Go Fashion (India) Limited (GOCOLORS) Earnings Call Transcript

12% to 5%?

So it's going from 12% to 5%, correct.

So there will be some benefit, which can be expected because of that, at least?

Well, maybe in the long run, yes. But as of now, the products where we had the change from 12% to 5%, we have passed on the entire benefit to the consumer.

Correct. But naturally, some volume can see an uptick. So it's a price cut for the consumer. So at least some part of it will flow through in terms of higher volumes.

Yes, I think in quarter 3, we expect it. I think once we finish this quarter, we'll get a very fair understanding of how those product portfolios which were above INR 1,000 and below INR 2,500 do. So, I think you should get a fair understanding. I think it should definitely lead to an increase in those products in this quarter, not only for us, but for the industry as well.

Got it, Gautam. Just one last clarification, if I may ask if there was not a limit. You mentioned about the top wear 2 stores. So, my understanding was we were just doing it as a pilot in existing large stores. I just want to clarify. So is it a store, which is dedicated to top wear that you have opened or...

No, no, no. No, no. No, no. Just like what I had mentioned in my earlier call, in our existing bottom wear stores, we have made the store larger and we've introduced a new category. So it's basically not a brand-new store what we have built. It is that existing bottom wear store where we had additional space. In that additional space, we have done additional CapEx and introduced the new categories.

And this INR 1,000 per square feet is only for that particular area that you're dedicating?

Yes. Yes, exactly. Exactly. Exactly.

And how is your customer supposed to know that this particular store is now selling top wear?

See, right now, I don't have an answer for that because we've kept the same branding as Go Colors. Even if you see the pictures in our store, we have kept the same branding. So from the outside, maybe customers will not be able to say. But customer who's coming in to buy bottoms, she is very easily getting converted into a top wear buyer as well then and there. Because this is a pilot, we are not creating a separate brand. Within the pilot, we are keeping it in the bottom wear stores to see how it does. So for now, the consumer will only -- yes, sorry, the consumer will only know that the top wear products are there in a particular store only when she enters that store. But having said that, our pilot was anywhere about 18 to 20 stores, just to see how this concept does. So, I think a lot of things we will understand once we open more stores of the 18 stores pilot.

Fair enough, Gautam. But then why am I seeing advertisements on an Instagram, which is advertising top wear. Go Colors is now a top wear destination as well because then it will create assonance.

No, that's just an Instagram post. Sometimes influencers do post, Sameer. So basically, they are just trying to tell the customer that this product has been launched. See, from a positioning perspective, I would like to reaffirm that we are a bottom wear brand. That is the main business. This is just a pilot. Because even in retail, we also don't want to create confusions in the mind of the consumer and create confusions around what Go Colors brand stands for. The idea here is that, obviously, Go Colors is a bottom wear brand. These are just pilots what we've initiated. I'll anyways have a look at those Instagram posts what you're talking about. If there's something wrong there, I'll probably correct it. But the consumer is very clear that this is a bottom wear brand, and this we're obviously doing it like a pilot.

The next question is from the line of Resha Mehta from GreenEdge Wealth.

So, can you just talk about that from the time of post-COVID resurgence peak to now, how has the average age profile of our customer changed? Has she become older or has she become younger? Just some trend on that?

I think, look, it's been pretty similar. I mean, look, prior to COVID, if I had to see who is my target audience from an age perspective, the lady would be working ladies between the age of 27 and 33. I think we have seen that consistently stay the same. A majority of the consumers who are shopping with us are in that bucket of 27 and 33. Of course, we have also started having a lot of younger audience also who are in their early 20s coming into the store as well. But from a proportion perspective, I think it has stayed stable that our average consumer age would be between 27 and 33.

And in conjunction to this, so how has our product mix moved? So if I recall correctly, churidars, leggings used to be almost 50% of our revenues. But then we also had fusion wear, western wear and so on and so forth. So, how has this moved over a period of time?

