Kewal Kiran Clothing Limited (KKCL) Earnings Call Transcript

Sorry, on the winter plan?

When the winter season, are we expecting good winter season this time around?

We are positive on the winter category this time. I think winter will be there, and it will be the cool and climate and press sell-through should be better as compared to last year.

The next question comes from the line of Sahil Doshi with Thinqwise.

First question on the Vision 28, with respect to K-Lounge, our thought was essentially the -- you want to create a family store and that's where the market is moving towards, and that's where the strategy around womenwear as well as kids came in. So could you just share incremental thoughts on that family outlet or the larger outlet which we had now that we have revised this. So how do we try and position Junior Killer and become a multi-brand kind of a brand. So just wanted to understand what's our thought on that.

So when we heard of okay, we will revise the strategy for launch over the period. Okay. We had to -- it will become a stable on stores where we'll have all our genders put together. Okay. However, if you'll see, okay, all the brand positioning for most of the brands have been shifting also and getting to one family store as compared to a family store is becoming difficult. So we restrategized our plans to make it more single brand retailing. And in case if -- focus on single brand retailing even if they are okay, next wall to each other. So we'll have -- you may have a [indiscernible] Kraus or Junior but next to each other, but it will be looked as single brand retailing only.

On the Junior Killer part, Will it be a separate EBO strategy which you would have for retailing or...

It will be a subpart of Killer.

It will be a subpart of the larger Killer stores, basically. Okay. Understood. And in terms of the marketing and the thought through in terms of the Killer stores, is that changing in terms of positioning plus.

Mr. Sahil, could you please I'm on the handset.

I'm on the landline -- on the handset. Is it better?

Yes.

So just on the killer, I wanted to understand in larger events or the entire vision 2028 rework, which we've done, is there a change in terms of positioning in terms of metros versus Tier 2, Tier 3? And also branding or marketing going through a change.

[Foreign Language] However, on the marketing side, okay, there will be most brands done digitally.

Okay. Okay. understood. And just on this earlier, we are very confident of a 15% growth for this year. I understand the market dynamics might have shifted or there is a shift because of festive. But is that the real reason for us sounding a little less confident on the 15% number? Or it is purely some festive shift country?

So sale, okay. We were definitely confidently looking in the first quarter scenario. But however, the geopolitical pressure scenario, the inflationary trend, the supply chain the overflow of rate perspective, it restricted our entire supply chain all that did impact the quarter 2 numbers. So if that's the case, we are not so sure whether it will be able to achieve 15% but we will definitely achieve double-digit growth.

Sure, sure. And just lastly, Integriti as a brand, the revamp was likely to give some kind of a positive change from Q2 is what our expectations were. How is that doing? Can you call out, meaning how Integriti grows.

It has delivered double-digit growth.

In the first half or...

Yes, the first half.

Okay. And double digit as we do you expect it to be larger because the brand has gone through...

Yes, I did expect it to be larger.

Okay. Understood. Understood. And lastly, in terms of though the demand has been impacted or you said is softer, -- why is it that cross has been able to continue to grow at 25%. Is it more like an expansion in growth? Or is there a SSG growth there as well.

There have been expansion as well as SSG growth. However Okay, the warehousing capability different for both the aspects. The base also is different where it is operating on a 3x of what [indiscernible] so that's the reason okay. You'll see okay since there was no disruption in the supply chain or maybe the warehousing subjective. It was able to deliver better.

[Operator Instructions] The next question comes from the line of Rushil Shah with [indiscernible]

Sir, my question was in our retail channel and EBOs, specifically, like how do you measure the customer loyalty. I suppose one customer has to purchase today let's say, like within a year, how many times would be purchase? Do we cap that kind of numbers?

We do capture it only for a EBO channel which is only our exclusive stores.

So like given more rectification how as this moves in the last, let's say, 2, 3 years?

Are you going specific into the numbers?

Yes.

The repeat ratio is close to around 22% of the customer with a frequency of 2.

Okay. Okay. And sir, my next question is how -- how do we decide on opening up a store? Will it be like a company-owned or an MDO to what would be your top 3 parameters on which it is decided.

[indiscernible]So since we are widely penetrated in general trade, okay, it allows us to understand the market much better even if -- when there is a vacuum when the new EBO has to be looked forward for? Or maybe LF open gives us a counter in such locations. Such insights are helpful for both the EBO as well as the LFS. However, GT is more with the entrepreneurship-driven game scenario. So we bet more on the entrepreneur as compared to the area.

