Ladies and gentlemen, good day and welcome to the Arvind Fashions Limited Q4 FY2022 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 then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ankit Arora, Head Investor Relations at Arvind Fashions. Thank you, and over to you, sir.
Thanks, Vivian. Hello, welcome everyone, and thank you for joining us on Arvind Fashions Limited earnings conference call for the fourth quarter and fiscal year ended March 31, 2022. I am joined here today by Kulin Lalbhai, Non-Executive Director, Shailesh Chaturvedi, Managing Director and CEO, and Piyush Gupta, our Chief Financial Officer. Please note that results, press release and earnings presentation had been mailed across to you on Friday, and these are also now available on our website, www.arvindfashions.com. I hope you had the opportunity to browse through the highlights of the performance. We shall commence the call with Kulin providing his key thoughts on our financial performance for the fourth quarter. He shall be followed by Shailesh, who will give insights into our business, brands and financial performance and key priorities for us moving forward. At the end of the management discussion, we'll have a Q&A session.
Before we start, I would like to remind you that some of the statements made or discussed on this call today may be forward-looking in nature and must be viewed in conjunction with risks and uncertainties we face. A detailed statement of these risks is available in this quarter's earnings presentation as well. The company does not undertake to update these forward-looking statements publicly. With that said, I would now turn the call over to Kulin to share his views. Thank you, and over to you, Kulin.
Thanks Ankit. Hello, everyone, and thank you for joining us for the Q4 results. FY 2022 was a turnaround year for AFL, and we have emerged as a much more focused, healthier and profitable company. In spite of two COVID waves, AFL was able to grow its revenues by 32% and posted a net profit of INR 40 crores in the second half of FY 2022. We dramatically improved our balance sheet with a net debt reduction of more than INR 525 crores in the year and reached an inventory turn of four times in the second half of the year, surpassing our commitment given at the start of the year. We have a focused portfolio of market-leading brands that have a leadership position in their respective segments and are being re-energized to take full advantage of the market opportunity ahead.
Q4 was a very strong quarter for us and continued on the momentum that we saw in Q3. Even though we were impacted by the third COVID wave in January and early February, our sales for the quarter were up 34% year-on-year. EBITDA after adjusting for rental concessions which we had last year in Q4 was up 36%. The retail channels turned around. The like-for-like sales growth for the quarter was 15%, and if we remove the impact of January, the like-for-like sales growth in February and March was 20%. This performance was made possible by the re-energizing of our retail network, a timely launch of the season and new product innovations launched across our different brands.
The department store channel, which had shown sluggishness till quarter three, saw a strong rebound in quarter four with sales which were up more than two times over last year. MBO channel has also shown very strong performance. With tight inventory management policies in place, this business delivered strong 30% growth. The online business ended the year at close to INR 1,000 crores. We expect strong momentum to continue in the online channel, powered by new category expansion, our omni-channel push and the strong leadership position of our brands in the channel. Our balance sheet position continues to improve. We achieved an inventory turn of four times for the second half of the year. This was made possible by the supply chain redesign that we are currently implementing.
As we continue to transform our supply chain into an agile and responsive one, we expect our inventory turns to further improve. We also saw a huge improvement in debtor days, which has fallen to 68 days in FY 2022. This has been possible due to strong controls and disciplined execution in the wholesale channel. Our net working capital for the year ended at INR 489 crores, which is INR 118 crores lower than last year. We were able to further reduce our debt this quarter and ended the year with a net debt of INR 397 crores. We are excited about FY 2023. With the turnaround complete, we expect the business to gain momentum in the coming year. We expect the retail and online channels to continue to drive growth and account for 60%-65% of our overall sales.
Retail growth will be driven by a continued push on productivity and sell-through, as well as by the strong expansion into new towns. We expect online growth to remain robust even on a large base. Our new focus areas of footwear, innerwear and kidswear will see rapid growth. While we have multiple growth drivers, the focus will be on profitable growth and improving ROCE. An improved performance in Arrow, improvement in margins due to better sell-through and operating leverage due to higher scale will lead to a much improved profitability. We look to further improve our inventory turns with the help of our supply chain transformation efforts.
Profitable growth coupled with strong working capital controls will allow us to invest in technology and store expansions and still generate free cash flow to bring down debt further next year. I would now like to hand it over to Shailesh to take us through more details.