See, I think churidars, leggings historically, prior to COVID, it was 50%, 55% of the business. And post-COVID, it has slowly settled at being at about 35% because the other categories also have done fairly -- the trousers category has done fairly really well and has picked up in volumes. So, I think it has stabilized at a 35% number for the last year, 1.5 years, which pre-COVID used to be more than 50%.

Would you say that the drop in churidars, leggings is not just because of the growth in other categories, but it's also got to do with the fact that there's been a fashion change for women in terms of...

Well, I think a mix of both. I think in general, women have started wearing the trousers category products a lot more, which in rural leggings are still very strong. So, I think there is obviously a fashion shift towards trousers, which has also started reflecting in our numbers. So, I wouldn't say there is a big decline in leggings and churidars. It's just that the other categories, especially trousers and pants has done fantastically very well. So, I think the change in fashion from legging to trousers obviously has played a huge role in this for sure.

And so how do we see like over a 3- to 5-year period, assuming demand scenario becomes normal? What is the runway for opening stores? And incrementally, do we still target metros and Tier 1s? Or are we also looking to get into Tier 2 and Tier 3? And a related question that if we are getting into Tier 2 and Tier 3, at our price point, then wouldn't value retailers also become our competition?

Right. So, I think from an expansion perspective, we don't see -- so earlier, we have given our guidance of 120 to 130 stores, and we revised that guidance to 80 stores this financial year out of the 36 we've opened. So the reason we have revised this guidance is not because we are not able to find store locations. I think the runway to open stores is huge. It's just that we, as a company, we've been a little measured and saying that, okay, we will open only good quality stores during at a time when our SSSGs are flat or negative because we also want to maintain P&L margins. And we want to be very measured in our expansion as well. But as far as finding new locations are concerned, I think the market is very big opening new stores. So for me to give a next year's guidance or the year after that will be a little difficult. This year, we are going to be looking to add 80 stores on a net basis. And once SSSGs and our revenue numbers are increasing, we will definitely ramp up and push the acceleration button as far as store expansion is concerned. See, that has been our strength for years to come, years earlier as well. So for us to ramp up from this to the next level of adding more number of stores wouldn't be difficult. It is just that looking at the market condition, we have been a little measured. As far as your second question on our price point in Tier 2, I think, look, our price point -- an average selling price of INR 800, INR 900, we've been present with many value retailers. We've been present across so many stores of Reliance and many stores of V-Mart as well in Tier 2, Tier 3, and we are seeing very good traction for our ASP, higher ASP products as well. So going into Tier 2, Tier 3, we don't see value retail pricing as a competition because our product -- from a product perspective also is very different because our price points are different. So, selling in Tier 2, Tier 3 at an average ASP of INR 800 to INR 900 shouldn't be a problem. We've actually tasted decent success in all our Tier 2, Tier 3 experience.

And incrementally, the stores that we intend to open, the mix will per se remain at, say, 60%, 70% metro Tier 1 and balance?

I think it will be a balanced approach. I think look, metro cities also, the sizes of the cities are increasing. So, I think it will be a -- I think it's going to be an equal split between metro cities and non-metros. I don't say that rural is going to be more than urban. I think it's going to be a very -- it's going to be a 50-50 expansion between the 2.

And lastly, with the demand slump over the last several quarters, so what measures have we been taking internally from a store experience standpoint or maybe from a product standpoint or a proposition standpoint to revise footfalls to revive growth basically?

See, I think, look, we've been doing a lot of research. And I think bringing freshness to product categories is very important. And we've also done that in our bottom wear category as well. So like I was just mentioning to the earlier question also that once we start bringing in freshness, bringing new colors, bringing new products in bottom wear, I think that will also definitely increase the footfalls in our current stores. Yes, we are also going to be very qualitatively spending on marketing as well. Our marketing budget is about 2%. And we will maintain that 2% because we feel spending about INR 20 crores a year in marketing is a good number to drive footfalls. So, spending that INR 70 crores to INR 20 crores, which is about 2% of revenue and bring in a new product category -- not new as in the existing bottom wear, bringing in newer products and colors and collections that will also drive. So it's going to be a mix of both. And also opening new stores in newer markets will also increase our TAM. So it's going to be a 3-way approach. Open in newer markets where we are not present, introduce new collections in bottom wear and also spending on marketing in the right way so that we can drive footfalls to customers.

