Ladies and gentlemen, good day and welcome to the Bata India Ltd Q1 FY 2026 Earnings Conference Call. 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. Should you need assistance during the conference call, please signal an operator by pressing star ten zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Gaurav Jovani from JM Financials. Thank you, and over to you, sir.
Hello everyone. On behalf of JM Financials, it's my pleasure to welcome you all to Bata India's Q1 FY 2026 earnings conference call. Today, we have with us Mr. Gunjan Shah, Managing Director and Chief Executive Officer, Mr. Amit Aggarwal, Chief Financial Officer, and Mr. Nitin Bagadia, Assistant Vice President and Company Secretary. Thank you, and over to you, Nitin.
To all of you, we have Gunjan Shah, MD and CEO. We also have Amit Aggarwal, Director of Finance and CFO, joining us. We have shared the presentation with the stock exchanges earlier today. We'll be taking you through the same. We'll navigate the slides as well as the page numbers. On page number two, we have the disclaimer. I'm sure you have gone through the same. I'll now request Gunjan to take over, and thank you once again for joining.
Hi everyone. Pleasure to be back on this call for this quarter. While overarching, the quarter was a relatively tough one. It seemed a little better than what we had seen in the previous quarter of June to March. It still resulted in only flattish kind of a growth. While we managed to have the operational efficiencies reasonably working for us, it just goes on to show that the backbone of the P&L is strong enough. Hopefully, once we start seeing growth led by the initiatives that we have talked about and hopefully pushing ahead, we should see this translating to much better profit growth also. Moving forward, I will try and keep consistency with what I have shared with you. On slide number three, I'm going to talk about three large initiatives.
I've talked about them in the past, and I will give you progress updates on all three of them going forward also. Some of them I will hint towards the kind of plans that we have for the balance of the year in the next three quarters. Store growth, same-store sort growth, portfolio evolution from a product portfolio, and inventory agility. These are the three things. Moving forward, slide number five, talking about slide number four, sorry, talking about store growth. There are two large initiatives: the ZBM project, Zero-Based Merchandising that we are now scaling up pretty large, and the value propagation project for driving sales to store growth. In Zero-Based Merchandising, for enhancing customer experience, the key metrics are now we are at close to 200 stores in June 2025, plus 50 stores in the quarter gone by. The pace is picking up.
We would like to have it much larger, provided we are able to make sure that the inputs that go into making a successful transition to a ZBM and the kind of output metrics that you see on the chart on the right side, they fall into place. We hope to maintain this progress of about 50 stores a quarter. If things work out well, then maybe a little more accelerated. Line reduction, and hopefully, now these are all Pareto stores, so they should be a larger contribution to the overall store network from a turnover perspective. These stores have seen a line reduction of 33%. That's the reduced clutter piece. They've also seen an inventory reduction of almost 22%.
A significant return on invested capital for these stores is much better from an availability perspective of size sets, etc., for the lines that we have kept there at almost 450 basis points. What that results in is a much better consumer experience. The NPS scores are better. The Google ratings are better for these stores. The unit per transaction is much better. The turnover is better in terms of same-store growth versus controlled stores, as well as the volume pairage throughput is much better. We are able to display our merchandise and display our proposition to consumers much better, and the stores are run more efficiently from a Store Manager perspective, which I have talked about for now the last two to three quarters. We hope to continue this projection going forward and maybe even consolidate even better.
The second big initiative, slide number six, is on driving value proposition. We do sense stress even now in the mass segment, the middle and mass segment, and there have been concerted efforts. They are gaining significant momentum. Now we see some signs of success on it. Some of the examples I've put here: Bata Ladies, a very large volume contributor as well as value contributor to the store's turnover. We've introduced key price points both in open and closed, and there is significant success in terms of checkout rates. They have also improved as far as checkout rates go. As you can see, some of the data points, I'll just take you through one of them, and then you can extrapolate for the rest. Opening price points of INR 399 and INR 499 were introduced at scale across almost 800 doors.
