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Metro Brands Ltd

| Q3 FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤4th Feb 26

Summary : Metro Brands delivered strong Q3 FY26 results with double-digit growth, expanding new store formats and digital channels, maintaining a positive outlook despite regulatory hurdles and new venture gestation periods.

Management Perspective positive : Management expressed being 'pleased to see our business improving steadily' and 'confident of sustaining these trends'. They also stated 'we see no reason for these numbers not to stay in the range that we've always guided to'.

Concall Report Analysis & Insights

Business Overview

  1. Metro Brands posted 15% growth in standalone and consolidated business for Q3 FY26.
  2. Consolidated sales crossed INR800 crores for the first time.
  3. Premium products (over INR3,000) constitute 55% of the business.
  4. Digital commerce grew 24%, now representing 12% of total revenues.
  5. EBITDA grew 16% (standalone) and 18% (consolidated) with a 33% margin; PAT grew 33%.
  6. Opened 35 new stores and closed 11 this quarter, totaling over 100 new stores this fiscal year.

Future Growth Prospects

  1. Company expects to sustain double-digit growth trends.
  2. New store openings will continue, driven by profitability and market share opportunities.
  3. Launched 3 new MetroActiv stores for athletic performance, featuring major brands.
  4. Clarks partnership is off to a good start, with new stores planned for Q3 FY26.
  5. Long-term average CAGR is guided at approximately 15%.

Management Insights

  1. Management is pleased with consistent double-digit growth and steady traffic in online and offline channels.
  2. Key metrics like EBITDA and PAT are consistent with guidance, despite investments in marketing and new stores.
  3. Differentiated banners are strategically positioned to cater to the complete footwear wardrobe of Indian consumers.
  4. New stores are opened for profitability and market share, not driven by a fixed number.
  5. GST benefits are being passed on to customers, and new product MRPs are realigned with reduced GST percentages.

Signs of Skepticism

  1. Management's explanation for flat revenue per square foot despite new store openings was somewhat convoluted, requiring further clarification.
  2. The resolution timeline for BIS issues affecting Foot Locker and FILA has been pushed back multiple times, indicating ongoing uncertainty.
  3. The impact of new ventures on overall margins is acknowledged as a drag, but specific quantification remains limited.

Risk Factors

  1. BIS norms are impacting growth for Foot Locker and FILA, causing delays in expansion.
  2. New store concepts like Foot Locker and MetroActiv have a gestation period and may not be immediately profitable.
  3. Inventory buildup in Q3 was noted, though management stated it was in line with the season.
  4. Potential for input cost increases could impact margins, partially offset by GST benefits.

Good To Know

  1. A INR3.3 crores accrual for the new proposed Labour Code dampened PAT, offset by a prior year's one-time tax charge.
  2. GST benefits are passed to consumers, resulting in customers paying 3-4% less company-wide.
  3. E-commerce channels serve as both a sales avenue for exclusive online lines and a liquidation channel for store inventory.
  4. The company operates Shoe Depot outlets to liquidate products and achieve rental economies of scale.

Key Drivers

  1. New store openings drive market share.
  2. MetroActiv concept expands athletic segment.
  3. Clarks partnership boosts brand portfolio.
  4. Digital commerce sustains strong growth.

Key Analyst Discussions

Competitive Environment

  1. Management views new players in the athletic space as market expanders, focusing on Metro Brands' retail presence and ecosystem.

Market Trends & Consumer Behavior

  1. Metro Brands defied the general discretionary consumption slowdown in Q3 with strong performance and steady traffic.
  2. The impact of zero wedding days in January on December sales was mitigated by strong performance in regular products.
  3. Price point growth percentages remained broadly similar across categories, with all formats growing simultaneously.

Financial Highlights

  1. Q3 growth improved to 15% from 11% in Q2, attributed to existing store performance despite new stores diluting average revenue per square foot.
  2. Net sales growth is unaffected by GST reduction; consumers pay 3-4% less overall.
  3. Inventory saw a slight buildup in December, considered normal for the season and store opening plans.
  4. Pre-IndAS PAT margin is expected to be around 1.2%-1.3% going forward, higher in Q2 due to Foot Locker openings.
  5. Volume growth in Q3 was approximately 12%, with ASP growth around 2-3%.

Product Composition

  1. MetroActiv and Foot Locker are retail concepts for sports and athleisure brands, with investments in FILA despite BIS challenges.
  2. High-end footwear (over INR10,000-INR15,000) primarily consists of imported collaborations.

Strategic Considerations

  1. Store openings are strategic for profitability and market share, not driven by a fixed number.
  2. Foot Locker expansion is measured due to BIS issues, but stores will open if good real estate is available.
  3. MetroActiv stores are opened in Tier 1/2 cities (e.g., Indore) to refine the concept and cater to broader markets.
  4. E-commerce strategy involves exclusive online lines and inventory liquidation, not a discount-at-any-cost approach.
  5. New ventures like Foot Locker and MetroActiv currently drag on EBITDA margins due to lower third-party brand margins and marketing investments, but are expected to improve.