And last one, if I may, that why did we have to get into women's top wear and menswear and also expand to international markets? Is it because we've seen that the growth has slowed down in our core markets, in our core products, hence, we had to kind of expand here?

No, I wouldn't say that. I think the reason we wanted to do that because we wanted to have a growth engine also for the future as well, right? We see bottom wear is a growing category. Yes, our numbers have not suggested that for the last few quarters because the SSGs have been very flattish, but we are very bullish on bottom wear. So, bottom wear is here to stay and it's going to be the growth engine for the business in the short term and the midterm. But when I look at from a very long-term perspective, today, if we do smaller experiments, maybe it will be the next leap of growth from a long-term perspective. And honestly, I think business' balance sheet health has been very good, right? We've been having decent working capital days with strong operating cash flow generation. So, considering the fact that our P&L and balance sheet health is very good, we felt doing smaller experiments will be very good for the long term. But from a saturation perspective, we definitely don't think that bottom wear has reached any sort of saturation. Yes, last few quarters, we haven't delivered well on that front. But from a bullishness perspective, we as a company are very bullish on the category of legwear and bottom wear.

Sure. And just last housekeeping question. So what is our -- how do we measure our loyalty, customer loyalty and what's been our repeat purchase? And how do you define repeat purchase? So, purchase within 1 year or is it different?

Yes. See, I think -- see, we don't have a loyalty program as such. But from what we've seen, our repeat purchase up to Q1 was about between 40% and 45%.

And has that come down over the last 2, 3 years? Not really. It's been in the range -- I think each quarter, it fluctuates. It's been in the range of 40% to 45%.

Our next question comes from the line of Varun Singh from AlfAccurate Advisors.

Most of my questions have been answered. But I just wanted to understand, I think, on this -- the problem of growth and maybe how we are looking to solve for it. I think you pointed out about venturing into top wear brand on a pilot basis and maybe moderating the store expansion and accelerating it whenever the demand revives. But you also pointed out about the freshness of the stock being one of the key driver for growth. So, maybe you can talk a little bit more about what have you done to work on this very proposition of the freshness of the store, et cetera, what we are doing now compared to what we were doing maybe 2 years back. Anything you want to highlight or point out over here in the bottom wear category first?

See, yes, thank you so much for your question. See, I think, look, solving the growth problem is going to be solving only by increasing the bottom wear sales. See, the top wear, what we have done does not solve the problem for growth because it's a very -- it's a near pilot what we have done, and it is only for the future. Yes, the pilot has its importance, but it's more from a very long-term perspective. And the top wear will not solve the problem for the growth of the company in the short term and midterm. The growth will come in if we are -- only by reviving our bottom wear sales and bringing it up to speed and delivering healthy SSSGs. Now, one of the very big levers which is going to help us solve this bottom wear SSG is by introducing fresh collection. See, we've been doing a lot of research. And I feel by introducing this freshness in some collections and some colors, definitely, it will take a big uptick in our sales. And how we are going to be doing is we have strengthened our product development and design team. Today, we have a very large team working dedicatedly for bottom wear where they are thinking about newer ideas of what is to introduce next. Yes, while doing the collection, we are not going to be moving away from the core format of how bottom wear is. We are going to be still be supporting it. But being core also coming up with newer, newer ideas in bottom wear is going to solve this issue. And this is going to be supported by the strong team we have in place. And after a few quarters, we have seen that we have a very settled and a big wide team in our head office here. So, I think that freshness issue is going to be resolved by that.

Gautam, I actually meant to ask about more objective and measurable, maybe benchmark, for example, number of times you are dropping new products in the stores. Of course, I mean, having a good team, great team, this team, that is a business necessity. But in terms of measurable targets how are you looking at it? How are you assessing it? How are you maybe signaling to customers that, look, the freshness has arrived or how are you giving more reasons to customers about whatever hard work that you are doing, if you can be a little bit more objective with regards to the problem that you are solving?