Thanks, Kulin . Good afternoon, friends. With INR 917 crore revenue and EBITDA growth of 36% net of rent concession, there has been a consistency in AFL's performance in quarter four. In the previous quarter three, which is October-December quarter, was a 1,000 crore plus revenue quarter with 30% revenue growth. Q4 has kept pace with the previous quarter. It's been a very large revenue quarter with INR 917 crore, second highest in last many, many years, and maintained growth at 30% + at 34%. AFL's H2 revenue was INR 1,925 crore, which was a 32% growth over previous year's H2. EBITDA has also consistently grown. In Q3, in the previous quarter, EBITDA growth was 64%.
In Q4, despite COVID impact in January and in early February, EBITDA growth is 36% net of rent concession. Overall, AFL has delivered INR 200 crore EBITDA in H2 at a growth of 30% with a scale of INR 1,925 crores. October-December quarter has seen brisk business as consumers have started shopping with energy. Even in that quarter, we had started seeing cracks in the second half of December due to the onset of COVID Wave 3, and it led to severe restrictions on retail in January 2022 across the country. Even as the January numbers got impacted due to COVID, we started seeing recovery in second half of February.
March was a fantastic month with an overall growth of 70% in revenue in March, which was around INR 90 crores of growth over previous year's March, backed by 45% growth in retail business. Department store also business, which was at around 55% recovery in November and December last year, has shown big stride. In Q4, department store business has more than doubled over previous year quarter four. We maintained consistency in gross margins also at around 45% +, despite the continued inflationary pressures. With our pricing power of brands, internal efficiencies, higher like-for-like, same-store sales growth, higher full price sell-through and resulted lower discounting, we ensured that second half gross margin improved by more than 180 basis points to 45.3% over similar period last year.
While retail had grown 40% like-for-like in October-December, it continued to grow at 20%+ like-for-like in February and March after COVID impacted January. The fall holiday season that got over in February, with February saw all-time full price sell-throughs. I'm very happy to share that this retail energy has continued into spring/summer 2022 season, where we are seeing bumper full price sell-throughs in February to May period. Spring/summer 2022 sell-throughs are likely to be even higher than FY 2021 season, where we have seen much lower discounting. These retail metrics have looked up because of our focused execution on new way of developing merchandise close to season, launching season with higher energy backed by stronger storytelling, better visual merchandising, and lot of emphasis on staff training.
With our tight control on OTB for buying and focus on high stock turn, very high percentage of our inventory in the market is very fresh today, and fresh merchandise supports higher like-for-like growth, higher full price sell-through, and better gross margin. We consistently delivered 45% + gross margin in H2 and we aim to improve further in FY 2023. Our iconic brand, U.S. Polo Association, has been strengthening its leadership with improved profitability in the market. USPA has grown more than 40% in Q3 with double-digit pre-Ind AS EBITDA, and it has continued to grow at 44% with double-digit pre-Ind AS EBITDA in Q4 also. We have significantly refreshed the brand with new brand campaign on the theme of twinning with Arjun Rampal. We have developed a high-quality new store identity and made significant improvement to USPA's product lines.
The launch of the largest USPA store in Express Avenue Mall in Chennai recently has been a key highlight of quarter four. Adjacent categories of USPA, including footwear, innerwear, kidswear, have continued their profitable growth journey, and USPA is likely to deliver a scale of INR 1,500 crore+ in FY 2023 with double-digit post-Ind AS EBITDA margins. In couple of years, we see the brand reaching the next logical milestone of sales and profitability, and it'll remain in the top few brands in this segment in the country. COVID impact has been a serious challenge for Arrow, our formal brand, and COVID impacted its Q4 financials. I believe the worst is behind us on Arrow due to significant sell-through improvement that we saw earlier in Q3, along with very high like-for-like growth in trade channel in Arrow.
Backed by our product refresh strategy in Arrow, Q4 saw further gaining of momentum in spring/summer season with Arrow brand turning around its performance significantly with very good like-for-like growth, further improvement of mid-teen %, very high mid-teen % in full price sell-throughs, and strong reduction in markdowns in Arrow. With a large footprint expansion underway in Arrow, these results reflect the sharp rebound in Arrow, and we believe the brand will deliver better profitability in FY 2023. At the same time, our two market leading brands in the super premium to bridge to luxury segment, Tommy Hilfiger and Calvin Klein, have delivered a great performance in quarter four despite COVID in January. Both delivered strong double digits, pre-Ind AS EBITDA and huge like-for-like growth more than 20% with significant improvement in stock turns.