Those price points resulted in checkouts going from 3.5%- 8%. The meaning of checkout and a better reference would be the average checkout of the full portfolio of our network is about 4% roughly. That's basically equivalent to two tons. Anything above 4% is better than average. These portfolios show a checkout of 8% at a large volume base of almost 15,000 pairs per month or per week, which is also significant from an overall growth perspective. We now plan to expand this to almost a full network, which is close to 1,200 stores. A similar data point for INR 799 and INR 999, checkouts moving up to 6.4%. Price points are clearly demarcated, and then the network is getting expanded, and obviously then backed up with now communication to consumers outside the store in terms of the value proposition, depending on what's the proposition in which stores.
One example has been shown. Similarly, on the Power side and the price points of INR 1,699 and INR 1,999, first time introduced at scale. Some initial signs of success are a checkout of 6.6. We would like to now expand this across the network and with additional lines also. Four more lines coming through in addition to the seven lines. There should be a significant portfolio that we've built there. These are just a couple of examples. There are many more that are being worked upon on the value proposition and hopefully, you know, allowing us to have a little more optimism going forward. On the portfolio evolution, three large levers: casualization driven by floats, Power driving the exclusion portfolio, and Hush Puppies on the premium side. On floats, slide number eight, significant progress. Momentum continues. 30%+ kind of growth. It is significantly indexed from a price point perspective.
It is 1.2x of the average ASP of the store, so it adds on to the ASP of a store while driving significant volumes. We built the quarter that went by, as you can see on the right side, did see a significant addition of new portfolio. What we are being very conscious of is that as the new one comes in, there is the existing one which is now faded out also. Standardized merge packs have been done for various clusters of stores of alpha, beta, gamma. As you can see, some of these are collabs with Disney properties. Some of them are technology introductions, and some of them are just pure design and color introductions to create response, and obviously the checkouts are showing up out there. We also launched in this quarter some of our largest campaign for the quarter was around floats.
Comfort never looks so good, along with a mega influencer, Prajakta Koli, to create response also. The second piece on slide number nine on power portfolio investment, these are on the premium side, price points of INR 2,500 to almost INR 4,000+. These again saw significant traction. Checkouts, mind you, at this level are relatively lower at these price points. Even there, if you're getting 4.5%, it's extremely good because it results in a significant turnover. There we plan to obviously extend this whole power EV slide connection to the full network now and with a significant way of tightening of the page. We are now wanting to also insert this property of EV slide in some other product categories of ours that I will talk to you as we go by in the subsequent quarters.
Power stamina on the premium side for running shoes, good response, at INR 4,000+ , checkout of 4% at six lines. That continues to invest on democratizing technology. Last but not the least on driving premiumization, Hush Puppies continues to expand. We are now close to 150 EBOs, as you can see in the graph, both COCO as well as franchise combined. We will want to see a reasonable split of almost, let's say, about 60/40 in terms of expansion going forward of COCO as well as franchise in this. This was backed with obviously a large campaign that we continued on the Ease Please along with the Vivi, the brand ambassador for office sneakers to create response.
That was the first major departure that we have done from the core categories of Hush Puppies of formal dress shoes as well as informal dress shoes, which are metallic as well as loafers. That's the centerpiece of Hush Puppies sales. Office sneakers has been a significant addition to that portfolio. In addition, as you can see in slide 11, we've been also investing significantly on driving a refresh of the entire Hush Puppies brand. The new concept, as you can see in before/after, much more brighter, does have a very, very premium quotes. The category is displayed in a far more focused manner, as well as the fixtures are reduced to make it easy for consumers to navigate and give them better comfort and accessibility.
Thirty-six of those stores that I showed you have been already converted, and that progress will continue to keep investing on this channel for that consumer segment. Moving to slide number 12, inventory agility is very critical. I think this is some area that belatedly we have gotten to the task. Now we are on it for almost about three quarters, and the progress is there in the subsequent two-three charts. Slide number 13, the lines overall, while I showed you for the ZBM stores dropped by 33%, overall for the full network has dropped by 25%. The clutter at the stores also, including aged lines, has also dropped by almost 23%. The top articles availability has also gone up by 7%. However, this area we still have significant headroom to progress.
Then in a concerted project called Customer First, which is in this complete zone of end-to-end, how do we improve this entire agility? Total inventory, moving to slide number 14, has dropped year on year significantly. I showed this last quarter also. This quarter also, it's dropped by 16%. This is despite the fact that we are building up inventory sequentially for the upcoming season. Year on year, it's still almost at the lowest level that we have ended June at for several years now. Despite that, our stock turns are better, and our agent inventory has been significantly reduced to less than half, which should also portend well in terms of full price sales going forward into the season. Our Customer First project is on track.