Yes. See, like I'll give you an example of festive, right? I mean, after festive now we are launching some new products in palazzos and pants over the next few weeks. And those products -- it's 2 or 3 products we have launched in smaller quantities across 200 stores, which is going to go into the shelf in the next 2, 3 weeks. So what happens is when we launch a product, it takes the front portion of our display when any lady walks in. So when any lady walks in, it becomes very easy for her to know what is new in Go Colors because we position it in such a way where we put it in the first display or first shelf of the store. Secondly, our Instagram rollouts and social media rollouts also help us pushing these new products information to the consumer. And we also use many mechanisms like WhatsApp as well, which translates visual display information of sending product catalogs of what is new getting launched to our existing customers. So by these means, we are able to drive new footfall and existing footfall to the store. Once that customer who's coming into the store sees the new product, but when they see the new product, they also end up buying the other products as well. So it's actually a balancing act. The new product drives the older products also to do well at the same time. So for this quarter, we are planning to launch -- in November, we are planning to launch 2 or 3 very key important products in pants and palazzos category, which we are quite bullish about.

Maybe you can call out about at what rate the industry -- the bottom wear industry has grown and maybe for FY '25, if not quarterly number you have access to? And in front of that, maybe I think that would explain a little bit more about how the growth that we are able to do for us. And I think, yes, that's it. That's the last question from my side.

Yes. See, I think the rate at which bottom wear category has grown -- now once I think we are finalizing the study what we have done through Technopak, I think we'll be able to throw slightly better color maybe after a couple of weeks or maybe in the next call, I'll be able to throw better light at what rate the bottom wear industry is growing with updated numbers. So probably in the next couple of weeks' time, I'll come back with more information around -- info around the category part.

Our next question is from the line of Devanshu Bansal from Emkay Global.

I just want to check that realization increase has been pretty decent for us over the last 12 months. So, do you foresee this realization to continue improving for us with better product mix? Or now the product mix is sort of ideal and we should see it making good sales...

Well, I think the ASP -- I think, Devanshu, the ASP will grow at about 2% to 3% on a Y-o-Y basis.

Okay. And the driver is only a product mix change or is it like price hikes also?

No, we have not done any price hikes. We have done -- in 1 or 2 products, we have done some price corrections, but those were lower volume products. They have not affected the ASP much. But for most of our product categories, we have not touched the pricing. And I don't think in the near future, we are looking to increase the prices. So whatever ASP is going to increase is going to increase on the basis of new products.

Fair enough. And secondly, Gautam, wanted to better understand this INR 1,000 per square feet. So in our core category, the number is relatively higher, right, versus that number. So is it like from an inventory per square feet perspective, this category is lower versus what we see in the other category? How should we see the...

No, no, it is just -- see, right now, Devanshu, it's a little too early. I think we've just had 2 months of data. So, I think once it crosses -- once full year completes, we'll have a lot more data around how that store is doing. But from the 2 months of data, what we've seen, so how do I arrive at the INR 1,000 per square feet is the additional area what we have allocated for women's top wear and menswear that how much revenue does that additional area generate? So, that's additional revenue divided by the additional square feet, and that is delivering more than INR 1,000 a square foot on a monthly basis. So when I've taken that INR 1,000 per month basis, I've not considered the bottom wear space and the bottom wear product revenue. I've excluded that.

No, that's fair. I understood that, Gautam. I was just checking from a return profile that we sort of see...

I think return profile perspective, it's too early to comment. I think 3, 4 months down the line is once the store has 5 months of data or 6 months of data, we'll be able to better judge it. But if I just want to understand how the response is, we had estimated and kept the target of at least doing INR 1,000 a square foot, which we have well crossed it. So, I think as management, we are quite happy with how the pilot has worked.

Our next question is from the line of Ankit Kedia from PhillipCapital.

Gautam, I don't know if you have covered this. There was an income tax search on the company a few weeks back. What were the valuations, which came out in this income tax search operations across our plants and offices?