Okay. So just a follow-up on this one. So whenever for us when we launch a new brand or a new collection, we do it by LFS, although it's a low-margin business for us as compared to the

Sorry, sorry, your voice [indiscernible] again. Yes.

Yes. Sorry. Is it better now?

Not much. Can you be a little loud?

I hope it is fine?

Yes.

Yes. So for us, whenever we launch a new brand or a new collection, we do it via the LFS route, although it's a low-margin business for us as compared to EBO or MBO.

Using it and saying that we lose it to do it through an LFS is not right. We said that, okay, generally, we do it through GT, that is general trade. Our distribution channel allows us to know or penetrate more, and it gives us that reach and which allows us to understand how the city operates sir.

thank you. The next question comes from the line of Sukrit Patil with iSight Fintrade.

I have 2 questions. The first question to Mr. Hemant Jain, our latest second quarter sales as on a healthy growth reaching around INR 370 crore largely driven by expanding our retail presence and pushing into newer segments like ethnic ware. As we aggressively add more retail stores to hit our multiyear growth target, what is the biggest risk that the market at the biggest is that if the market gets oversaturated and how do we protect our core denim and casual wear market share in case, smaller local brands start to underset the price or if it gets into price war kind of scenario. That's my first question. And second, I'll ask later.

[Foreign Language]

[Foreign Language] . SP1 My question was in the later second quarter sales have shown a healthy growth reaching around INR 370 crores. This has been largely driven by expanding our retail presence and pushing into new segments like ethnic ware. As we aggressively add more retail stores to hit our multiyear growth targets, what is the biggest risk that if the market gets oversaturated, and how do we protect our core denim and casual wear market share if smaller local brands start to undercut the price. That's my first question. I'll ask my second question after this.

Firstly, okay, your understanding that it was driven by more ethnic is a wrong assumption. That's one. Secondly, we -- our core competition with Killer that we will consider as a core competition. So we are okay in line in terms of the price bracket as such brands. So I don't think there is an undercut happening, okay? You are comparing an unorganized segment to an organized segment. Definitely. Okay. There may be a little bit of challenges. But okay, and when the customer understands and wants to buy a brand perspective, we will operate and go to such stores as compared to an organized brand perspective. Comparisons are not right.

Okay. My second question is, while we are tracking well within our retail footprint goals by opening menu -- many new outlets across the country, what is the biggest execution risk to our sales growth is premium shopping mall traffic slows down or if consumer spending costs pulled off over the -- in the coming winters. And which reason or territory are you finding the hardest to scale up to right now? Just want to understand the forward guidance on this.

So winter has always been difficult because it gives you a 60-day channel only. Any shift in a period of winter definitely has impact on the discounting. But it may change your EBITDA mix by a 1% or 2% scenario, okay, for the particular quarter, which is Q3.

Scaling up, as you said, okay, as such, the markets have been growing established well. So I don't feel that any premium mall or perspective coming into it gives us more room or more space. I would say, more of square feet area to, in fact, be penetrated in such premium malls may have a shopper stop or a lifestyle where you will be present also. So it allows the brand to have more dose. Okay.

So just coming back to my first question about Part B of questions want to understand, I am asking because the apparel market is becoming highly crowded with D2C online brands and deep discount format. If we scale up our physical store footprint too quickly while consumer demand hit a seasonal hault, isn't there a risk that unsold inventory will start to pile up just want to understand this will be my last question.

Most of the D2C brands, which are actually scaling up and looking at brand visibility and then entering the off-line market. So on is there to sustain. I don't feel that there is far any impact on the offline definitely, whoever performs better, okay. So there will be a survival of the fittest, which will be happening. Okay.

We have a follow-up question from the line of Sahil Doshi with Thinqwise.

Just could you share an update on the brandwidth and rethink if anything, because of the Vision 28?

[indiscernible] Sahul, can you be specific what exactly are you asking?

No. So basically, if you can -- do we have more update on the pivots you were trying in different categories as you are listed in the Vision 2028. So can you possibly give us an update because it's been a year, 1.5 years since we listed it.

Sahil, I still feel it's too early scenario okay? We have not been able to crack in a as well as we thought. You'll have to give me at least 2 more quarters to get an update on that.

Got it. Understood. And just if you can just give us more clarity in terms of the impact of the monsoon or the rains, is that because you are not able to produce in time and you lose out of the season? Or because is it both that demand was also an issue and supply was also an issue? Or what really went wrong?

Demand was not the problem, but the production was the problem. Because of the flood, [Foreign Language] People couldn't reach the factories only.