As I mentioned, it's a large-scale project which is dedicated for end-to-end improvement in terms of how do we not only forecast for inventory, but also the lead times as well as the way we store inventories upstream versus downstream. The best-in-class benchmark that we have is that the stock turn improvement that you see to 2.1, which is on a trailing 12-month basis. It's not an easy metric to move. We want to see it in the next about 12 months to move to almost 2.5+ . Moving to slide number 15, other highlights, 644 franchise stores, expansion on franchise store continues. We were a little less than required in 20 stores. Largely, the first half of the quarter was disturbed because of the geopolitical situation of Indo-Pac, etc. That disrupted the momentum.
From then onwards, it has picked up, and we are hopeful of maintaining the momentum of about 30 stores- 40 stores a quarter. NPS keeps on moving ahead. We have now introduced a significantly more stringent metric, which is on Google ratings, which is visibly outside to consumers as well as externally validated. That's at about 4.6. KROs are now on the multi-brand outlet. We have now significantly invested on KROs, and that's at about 1,500, 300 more than last year. We've been awarded a few awards, Best Workplace Culture, etc. We've also launched three large campaigns. I talked about the floats one. I talked about HP for Bata. We have launched under a make-your-way platform, the Tropical Blues collection, which was under the Comfort Blues. Moving to financials. Therefore, this is a summary. Financials, the growth was flat at -0.3% and INR 942 crore.
Gross margin, however, took a slight toll at -133 basis points. The EBITDA margin was at about 22.9%, and the PAT landed up at about 5.5% before exceptional loss by 120 basis points. There were two exceptional items, as I mentioned below in the fine print. One was a VRS cost that we incurred towards the partial relieving of some workers in one of our factories, in line with our longer-term plan of trying to get an efficiency on fixed costs. The second one was in the base year of last year where we had got an exceptional item of realization of Faridabad line at INR 134 crore. That brings me to the end. There are a few slides in the appendix which you can go through. Thank you. If we can now move to Q&A, moderator, please.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. 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. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Gaurav Jovani from JM Financials. Please go ahead.
Hi, Gunjan. My first question i s with regards to the gross margin this quarter around. You know, we are seeing improvement in the contribution from the premium part of the portfolio. We are also seeing the quality of the merchandise, etc., improving. However, still we see that, you know, the gross margins have declined. If you can highlight, you know, what has really led to this?
Okay, hi, Gaurav. Thank you. Your observation is right. Partially, the reason that has been there, especially in the last couple of quarters, would be on the lines of clearance of some of the inventory, not only aged, but also what we call as basically discontinued. That is a process that we are now putting in much more stringency as part of what I've talked about as Customer First. Effectively answering your question, I think a large part of it is done.
Now we are in a situation wherein we actually don't carry as much aged inventory or discontinued from that front, and especially compared to last year. Now we should be able to basically realize a lot of that benefit from a gross margin perspective. However, there is some part of it which we will realize. Some part of it will get redeployed where we are doing the value propagation only issues in some of the categories.
Okay, sure. That's clear. My second question, you know, is with regards to the multiple steps that you have been taking, given, I mean, is the Zero-Based Merchandising, the portfolio revamp, even on the tech and building multiple initiatives. However, you know, somehow the revenue growth has been hard to come by. If you can dissect, you know, that what it is that despite a very low base, we are now able to take that revenue growth to even make single digits. A part from the low back to consumption, what would help you to try to double digits?
Okay. If I have understood your question right, it's basically in terms of what is it that is causing the roadblock to revenue growth, right? I mean, whatever, in various segments or any commentary on that front. It is, I mean, while we leave aside the environment piece, Gaurav, the piece that is, I think, in our view is going to be at the lower price points. That's where basically the leverage revenue growth is most critical to come through from. That's the piece that we are focused significantly on.
While this quarter we did see significant sluggishness on the MBO, that is the distribution business front, we did see encouraging signs from a stores' perspective on the lower price point. We are hopeful that the initiatives that I've talked about will only gather momentum as we go forward. The lower price point, less than INR 1,000, is where the stress is, and that's where we want to basically keep accelerating ourselves while we push the premium part separately that I've talked about.