Sephora, another of our prestige brands, also delivered strong performance in Q4 with more than 50% growth in the quarter. With continued success of these market leading brands, AFL has demonstrated its capability of nurturing and then fast developing premium brands of repute in India. Flying Machine has continued to do very well in segment of denim wear for youth and gained significant appeal with consumers with online first mindset due to its partnership with Flipkart Group. Like we said earlier, this financial year, FY 2022, that's gone by, has seen big transformational changes at AFL. The company fought two rounds of COVID waves, strengthened its balance sheet through capital raise, saw rapid and consistent recovery with healthy, profitable growth across our brands with sharper execution focus and has significantly deleveraged its balance sheet.
We have continued to focus on improved stock turns with transformation projects on supply chain, and results are showing with stock turns in H2 being four times. We believe that the gain from supply chain initiatives, we are likely to increase our stock turns further in FY 2023. We made sustained efforts this year to reduce debt. The net debt now stands near INR 400 crore mark. We see opportunity to further reduce debt in FY 2023, even after funding our growth aspirations. With better stock turns, free cash generation from business and tight control on balance sheet, we should be able to fund growth momentum without increasing net debt. With this, I hand over to Ankit for the further proceedings. Ankit, over to you.
Thanks, Shailesh. Vivian, we can open it up for Q&A now.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Participants who wish to ask a question may kindly press star one on your touchtone telephone. If you wish to withdraw 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. The first question is from the line of Nishit Rathi from CWC. Kindly proceed.
Congratulations, Shailesh and Kulin, amazing quarter. It was a really challenging year, and you guys have really done well. Just, you know, my point was basically, you know, we seem to be doing well almost on two and a half out of the three parameters we had set for ourselves, right? The revenue seems to have come back. The stock turn and the balance sheet turns are looking really decent. The only question that I have is it that, you know, we'll have to settle for a slightly lower margin to kind of achieve these objectives or can we also expect our margins to kind of keep moving forward because you're showing certain brands are showing that, but on an overall basis, on an overall company basis, how should we think about it?
We have a stated guideline on this that in next 12-15 months, we want to see a double-digit power brand EBITDA across our portfolio. We see, you know, opportunity to grow our margins through many means currently. While sales side, we have seen a lot of levers, digital, adjacent categories, small town expansion, sales density. On margin side also, we believe that we will start seeing the operating leverage through larger scale. Post-COVID last year also saw, you know, two rounds of COVID, whereas we grew significantly in our scale, but we see opportunity to grow further. There will be a growth because, on the net base of COVID, so that COVID impacted months will be a larger bump.
There is a further 12%-14%, more like 15% this year, growth. We believe that operating leverage will come through that increased scale. Second point, like I said in my opening comments that Arrow is a brand. We are now seeing the green shoots of recovery, and we are very confident that the worst is behind us on that and in fact delivering initial round of profit. Also our KPIs on full price sell-through, the way we are launching season, we expect the discounting will come down, which will further increase our margin. Also, we've seen large, tight trade hygiene, the way we manage our online channel, high profitability on returns and some of those ad costs.
There's a tightness on our management of trade, and we are seeing better margin from the trade channel. Also, we have pricing power in our brands. While the inflation is there and it's quite high, we've seen the industry is able to pass on price increase till now, and our strong brands will have, you know, ability to pass on pricing to consumer in line with the industry practices. Because of all these margin drivers, we believe that our power brand portfolio should reach double- digit pre-Ind AS EBITDA in 12-18 months.
Shailesh, is it fair to assume that your four power brands, basically U.S. Polo, Tommy, Arrow, and Flying Machine, those will reach double-digit margins? CK, if I heard it right, is already double-digit margins.
Yes , man.
Five out of our six brands will be double-digit margins in the next.
Yeah, like our brand portfolio, we think our guidance is that we should hit total portfolio double-digit pre-Ind AS EBITDA in 12-18 months, Nishit.
Correct.
We are on course. We are on course for that.
Perfect. My assumption is none of this is. In fact, you're saying you will improve the terms, right? That is what you're saying, right? Through the initiatives-
Yes.
-that you've taken.
Nishit, we believe we have supply chain transformation in play. We have increased our stock turns. We had guided that we'll hit four by the end of this year. In the second half of the year we hit four turns, and we have further levers to work on. Our supply chain transformation project is underway, and we see that we will continue to gain turns. Also, COVID slowed down turns, Nishit, so even in H2, well, even before January, stock turn went down because of COVID. In absence of COVID and the transformation project and the way some of the new practices which will sustain, we are aiming to improve our stock turns.