Yes. So -- sorry, I didn't brief on this. So Ankit, they basically came to our premises on October 7. And they have basically come to our office in Chennai, our office in Tirupur, the warehouse in Tirupur and the warehouse in Bhiwandi. So during this time, none of the store sales were interrupted because of the search. The stores are running in the normal course of business. In these 4, they conducted search on 7th and they concluded, if I'm not wrong, on 9th or 10th, they had concluded. As of now, from what we have seen and what -- how they have concluded the search, there have been no major findings and nothing to be concerned about. We have not got any summons or any queries from the income tax department yet. So in case if we do receive any queries, as per law, we will reply and we will do the needful. But as management, we have not seen any major or minor findings as much in the entire scheme of things. So luckily, things went very smooth and it concluded also smoothly.

Sure. That's helpful. My second question is regarding your pledges. Any light on when the pledges could be reversed?

Yes. I'll give some light on that. So, we had increased the pledge about a couple of months back because of the fall in the price of the stock. But we are on track to reduce more than 50% of the pledge soon. So, I think the reduction on the pledge will happen soon. And whenever it does happen, we will release it to the stock exchange. So it should happen soon. We have already planned. So right now, about 56 lakh shares are pledged. So, we estimate about 30 lakh shares getting de-pledged -- 25 lakh to 30 lakh shares getting de-pledged soon. So, that is our estimate.

By soon, you mean a few months or financial year?

Difficult to give a guidance, but my try is going to be in over the next few months to finish it. I don't want to push it to the financial year end, but my try is going to be to finish it within the next few months.

Sure. And my last question is regarding your cut in store opening guidance. This is the third consecutive year you have cut your guidance, sometimes in quarter 3 and luckily, this time in quarter 2 itself, given the visibility. In fact, we have increased our guidance a couple of quarters back, and now we have cut it. So, just want to know the thought process at the start of the year, middle of the year, how is that changing from a strategy perspective? Because from a location perspective also, you would be scouting, the team would be going out and scouting location and locking them because we're already in November. So it would take 3, 4 months for that to happen. So is it in hindsight, we are cutting it because of locations or because of demand or it's something else?

No, no, not like that. I think, look, between quarter 1 and quarter 2, we realized that sales are not growing, SSSGs are weak. We didn't want to take a pressure on the P&L as well. I think I also didn't -- to be very brutally honest, I also didn't guide well, honestly. And that's why I'm also correcting it now. So next time in the future, I will be a lot more careful with the kind of store guidance what I give in the future. So, I think it was a little wrong guidance -- wrong is the wrong word. It was incorrect guidance what I had given. And I'll be a lot more careful in the future as far as guidance are concerned. The reason why we have reduced this guidance is because -- purely because we want to be more measured and qualitative in our openings over the next couple of quarters till at least we start showing some kind of growth in our overall revenue and like-to-like sales.

So assuming, this growth rate continues and we don't see a turnaround in the business, FY '27, will we continue to open 70, 80 stores or you will again aim for 120 stores?

No. See, I think, look, I definitely -- I'm very bullish that over the next couple of quarters, things should revive. And if things do revive, FY '27 will be a great year for us. And maybe closer to the start of FY '27, I'll be able to give a better guidance on how many store openings I'll be doing in FY '27. So, maybe in the call what we do in April or May. For the next Q4 earnings, I'll be able to give a better guidance on what we have planned for FY '27.

And from a margins perspective, given the revival in demand what you are foreseeing, any margin guidance for the second half you would want to call out?

Well, from an EBITDA perspective, it's difficult to give guidance. But I think from a gross margin perspective, things will look very steady at between 62% and 63% of gross margin.

Ladies and gentlemen, in the interest of time, that was the last question. I would now like to hand the conference over to the management for closing comments.

I'd like to thank everyone for being part of this call. We hope we've answered your questions. If you need any more information, please feel free to reach out to Mr. Deven Dhruva from SGA, our Investor Relations Advisors. Thank you.

On behalf of Go Fashion (India) Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.