Sure. Thank you. That's all from me.
Thank you. A reminder to all participants, if you wish to ask any questions, you may press star and one. The next question is from the line of Sameer Gupta from India Infoline. Please go ahead.
Hi, Gunjan, and thanks for taking my question. First question is on the margin front. Now, in the peak, Bata , if I just look at a pre-India's business, including the rental as part of other expenses, Bata made a 16% EBITDA margin a few years back. Last year it finished at around 11%. There is some benefit of that royalty accounting here. Now the company is hinting it's focusing more on the value part, and that might be margin diluted for some of the years. Internally, as an organization, is there a guardrail in terms of margin that this is the bottom and we will not allow the margin to go down from here? Is there a thought process around that?
Okay. Sameer, so a couple of things, right? While you're talking on the, I'm assuming what you're talking is at an EBITDA level, right? There are, in a very simple way, three large pieces towards this margin, right? One is obviously gross margin. The second one is, you know, let's say store-related fixed costs, which are leveraged coming from a same-store growth. The third one is corporate fixed costs, including manufacturing as well as corporate overheads. Are you with me till now?
Yes.
Yeah. Okay. Now I'll try and give you some commentary on it. While we don't give forward-looking guidance on margins, the way we are approaching for it, let's see whether it addresses your question, right? One is in terms of gross margin. I gave a commentary just prior to this question that was asked. Therefore, we are very hopeful that should come through. We will redeploy some part of it, right, of the scheme and inventory, etc., towards price point value. I don't think that dilutes margins too much, especially once we start driving scale because that gives us economies of scale from a cost-to-product perspective. That's on the gross margin piece. On the piece which is to do with the leverage on same-store growth, which is anyway super critical, that comes through. I think our cost structures have been reasonably tightly run.
Once we are able to, if you saw my presentation, the focus is on same-store growth, right? We should be able to get that realized and transferred from a leverage perspective from an EBITDA. The last piece is on corporate. There we have done obviously a significant amount of work, both in terms of in-house manufacturing over the last two, three years, as well as from a productivity perspective of corporate staff, and which I'm very hopeful we should be able to see the realization as we see the top line improve.
Okay. Let me put it in another way. I understand that the efforts are towards driving same-store sales growth, and that in turn will drive leverage. Those are not entirely in our hands, as if it would have been, we would have had a good history of SSS growth in the past few years also. My question is that then there is a level after which, if margins drop, the business doesn't make a very good return on investment. It will be sub 10% beyond a point. Do we have a thought process in the organization that, okay, now it's time to do more cost cutting or we need to get more optimum levels of efficiencies? Something on those lines I'm asking.
That's what I meant by the third piece because the second and third piece is where you can leverage your fixed cost. Obviously, I think while on one end is leverage coming from top-line, otherwise you can make sure that you tighten up your fixed cost as much. As you can see, the manpower line has been much tighter even for the last couple of quarters. That's what we will see going forward. Amit, you want to add in some more?
Yeah, and thanks for that opportunity. If you look at in terms of beyond gross margin, there is a gross margin erosion of about 130 basis points as a percentage of sale versus last year's same quarter. All the other cost items, if you add up, there is a benefit of losing close to about 45 basis points- 50 basis points, which has emerged. This is emanating from all the structural initiatives on fixed cost, which Gunjan talked about. We are very aware in terms of top-line challenges because of various factors which Gunjan also captured. Therefore, we are very tightly running the ship in terms of all the structural costs. They are continued to be part low. Wherever we are finding excess, we are ruthlessly cutting it out. That endeavor continues.
I got it. This is very helpful. Second question is that if I just look at the channel, feedback suggests that Bata stores are significantly understaffed, which technically leads to lower conversion. This is despite the flexi-manpower initiatives. I'm sure this is a feedback you would have also received over the course of several con calls. Any initiatives you are doing to tackle this? I know I asked the first question on margins, but great to get your thoughts here.