Sure. One last question from my side. You know, you mentioned that, you know, the month of March was extremely good and I read somewhere in your presentation that April and May the momentum seems to have continued well. Is there anything you can share on that? You know, have you seen March-like improvements continue in the months of April and May or-
Nishit, you know, there was a sort of extra hunger, so to say, in March because of the COVID and Feb-Jan cut. It was unreal month for the industry and for us, we grew at 70%. That's exceptional, but demand remains strong in the short run. April, May numbers are also very good. I won't use March as the reference, but if I look at March to May, whatever the number we have seen, we are very pleased with the KPIs, the improvement in sell-through, the like-for-like growth. We are, you know, having little bit of sort of inventory shortage right now and, you know, it's a good situation to be in. We are very pleased with the performance of our brands in the market.
No, I think this is great. You know, the most heartening fact is the number of times you have referred to the full price sales and sell-throughs, right? You know, it's very good to hear that you know, you're focusing only on getting the revenue at the terms you want and that is very heartening to hear. Thank you very much. I think, I'll come back if I have more questions.
Thank you, Nishit.
Thank you. The next question is from the line of Pritesh Chheda from Lucky Investment. Kindly proceed.
Yeah, sir. Thank you for the opportunity and the performance is just moving in line with what the strategy you have charted out. Just for the second half where we are doing at about INR 1,900 crore of business, it would be very nice if you could share what is the pre-Ind AS EBITDA margin at this INR 1,900 crore, and how much of burn or loss or number is there for Sephora? Because all the other brands you largely mentioned that they are at double digits.
We report post the Ind AS number. In H2, you know, if you look at our INR 1,925 crore NSV, we have a INR 200 crore.
EBITDA.
Yeah.
This is pre-Ind AS?
This is post- Ind AS, that number I'm saying, which is 10.4%. The pre-Ind AS tend to be a couple of percentage points lower, but we don't discuss the pre- Ind AS numbers.
Mm-hmm.
We share the post- Ind AS numbers. You can get a sense from, you know, our EBITDA at INR 200 crore has grown at 30% over the previous same period.
Mm-hmm.
We've done well and our EBITDA percentages and absolute value have improved.
Okay.
I think you can take a 400 basis points difference between pre-Ind AS and post-Ind AS.
400 basis.
Yeah. Yeah. Close to that.
How much of EBITDA loss are we making in Sephora?
See, again, we don't give brand-wise specific, but I can tell you that, Sephora, like I mentioned earlier, has done really well. The growth have been very, very encouraging. The business parameters like-for-like growth stock turn, Sephora has improved. We don't, you know, share individual brand numbers.
Okay. Sir, considering that we are also further focusing on improving our inventory turn-
Mm-hmm.
From the exit of Sephora and the fact that we are looking at, you know, improving margin, I wanted to understand what is the CapEx that we have. Will the CapEx be less than depreciation number? If that's so, then we might actually lead to reducing our debt very soon over the next couple of years. We should be a debt-free balance sheet. Is that correct?
See, let me start with the debt part. There is very likely chance that debt will reduce this year further. We have now, you know, we had guided in the beginning to INR 400 crore. Now we are at. We had guided for INR 600 crore, we are now at INR 400 crore debt, net debt. This in FY 2023, we see possibility of further reduction. We don't know exactly because market is still volatile. Given the, like you said, stock turn improvement and tight control on working capital and business throwing cash, there is a very high probability the debt will further reduce this year. Whether in future what happen, the bias is and the trend is towards reducing. Our commitment is to reduce the debt as fast as possible.
Okay. What will be our CapEx? Will our CapEx be-
Yeah. This year, our total CapEx is around INR 90 crore. The large amount of that is for retail, because, you know, we will renovate couple of stores. Markets are coming up. We will renovate a lot of our department store, etc. We want to keep the brands very refreshed in the marketplace. That's the main part of it. We don't have a major capacity expansion or factory or anything, or new strong technology. Whatever is required to invest in technology upgrade and also in the retail we will do, which will add up to around INR 90 crores.
Okay. Just last one clarification. You know, earlier when we were at this, you know, I think about INR 3,000 crore of business we were doing, 8% pre-Ind AS. Let's say, whatever you have referred to, for INR 400, 4% lower than the reported numbers. Is there any cost item which is different in this INR 1,900 crore or let's say annualized INR 3,600 crore of business?
See our EBITDA margins are going up consistently 30%+. We have seen nearly 200 basis point improvement in EBITDA in the power brand. We are doing well. I think sometimes the COVID does impact the EBITDA. Also, in the last year, there was a rent concession linked to the COVID, which was around INR 20-odd crores. This year is only INR 3 crores, so that sort of affects the calculation. Otherwise, we are doing well, and we hope to continue to improve EBITDA every year.
