow-up question was, does the premiumization strategy require carrying a larger or more diverse inventory? And could this put additional pressure on working capital?

No, no, no. That's not something that we're looking to do. In fact, we are looking to sharpen our inventory, and it will not be a larger inventory base. It's just going to be a change in the merchandise mix. That's what we are looking to do.

Yes. Okay. Understood, sir, thank you for the detailed answer. Wish you all the best.

We take the next question from the line of Rishab, an individual investor.

Hi, sir, good afternoon. Sir, actually, let me give you some context. I'm a business analyst in a pharma retailing company as well. So I do have some business insights what we do. And I was trying to suggest some modifications over the past year as well I have joined the con call and try to give you some insights and obviously, you have tried to work on those as well. Kamal sir, just small feedback that I have gone through your Instagram advertisement as well. You are doing a good job in that. A small feedback would be to just use some Hindi advertisements as well because English is not, I guess, the primary language for connecting the people. All the primary advertisement which you do, the collaborations which you do with the people around, I think Hindi would be a proper way to communicate over the audience connection plus interaction one. I think whatever the advertisement over the past 6 months which you have are primarily sort of your interaction with the users, but users' interaction with the brand is, I guess, missing. So that is another that you could work on. And third thing would be just, I guess, a strategic move to bring some people for the strategy for [indiscernible] for the retail expanding – I mean the number of stores which you are expanding over the last few years has been, I guess, has dropped down. I guess because we have taken a cautious call for relocating our stores to the more profitable location where a lot more people would be able to enjoy the premiumization of the Mufti and all the stuff. But I guess there is a missing link of expanding the stores.

We're not able to understand what you're saying, Rishab.

Sir, if I talk in Hindi -- that would be comfortable for you.

No problem.

[Foreign Language] that is I guess on flattish numbers for the last few years [Foreign Language] you are trying to [indiscernible] the old stores, the loss making ones into -- some of the high streets as well [Foreign Language]. But I just [indiscernible] sort of new markets or sort of [Foreign Language] try to expand out, so I guess the revenue would be just [indiscernible] as well. That was my question from my side.

Thank you for your suggestion, Rishab. We'll definitely -- all the time, we are looking at the newer markets wherever we are not present -- and in the way in which the market emerges, we proactively do end up opening stores here. However, at this time, we are going through a transformation of the brand [Foreign Language].