Right, right. Understood. Understood. Understood. No,

That is was in the water [Foreign Language]

Understood. And just last question. In terms of inflation, which you've seen in cotton and other commodities also, given the environment which we said, how do we think about it? Should we see some pressure going forward on gross margins or we can take a hike.

We have already started facing that inflationary pressure not too sure, okay? In fact, I feel that it's too early to comment on that. We are trying we have taken a price increase in current 2 quarters also. If possible, we'll try to pass it on to the consumer whether we'll be able to or not be able to pass onto the customer. Okay. But one more aspect, where we are also by reducing the discount

Sorry, your voice wasn't too clear. Do you mind repeating that?

I'll say that, okay, when you said that okay we have already started placing that inflationary pressure. So there has been a price like in terms of the fabric. But you'll see for the first half year scenario, the gross margins have remained intact. This inflationary pressure may be therefore a quarter 3 and quarter 4 period. We will try to pass on this price by to the consumers okay, by 2 aspects, either reducing the discount. That's one or passing it into the MRP

Sure, sure. Understood. Understood. Best wishes for the rest of the year.

The next question comes from the line of Manish Goel, Thinqwise Wealth Managers.

Sir, my question is on the Vision 2028 and the change in the number of stores or the EBOs, which we were targeting earlier from 900, which has been reduced to 800. And on other side, we have maintained our revenue guidance of INR 1,500 crores. So just a couple of things over here that now probably the 80 numbers of K-Lounge stores, what we have, we tend to completely shut them out in the next 2, 2.5 years. And we are intending to get more productive sales from the 800 stores. So 2 things that in our earlier plan, K-Lounge not expected to probably it was expected that K-Lounge will continue, number one. And number two, now if you are looking for higher contribution per store throughput. So what -- how will we achieve that? Like you will -- you did allude that earlier that you will increase the size of store, but to get a higher throughput, how would it be possible, number two. And number three, then -- on the margin front also, then if you have a lower number of sold or operating costs will be lower. So then in such case, can you probably see better markets.

Okay. Answering one by one all your questions. One is K-Lounge. Okay. Definitely, we said that we will be rational in out an

Your voice phases down when you answer. So maybe sorry for that.

I said, okay, as we said, okay, we were -- since we didn't have a strategy for K-Lounge, we had kept the number of K-Lounge constant over this period, okay? We're now saying that we'll be rationalizing and making it -- swearing it off over this period, and that's why the number of stores has been decreased for K-Lounge. That's one. Secondly, we said that, okay, the number -- the store size will be -- we are increasing the store size for a single brand retailing. We are also looking at category expenses, which we are looking at, along with the brand. So it is not only net measure other accessories. Other categories, which is maybe as a formal blazer as a category and winterwear, which we'll be adding up and which will increase the throughput for the store.

But Pankaj, it would be like to probably get that incremental 15%, like where I'm coming from is that your number of stores are down by 10% to 15%. And to get equally that kind of throughput higher, you would really require

[Foreign Language]

Hemantji,, the point was that you probably then probably to be more clear, what categories you would add up that you get a more sales per store [indiscernible] you will have a larger size store, but -- it doesn't imply higher sales just by?

[Foreign Language]

Got it. SP1 So that is question. on the EBITDA margin. Yes, just let me finish. My third question is not yet answered. So Pankajji, that is what he was saying that if rental minimal increase in costs will be rental, then -- should we look at better EBITDA margin because scale launch will get shut down and you will probably have a higher sales, higher throughput with lower cost structure. So will that help you get a better margin?

Margin -- the EBITDA margins are almost above industry average. I don't feel that there is incremental EBITDA margins ahead.

Okay. Maybe I'll put it other way, that whatever incremental you will get, you'll probably use it for sales at -- maybe in marketing.

And okay, whatever most of the stores are franchisee owned franchisee-operated stores. So that incremental revenue also goes to -- a subset of that goes to them also. Right? So that's the reason. I don't feel there is any major impact on terms of the EBITDA throughput definitely would be better, but incremental margins would not be that case.

As there are no further questions from the participants. I now hand the conference over to the management for their closing comments.

Thank you once again for joining us today. We truly value your continued support and confidence in KKCL journey. With the festive season upon us. We wish you and your families a joyous Diwali and happy, healthy and prosperous new year ahead. Should you have any further questions, please feel free to reach out to our Investor Relations team. Thank you. Thank you so much, and happy Diwali.

Thank you, sir. On behalf of Kewal Kiran Clothing Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.