Okay. Do you share a strong outlook for the apparel category per se, considering what you're seeing after quarter three?
We are seeing strong demand, backed also along with strong cost increase. We believe at AFL, we will grow as per our guidelines, which is COVID growth. Net of COVID, on top of that, we will aim for a 12%-15% growth and more like 15% in this year. We are sort of seeing strong momentum over our power brands.
Net of COVID means adjusting for quarter one numbers.
Yeah. Adjusting for COVID.
Adjusting that.
January, yeah, exactly. The January-
Your reported growth will be much higher.
Will have a higher growth.
Yeah, reported will be much higher.
Yeah.
Okay.
There will be growth because of COVID base, and then on top of that.
Okay.
12%-15%.
Perfect. Thank you very much, sir.
Thank you.
Thank you. The next question is from the line of Vaishnavi Mandhaniya from Anand Rathi. Kindly proceed.
Yeah, hi. Thanks for taking my question. The working capital improvement has been very drastic in this year. If going forward, if you're focusing more on growth, what kind of working capital should we expect going forward?
We said earlier that we believe our debt will come down. We believe that working capital will remain tight. We see opportunity to improve terms first of all. You know what I mean? We believe that the working capital will remain in the zone that it is in today, and wherever there's a scope to improve terms, etc., we will improve it further. We are in the zone where we can make further improvements in working capital.
The improvement that we're talking about, will it be obviously on the inventory side with higher turns, there'll be an improvement there. From the current 99 days, I think the lowest we've ever gone is 93 days. That was in FY 2019. Can we go back to that level or should we like assume to be lower? Or even on the receivables term, 68 days probably has been the lowest for us, and on the payable days, 125 has been the highest. How do we work with these numbers?
I will request Piyush and Ankit to take this question, but I can see that there is still room for us to improve working capital. Ankit, do you wanna take this?
Vaishnavi, the way you should really look at it is, our inventory days will continue to kind of improve from here onwards, as to what you rightly said, and as what Shailesh mentioned on inventory terms continue to improve. Our debtor days, you are absolutely right, has been the lowest, and that's where the entire process controls being put in over the last 12 - 24 months is yielding fruits. We expect these controls to remain sustainable. On the creditor side, you know, it'll be unfair, or not really right to really calculate 125 because, you know, there are two aspects which is being played out, here. Vaishnavi, if you really step back and look on a quarter-on-quarter basis, our creditors in absolute rupee terms has come down by about INR 50 crores.
As to what you would understand, we build up for season. you know, which is a seasonal build up, and that will come down as inventory turn into cash with the sales in spring/summer 2022. 125 calculation is more on the base of our current net creditors as of March 2022 versus INR 3,000 crore, which is what we have achieved, which is also actually impacted by COVID. If you really adjust to that, our normalized creditor days should hover in the range of about 90-100 days going. That's the reasonable, which is what as per industry, which is what we will track on.
Okay. Thank you.
Thank you. The next question is from the line of Deepak Poddar from Sapphire Capital. Kindly proceed.
Yeah, thank you very much, sir, for the opportunity. Sir, I wanted to understand more on the aspirational front. Now, you did speak about EBITDA margins improving year-on-year, and we'll start seeing the operating leverage advantage. How do you see the aspirational level of EBITDA margin, maybe next three years, two to three years?
You know, our guidance is that in 12-18 months, our power brand portfolio should do double-digit pre-Ind AS EBITDA, and that's a very key task ahead of us then. You know, we need to achieve this before we, you know, stretch our guidance further. It's better that we focus on this and achieve this, and then look at things moving forward after that. Obviously, our aspiration should be ambitious and we want to deliver many more, but we have a very clear focus task ahead.
Currently our pre-Ind AS power brand, I think the fourth quarter it was close to about 8%.
Quarter four we had a total pre-Ind AS was 10%, Ankit, do you wanna just-
Yes, that's the reported number, Deepak, which is what we are referring to.
Yeah. Reported number, I think in the fourth quarter we did a bit of INR 87 crore.
Yeah, 12%. You're right. 12%, post- Ind AS. Yes, correct.
Post- Ind AS, I think you mentioned 400 basis point difference between pre and post, right? So that's how I arrived at 8%-
Yes.
-post-Ind AS. We are already at 8%, right, for power brand. That's what we are targeting in next 12-18 months. This 8% going up to 10%, 11%, double digit, right?
Yeah. That's our target, get that to, you know, take the overall portfolio of the power brands to double digits, pre-Ind AS. Yes.