Yeah, it'll be great, Sameer, if you are able to pass on that feedback because we do our checks on this front. It is actually a template that is run centrally as well as empowered into the regions, which then gives the store the right to manpower, and obviously correlated to their conversion metrics and stuff on that front. I think broadly, while it is fine, there will be pockets where fluctuations do happen for whatever reasons. The system can be far more agile in terms of reacting to it, but should work in that manner. If there are specific gaps, we're more than happy to tackle them. Does that answer your question?
Sameer, are you there? Sameer?
I think you lost him.
We'll move on to the next question, sir. Before we do that, a reminder to all participants. If you wish to ask any questions, you may press star and one. Anyone who wishes to ask a question may press star and one on their touchstone telephone. The next question is from the line of Sandip Sabharwal from Asksandipsabharwal . Please go ahead.
Hi. I've been attending your calls for the last many quarters. In each call, the outlook seems to be very bullish when you present itself. When we come to the end of the quarter, the top line was to be stagnating. The brand Bata also doesn't resonate so well with the young generation of today. Secondly, there are a lot of B2C brands which have come up, which are doing reasonably well. What is aiding the company that says, despite so many initiatives, there's virtually no growth?
Okay, Sandip. Two, three things, right? Obviously, we also would like to see much better top line. I think on a couple of fronts that we, I mean, that I would like to respond on a slightly more macro level. One is that I think the consumers, especially in our target consumers, which is the middle class, broadly the belly of the population, have obviously seen a certain pinch that is there in terms of the inflation that they've gone through. Now, making sure that they see value for money in our products, which we were known for, is something that we want to make sure that we consolidate and strengthen ourselves. More importantly, also make sure that these are presented to consumers in the right way, which is why this whole piece of ZBM, etc., is being worked upon. That's one big piece.
The second piece that's there is that the online piece, you're absolutely right. There is a significant amount of traction that is there online. Obviously, a far stronger traction that was there, let's say, the immediate period post-COVID, etc. There is a shift that is structurally there in terms of consumers having moved online, and a lot of the B2C brands are from there. Now, we have reinforced basically on two fronts. Obviously, our e-commerce business is our fastest growing business for some time. The dot-com business is obviously now getting significant investment. We have just launched our app, let's say, about 10 days back. There is already about 10,000 downloads that have already happened. There is going to be significant impetus that we continue to keep plugging there. However, the conscious piece is that we want to make sure that this is consistently a profit-accretive kind of a channel.
We don't want to end up buying up a sale which is not going to sustain down the line. The last piece that's there is on product design itself. We are now working not only in India, but also globally in terms of getting our significant amount of effort going behind product design, which means the technology as well as making sure the trends and the materials are rightly captured. One right example of this is, let's say, for example, the floats.
Very clearly, it's at least the average consumer profile of floats is about 10 years, 8 years- 10 years younger, right? It is a product line that has been started only about three and a half years back, and it's already hitting a run rate of about INR 20 crore annualized. Where you put this together, it does work out. That's where the endeavor is, Sandip. Yes, I agree with you. We can do much better top line.
Thank you. Thanks for your detailed answer. The only point being, as all of us know, footwear is sort of essential. You can't do without it. How much you can capture out of the market, that's the whole question. Once the brand loses mindshare, then taking it back becomes difficult. Wishing you the best, and let's hope things will be better going forward.
Thank you.
Thank you. A reminder to all participants, if you wish to ask any questions, you may press star and one. Anyone who wishes to ask a question may press star and one now. The next question is from the line of Tanuj from JM Financials. Please go ahead.
Hi, sir. Two questions from my side. First one will be, we have slowed down our pace of implementing the Zero-Based Merchandising. As much as I remember, you guided to implement this in 300 stores by the end of this Q1, but we are now to 194 stores. Is there any kind of hindrance which we are facing that you want to highlight?
Okay. What's your next question, Tanuj?
Next question will be on margins, sir. As our franchise mix and e-commerce penetration is increasing, how is this going to impact both the gross and EBITDA margins? How much diluted are both of these will be?
No, at an EBITDA level, it is not diluted. At a gross margin, it can play a little mix because of the way the business model is structured for it. I have mentioned this in the past also. In fact, our franchise business actually is exceptionally accretive from an EBITDA business. I hope that addresses that, that it should be net accretive from a profitability perspective as they grow. The ZBM piece, in a way, you're right. I would have expected this to accelerate much better because all performance metrics from a consumer experience, from a throughput productivity of the stores, revenue per square foot, as well as from, as I said, ROIC, they are all better.