Okay. Fair enough. Understood. Yeah, I think, yeah, that's about it from my side. Thank you very much. All the best.
Thank you.
Thank you.
The next question is from the line of Mythili Balakrishnan from Alchemy. Kindly proceed.
Hi. Just a couple of questions. Wanted to understand from you're talking about opening 200 + stores. Will it largely be EBOs? How are you sort of thinking about this expansion?
We have set up a central sales structure, Mythili, and we are now going into the smaller towns, smaller tier, grade towns, and our teams now are in the field who are scouting for store. These will be individual brand, let's say, USPA store or an Arrow store or a Flying Machine store or, you know, Tommy Hilfiger. These will be the mono brand, the EBO as we call it, exclusive brand outlet across the country, largely through the franchisee route.
The other question which I had was basically on this raw material inflation that we have seen. It's been a kind of an unprecedented inflation that we are seeing. Just wanted to get a sense from you as to whether we are passing it on in terms of ASP increases and, you know, what's the response to that and so on.
See, industry and us, we are, you know, trying to pass on the increased cost, and it's been going on for a year, and we'll see further increase in the next season in July, August. We are able to pass on because these brands are strong. I would also say we are holding our gross margin because of pricing power as well as some internal efficiency on full price sell-through lower discount. That lower discount is also helping us to maintain our gross margin at around 45%. We have not seen any dip on that. That's the reality. There is further sort of a cost increase for the next season, which we also will pass.
Currently, the way our consumer metrics are on sales, on walk-ins conversion, full price sell-through, like, they're all very strong. The strong metrics in spring-summer season indicate that consumers have taken this current price increase well. We'll have to see what happens in the next season.
Got it. Just a, you know, question on the accounting, right, which is that when we have a minority interest which is around INR 21 crores, what does it mean about the profitability of the remainder brands in the power brand segment, right?
Uh-
Because if you have INR 21 crores of, you know, minority going out, then, and a large part of it is, I'm assuming CK, TH, then the profitability of the rest of the brands is clearly a bit lower.
See, actually it's another way to look at is that USPA has a very good profitability and, it's growing scale and profitability further, like I said earlier. It'll be a large scale business in FY 2023, again, an even bigger scale. Arrow is the concern area. I said that whenever COVID happens, Arrow profitability does get impacted, and that's why when you say net of minority, the numbers go down because there's a plus and a minus. What we are seeing that the worst of Arrow is behind us. We are seeing very good KPIs in this season. In April, May, Arrow numbers are looking very good. Probably in future you will see the net of minority, the numbers will look different then.
Thank you. Thanks a lot. Bye.
Thank you. The next question is from the line of Riken Gopani from Capri Global. Kindly proceed.
Yeah. Thank you so much for the opportunity. I had two questions. Firstly, in your comments you've outlined that you focus next year on scaling up the adjacencies significantly. What is the number currently, if you can sort of highlight, and what's the growth in that segment for you today? Which brands have adjacencies which have become meaningful?
Sorry, that was the first question, adjacency. What is the second question?
I'll follow it up later. Maybe you can.
Okay. You know, AFL invested ahead of time in very dedicated resources behind adjacency category, created a separate footwear team and division for U.S. Polo brand and innerwear brand. To answer the question on which brand, U.S. Polo was the first brand that we focused on. Parallelly on the other side, Tommy has a very large portfolio of adjacencies, including watches and footwear and eyewear and, you know, other businesses. Kidswear was a focus team in U.S. Polo. The adjacency category that we are talking about today is kidswear, we are talking about footwear, we are talking about innerwear. Then there's opportunity to add category like womenswear in U.S. Polo.
This business is, you know, almost like 15% of the business, doing well, growing well, profitability, good stock turn. Now we wanna grow our company and our brands through launch of adjacency category in other brands also. For example, Flying Machine, we are testing a few categories in that brand. We're adding some of the new categories in Tommy Hilfiger example. For example, a tailored blazer and suit which was not there in that brand. We are adding that category. But the classical adjacency categories are footwear, innerwear, kidswear, womenswear, et cetera. We are investing ahead of time in these categories, and they are doing really good numbers right now.
Understood. Just a follow-up to this. 15% when you say it is of the specific brands or 15% of your current-
Yes. Of these specific brands. Yes.
Okay. I can assume 15% of overall power brand business or, you know, 15%.
I think today, it's largely in U.S. Polo.
Mm-hmm.
Power brand also includes Arrow. We have not added lot of adjacencies in Arrow as yet. As we go, it will keep growing there. Currently, the main focus is in the USPA, our biggest brand.