The piece, however, that is making sure that we are a little more consolidated in the way we go about it has been when the stores are made so lean that you have to have the complete system running really smoothly to service those stores. Ideally, once we do that, we want to make sure that we sustain it, and we don't want to have a hiccup. We've had a situation where the team went a little too eagerly, and we actually had to take a toll on turnover for a couple of weeks, which is why now we want to make sure that we don't have these blackout periods in between because they can be very damaging to the store's performance. That's the reason why it's getting a little modulated.
As I mentioned in my presentation, while we are comfortable with the 50 stores getting transformed into this network progressively every quarter, hopefully, I think with the various other initiatives falling in place, we should be able to accelerate it to about 65, 70.
Okay. Sure, sir.
Thank you.
Thank you.
Thank you. A reminder to all participants, if you wish to ask any questions, you may press star and one. The next question is from the line of Avinash from Motilal Oswal Financial Services. Please go ahead.
Good evening, sir. My question is relating to the sneakers. At one point, we have introduced something like a sneaker studio. There was a lot of focus on there. What happened to that? I mean, for the last few quarters, we have not seen any kind of growth there. What exactly is happening there?
Okay. Avinash, so sneaker studio continues. I think we are now at last count close to almost about 800 stores out of the network which are sneaker studio now. The endeavor at that point in time, just to give you a context, was to make sure that the sneaker propositions from within the store is brought out, which is why we put up the panel, and therefore the sneaker studio concept was brought in. Now, the point is that now we see that we need to take this to the next level, which is why the initiative is now on the portfolio that we are displaying on the sneaker studio, and which is what now I've been focusing a lot more, and that's what the organization is working on also. That doesn't mean that the sneaker studio initiative has stopped. That still continues.
Any store that undergoes a renovation or a new store opening does have a distinct sneaker studio concept. The driver is now going to be portfolio going forward for the next level of growth that we need from this category. That's why I focused on what I talked about both from a Power perspective as well as value proposition.
Okay. Got it. I mean, I don't need an exact number, but what would be the ASP of the sneakers that we are doing? What's the kind of growth rate in the last couple of quarters that we are seeing in this category? We account for like a substantial 20% of the top line, right, if I'm not wrong?
Sorry, can you just repeat the last point?
I mean, sneakers account for like 20% of the top line last time when we spoke of.
Right. So it's about a 20% contribution to top-line sales of the stores. It is an ASP, which is about 1.2x of our store ASP. Overall, sneakers Power is much higher. We do sell sneakers under Bata also, and we do sell sneakers under North Star.
Any view on the like how the growth been there in the last couple of quarters? Because BIC and everything was done with, and other players are reporting like their inventory position is getting better in the sneaker portfolio.
Can you just repeat that? Dramatically different, but it's getting slightly better than the overall growth rate over the last six months or so.
No. Okay. Okay. That makes sense.
Thank you.
Thank you. The next question is from the line of Neerav Savai from Abakkus Investment Managers. Please go ahead.
Hi, my question is on the COCO format now. It's been more than two years there. Expansion is extremely, you know, very slow, and I understand there has been a lot of store closures. How do we see this year as far as COCO format expansion is concerned, and what kind of store closures are we looking at?
Right. It's a continuous process, Neerav, that happens in the retail world. Obviously, modulating based on basically same-store sales growth in the environment that we see, the net additions are an outcome of that in a way. We still go on doing about roughly, in my view, about 70- 80 gross additions that happen every year in COCO gross, right? Now, depending on some of the consolidation initiatives that we are on, for example, in the last two, three quarters, there is an accelerated effort towards that. That will result in the net numbers that we are talking about. We are still being largely, I would say, flattish, maybe a few stores in addition year on year. That should only accelerate as we see the environment improving, hopefully.
There has been a lot of expansion that has happened through the franchise expansion format, especially in the smaller towns, where the benefit comes through in terms of new town additions, which are grabbing new consumers. Simultaneously, a lot of effort has been towards not only Zero-Based Merchandising expansion, but also towards better Bata Red 2.0, which is renovating the stores. That reaches at about, I think, about 60% of the network now.
Right. Basically, at net level, we should look at the minimal 10% - 15% of store expansion.
As of now, in the short term, yeah.
I understand the stores which we are shutting down are not very profitable stores, and maybe some of them might be loss-making stores. What can be the incremental addition in margins which we can look at post-closure of the stores? We have been doing this exercise for more than three years now.
Right. Normally, a store, we don't allow it to be significantly negative. As soon as it turns marginally negative from a four-wall margin basis, it gets into a scanner. I think in another about three to four months is where the decision is precipitated in case all other levers have been basically factified. That's where the benefits arise. I like Amit's answer in case he's got a better number to answer you on this.
Okay. Typically, the closures we have done should help us increase our operating costs or facilitate reduction of the operating costs because the stores were loss-making, right? Typically, we've seen on an average, it is about 40 basis points- 50 basis point improvement coming in the overall operating margin on the store closure.
Okay, that is something which we can foresee for the rest of the year.
Yeah. What happens is that when you open a new store, which Gunjan also mentioned, it takes time to become profitable. The year one, generally, the new stores are not profitable on year one. Therefore, there is that compounding or let's say impact which happens. Net-net, on account of store opening and closure, at best, you see a 10 basis points- 20 basis point improvement only, which is largely coming from the store closure, but gets offset because of the store opening. Year two, year three onwards, that delta of 40 basis points- 50 basis points, which I mentioned, that continues to be.
We have been adding 70, 80 stores, I understand, for the last three years, and the closures have been maybe, let's say, 50 stores. Now the years, let's say, FY 2023, 2024, those stores would have turned profitable. Is there any time frame, let's say, a new store for, let's say, two years that doesn't function or operate as per our expectations? We shut it down. What is the criteria of store closure? Are these old legacy stores which have been burning cash for a long time?
See, internally, we have a stringent framework in terms of performance evaluation for any store. Like Gunjan mentioned, we look at stores which are closer to break even from that evaluation perspective. One is the criteria on the bottom line. The second criteria is also the brand presence within that geographical space. There could be a couple of stores which are marginally loss-making. Let's say, from an operating cost perspective of that store, they are operating at a - 2%, - 3% of a loss. We do not have either our own store or present through franchise. Given that the quantum of loss is significantly, it's negligible, we may continue to operate. Any store which is significant, again, that gets addressed irrespective of the duration. Minimum criteria we apply is two years from a store open.
All right. How many such stores would be still there which we are looking to close? Do we see FY 2026 as a conclusive year for cutting down loss-making stores, or is this an ongoing process we should keep on continuing?
It's an ongoing process, right? Every six months, we refresh the store performance when the data is available on a monthly basis. Given that there are various factors which impact the store performance, the first intent is to fix those other levers, which helps us driving either in terms of the merchandise refresh, the margin profile change, or renegotiation with the landlord. When everything also doesn't figure out, and as I said, based on the criteria which we follow, if it doesn't meet, then only we proceed for the closure.
Right, right. Basically, these closures of 50, 60 stores will continue in FY 2026. Beyond that, also, we see that happening because we saw something which is impacting growth.
Yeah, this was just a last question.
Sorry, what was that?
I'm saying that closures also have been impacting the top-line growth. Is this a final conclusive year or will this 50/50 stores keep, I mean, will this continue to close every year?
See, it's an ongoing process, which is what is always going to be there. Any diligent retailer will have it. However, the quantum of stores will be very difficult to project. We, as of now, see a significant reduction in the pipeline that we see, right? The, let's say, the red list that Amit was talking about, which is refreshed every six months, that's significantly lower versus, let's say, one year back, right? Now, will that expand going forward or will that reduce? It will also depend upon basically the store's performance. Our objective is to make sure it becomes smaller and smaller because there is some amount of write-off that you do of fixed costs, right?
You have built an equity. You have invested in a certain locality. You don't want to do too many of them. It also predicates on the fact that how good you are at opening new stores. What is the right location? Have you got the right commercials going, etc., etc.? There is obviously a bunch of things that people have done in terms of getting the right triangulation of various inputs into the potential of a store and therefore the commercials. We have tied up with third-party agencies that get us some kind of a consumption pattern and therefore potential demand. We hope that this pipeline will keep reducing going forward if that's the narrow question.