Okay. What's the growth? You said it's 15%, and you said it's growing well, but if you can quantify in terms of roughly.
Yeah. The different categories like footwear, I must call out here. That has been developed as an online-first mindset business. You know, it's grown really well. It's growing at more than 50% with very good stock turns and very good EBITDA margin. You know, innerwear growing at double-digit with healthy, you know, other business metrics. These categories have huge potential for further growth profitably going forward.
Understood. Do they also have better margins, compared to the core sport portfolio?
Yes. For example, footwear has very good margin, very good stock turns, it's very strong and USPA footwear is a top ranked brand in Myntra. You know, in a very competitive world, it's already established itself as a ranked brand, right? It builds the brand appeal also because a lot of consumers enter U.S. Polo through footwear perhaps, you know, and they fall in love with U.S. Polo brand because of its exciting range of footwear that it has. It's brand-accretive both on appeal as well as on scale and profitability.
Understood. The second question that I had was on Arrow. Currently, if you could maybe outline in terms of size, in terms of where the peak size was and what the current size is, and how soon do you expect Arrow to, you know, again, go back to its peak revenues?
Let me say that in FY 2023, we expect Arrow to reach its peak revenue.
Okay. Maybe if you can quantify or put some, let's say, what roughly what
Let's wait for few more quarters, right? I mean, we are in FY 2023 already.
Okay. Does Arrow also sort of in terms of realizations and margins deliver better at peak revenues in terms of margin? Or would it be accretive in terms of margins in your assessment?
It's a process. Arrow gets more impacted by COVID than other brands because of formal nature of its product line and also the fixed costs because the channel is largely department store, and EBOs are a larger percentage in Arrow. It gets impacted. Now today the focus is all the KPIs we are chasing is to bring it to a decent level of profitability, and which we expect to deliver in FY 2023.
Understood, sir. Thank you so much for the answers. Thank you.
Thank you. Participants who wish to ask a question may kindly press star one on your touch-tone telephone. The next question is from the line of Naysar Parikh from Native Capital. Kindly proceed.
Yeah. Hi. Thank you for the opportunity. You know, my question is just going back on the minority interest question. If there is INR 21 crore of minority interest, is it fair to assume, you know, that much profit is reflective of the CK and TH brands? When USPA is obviously profitable, so is it fair that, you know, between Arrow and Sephora, we would be using, you know, anywhere between INR 30 crore-INR 40 crore? Is that a fair assessment or how should we look at it?
No. I wouldn't comment on a specific number trend. Like I said earlier in the previous question that, you know, while Tommy and CK are indeed very profitable now, that's a fact, and we are happy about it. And U.S. Polo is also double-digit pre-Ind AS EBITDA, and then it's looking strong going forward. Arrow has been sort of, you know, getting impacted by COVID and that's why the numbers look smaller. We are seeing a very sort of a dramatic turnaround in Arrow performance, and we strongly believe the worst is behind us. We will see hopefully better times on this particular case in FY 2023.
Just sort of follow up. You know, I think, you know, Arrow has been, you know, is something which has been a struggling brand really in, you know, there's a cycle in some ways. If you could share some operational metrics or something, because obviously the loss on Arrow is, you know, significantly dragging the P&L, really. If you have some operating metrics, either in terms of full price sell-throughs or, you know, in terms of how the brand has been performing or is there any other strategic approach that you have in mind? Because, the brand has really, you know, when we compare to some of the leading brands like Sephora, you know, some of the leaders, the brand has been struggling for 5-6 years, really.
Let me answer with the last two years' background. Trust me, we worked extremely hard in the last two years to make Arrow a more desirable brand with much stronger consumer pull. Point number one, in tune with the times and COVID times, we changed the product category. While it is a top brand in the formal elegant wear, we also created a line called Sport where it is more relaxed work wear, which is right for the COVID time, and it's doing fairly well as a category in Arrow. We also changed the logo for Arrow. We created a new, more powerful A vector, brought it as a part of the logo, logoization in the industry to the pocket.
The consumers are really liking it. We also created point number two, we created a new store identity to refresh the brand in current times. Brand is from New York, so we took inspiration from the art deco look of the New York tall skyscrapers, and we created stores, which have shown a higher sales density, reopening more of stores of Arrow with the new identity. Third, we tied up with Hrithik Roshan to show our commitment to the brand, that we are still investing behind this brand with our brand ambassadors like Hrithik Roshan, you know, who has 50 million followers on social media. Large investment, even in COVID times. We never shied away from investing behind the brand. Fourth side is that we built a new team, building a new line of suit and blazer.