Right. Got it. That's it from us. Thank you.
Thank you. We have our next question from the line of Prena Jhunjhunwala from Elara Securities. Please go ahead.
Thank you for the opportunity, sir. I wanted to understand the volume growth in this quarter and ASP performance, given all the initiatives taken and hurdles faced.
Will this help you?
No, it's just a second.
Yeah. Okay. Broadly, I think both of them have been flattish, Prena, right? Largely, it's driven by basically the fact that we had a disproportionate amount of impact in the first half of the quarter, especially in the R&D business because of the conflict, etc., that we talked about. It's been broadly flattish on that front, allowing for the mix change, etc.
Okay. Sir, with all the initiatives taken, whether it is Zero-Based Merchandising for EBOs as well as focus on floats and stuff, when do we see volume growth and revenue growth picking up? How do we see internally on the growth that can be achieved at an overall level in the company?
I answered that question earlier. Our endeavor is towards making sure that despite demand conditions remaining soft, some of these initiatives help us drive the growth. We are hopeful that this comes sooner rather than later, that we can get the full bang of all these efforts coming together at the storefront.
Okay. Okay. Understood, sir. Any color on how much stores can be added at a net level in this year?
We should be looking at, you know, broadly, while the longer-term guidance has been to basically add about 130 stores- 150 stores a year with a ratio of about 80/20 franchise to COCO. We should be in that ballpark, maybe a little lower because of, I think, the slower last couple of quarters. We should see acceleration going forward, primarily driven through franchise, as I mentioned in my presentation earlier also.
Okay, sir. Thank you for the answers. All the best.
Thank you, Prena.
Thank you.
Thank you. A reminder to all participants, if you wish to ask any questions, you may press star and one. The next question is from the line of Rajiv Bharati from Nwama Wealth. Please go ahead.
Yeah. I'm Rajiv, sir. Thanks for the opportunity. Sir, with regard to your franchising network, which used to be close to 150-odd stores around COVID period and now 650, what is the little bit throughput number? How has it moved over the years? Has there been any repeat? I mean, the franchisee has come back, or what proportion of these franchisees have come back to, let's say, another store with you? Just to gauge the success here. The related question is, in terms of your Hush Puppies arrangement, isn't there a mandate to, let's say, get to a certain milestone number of stores in the next two to three years out? Yeah, these are a few questions.
Okay. All right. Thanks, Rajiv. Quickly on the franchise piece, franchise contributes to roughly around about 12% of turnover on the retail sales price level, right? Realization turnover obviously is a little lower because of the way we realize full price on the DOS side, right, on the COCO side. The piece on repeat franchisees, we see more and more of it. Right now, if I last recollect, I think on an average, partner of ours has about 1.7 or 1.6 stores with us. Let's say, you know, the last additions that we are doing, about 60% of our additions are coming from existing partners. We want to propagate that further, so we are encouraging franchisees to open more, and we are seeing that happening much easier, much faster because obviously they understand our systems and portfolio much better and vice versa also.
On the Hush Puppies front, basically, the point is that we do have some kind of an arrangement on the brand. We have long since crossed that from a relationship perspective because it's been well established. It's been there for a long time. However, we are ahead of plan on that front. We don't see a constraint from that perspective. Does that answer your question, Rajiv?
Yes, sir. Just to follow up on the first part, the 12% contribution you mentioned, let's say pre-COVID, what was the contribution? You mentioned that this is margin accretive as compared to the remaining business, right? Overall, on the EBITDA side, overall EBITDA hasn't moved. Something else is eating into, let's say, if this channel is growing better.
Yeah, what is the question, Rajiv?
Has the contribution changed? This 12% number was in the same ballpark earlier also, is it, in terms of contribution?
No, no. Franchise contribution was much lower earlier. That is the whole reason that it's expanded, right? It was less than, I mean, I can't recollect immediately, but my sense is it was less than 3%.
Sure. Sure. That's all from my side. Thanks a lot, sir.
Thank you. Thank you, Rajiv.
Thank you. As there are no further questions from the participants, I now hand the conference over to the management for closing comments.
Thank you, everyone, for joining. It was lovely interacting. Over to you, moderator and JM Financials.
Thank you, sir. On behalf of Bata India Ltd and JM Financials, that concludes the conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.