Now, sum total of all the hard work could be seen in the peak COVID time. We saw three waves in last two years. We all know how COVID impacts businesses. What we have seen from the fall holiday we saw the recovery in October-December period, we saw the trade customers having more than 25% like-for-like store growth in Arrow. It's a smallish channel for Arrow, but we saw, you know, really encouraging numbers there. We also saw high improvement in the sell-through as a percentage in fall holiday, thereby the discounting started reducing by a few percentage points. We're very happy that, you know, in FY20 22 we launched the season well. Our stores have gone up, started doing well.
This season with the result that we will report after April, June quarter, we have seen very good like-for-like growth, very good full price sell-through increase and very encouraging discount reduction in Arrow. In addition to that, a part of our supply chain transformation project we have done on Arrow, where we are trying to increase its categories of core products. We want to push that business. In April we saw that the fruits of that transformation project also started yielding results. Sitting here, of course, we've seen COVID times, and we've seen the impact on the numbers. Unfortunate, but that's the reality. We strongly believe that the worst is behind us, and we believe that in FY 2023 we'll see profitable performance from Arrow.
Got it. That is very helpful. Thank you so much.
Thank you. The next question is from the line of Sagar Bhatia from Prabhudas Lilladher. Kindly proceed.
Hi, sir. Congratulations on the set of numbers. Pretty encouraging this quarter. I just wanted to understand a little bit more about your online positioning of the brands, going forward and what the management is looking at, in the next year or two years, from now, just on the online front and not on the retail front.
See, we have a undisputed market leadership in online space in apparel industry. We crossed INR 1,000 crore revenue, profitable. In COVID times, when the consumer changed their habit, we were ready because we had invested ahead of time in many things besides our own website now in marketplaces and fulfillment centers across the country. We have the benefit of that focused investment in the online channel. Today, we all our brands do very large online business from wholesale business we do with the portals to our own marketplace, which is growing at a large base and doing, you know, hundreds of crores INR of business. We have our own brandnow.com, which is a very good consumer connect.
We are chasing direct to consumer, you know, appeal of the brand. Now in marketplace, which has grown in quarter four also at more than 25%. There is a good traction. Online has become somewhere close to 25% of the AFL's revenue mix profitably. Now, the idea is to continue to invest behind this exciting channel and take this forward. One of the aspiration will be to recruit a lot of young consumers, you know, who are digital-first mindset through online space and create, you know, appeal for our brands so that we're doing a lot of assortment product assortment online for online. The SMUs that we do, which are based on the reality and analytics of the online world.
In the last one year, we have really invested behind SMUs, and we are taking that idea forward. The website continues to sort of grow well. We are, you know, investing a lot behind building the team and the assets to take the online business forward at a very healthy pace, because we are seeing a lot of traction in that space. And Kulin, do you want to add anything more to the online space, please?
Yeah. I think you've covered what we are planning to do. If you see there are three or four very large trends which we are betting on. I think the first trend is that online is moving away from a liquidation channel to being a channel of its own. That means designing product and designing a supply chain separate just for the online channel, which is what Shailesh was mentioning it as SMU. Specially made units. I think that is the future and that is what we are accelerating. The other big shift is that offline and online are converging. How we are connecting our store inventory, and while we have done it with our own dot-com and some of the leading portals, many more portals are just now becoming omni compliant.
Connecting our stores to more and more online demand is the second large theme, you know, which we are betting on. The third theme is, you know, that over time we need to own this channel more. The old paradigm was you sold to this channel and then you forgot about it. The new paradigm is you directly engage with the customer through own dot-coms and through marketplace as a model. We are strengthening our capabilities there. Largely, I think, lastly, this channel is very powerful for adjacencies. You know, our case study of U.S. Polo with sneakers to become the number one sneaker brand in, you know, a couple of years' time was only possible if you get your product strategy and your digital strategy right.
I think we use this channel to really catapult into new categories in a disruptive way. Along these four themes, I think we are making investments ahead of time so that we can fully capitalize.
All right, sir. That was a pretty detailed explanation of what's there to come. Thank you for that so much.
Thank you. Due to time constraints, that was the last question. I would now like to hand the conference over to Mr. Ankit Arora for closing comments.
Thank you everybody for joining us on the call today. Trust all your questions were answered. If any of you have any further questions or need any clarifications, feel free to reach out to me, and I'd be happy to take them offline. Thank you. Look forward to interacting with all of you next quarter.
Thank you. On behalf of Arvind Fashions Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.