Ladies and gentlemen, you are connected to the Arvind Fashions Limited Q4 and FY 2025 earnings conference call. The call will begin shortly. Please stay connected. Ladies and gentlemen, you are connected to the Arvind Fashions Limited Q4 and FY 2025 earnings conference call. The call will begin shortly. Please stay connected. Ladies and gentlemen, good day and welcome to the Arvind Fashions Limited Q4 and FY 2025 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 zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ankit Arora. Thank you, and over to you, sir.
Thanks, Ravind. 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, 2025. I am joined here today by Kulin Lalbhai, Vice Chairman and Non-Executive Director; Shailesh Chaturvedi, our Managing Director and CEO; and Girdhar Chitlangia, our Chief Financial Officer. Please note that results, press release, and earnings presentation had been mailed across to you on Saturday, and these are also available on our website, www.arvindfashions.com. I hope you had the opportunity to browse through the highlights of the performance. We will commence the call with Kulin providing his key strategic thoughts on our fourth quarter and full year's performance. Post that, we will have Shailesh, who will cover the details of business highlights and financial performance. At the end of the management discussion, we will 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. 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. A very good afternoon to you all. Thank you for joining us for the Q4 and full year results. FY 2025 marks another year in our journey of consistent financial and business performance. Arvind Fashions Limited delivered yet another strong year in spite of a difficult demand environment, where our revenue growth accelerated compared to the previous year to 8.5%. Our efforts in expanding our retail network, along with re-energizing the brand through strong investments in marketing, are clearly yielding results, with an LTL growth of more than 5%. These investments have helped us gain market share across channels. All of these outcomes, coupled with our cost optimization efforts, have helped drive an improvement in EBITDA margins by 100 basis points, as we had guided at the start of the year.
As there is better visibility on profitability in one of the subsidiaries, we decided to move to a lower tax regime of 25%, which will be beneficial from a reported PAC cash flow and ROSI standpoint going forward. This led to an exceptional DTA charge of INR 120 crore in quarter four. Adjusting for this exceptional DTA charge, our comparable bottom line grew by more than 70% for the full year. As all of you would recollect, we have consistently maintained in the past that the cornerstone of our strategy over the last few years has been to improve the return on capital employed. We are delighted to report that AFL crossed the milestone of generating more than 20% return on capital employed this year, and we hope to continue to improve upon this as we move ahead.
Moving forward, we hope that the demand environment should improve gradually on account of various measures announced in the financial budget and macroeconomic tailwinds. We expect to have an uptick in our growth rates compared to FY 2025 while continuing to stay committed on our mantra of profitable growth. I would like to now hand it over to Shailesh Chaturvedi to take us through the specifics and more details about our financial performance.
Thank you, Kulin. Good afternoon, Girdhar, Ankit, and everyone on this call. I'll start with an overview of the full year FY 2025 and then move to quarter four results, and we'll end with some commentary on ways forward. The key highlight of FY 2025, as Kulin just mentioned, has been the achievement of a 20% mark on ROSI. In the last three years, AFL has moved from a small negative ROSI now to more than a 20% ROSI mark. We've been able to also generate a fair bit of cash in FY 2025, and there's a good reduction in debt of nearly INR 75 crore at both gross and at net level. The improvement in ROSI over last year is to the tune of around 400 basis points. In FY 2025, AFL recorded an entry of INR 4,620 crore, an increase of nearly INR 361 crore, with a growth rate of 8.5%.
At the start of the year, we had guided that we would make serious attempts to go for higher growth, and we have seen growth move from 4.5% - 8.5%. There was an improvement in profitability, where GP has moved up by 130 basis points to 53.5%, helped by a reduction in discounting, sourcing efficiency, and a richer channel mix. A large part of this gain at GP level has flown into EBITDA, where annual EBITDA has gone up by 100 basis points to INR 637 crore, a growth of 17% in value over last year. FY 2025 EBITDA is now very close to the 14% mark.
In the last three quarters of FY 2025, NSV has been more than INR 1,200 crore quarterly, and there has been a large focus on revving up the demand engine, which has resulted in double-digit growth for a key brand like U.S. Polo Assn., Tommy Hilfiger, and Calvin Klein. In quarter four also, all brands have grown double-digit in revenue, except for footwear, where there are issues with BIS, but which are getting sorted out, and the growth in footwear also has gone up. Also, there was less emphasis on the liquidation channel in quarter four. Most brands have delivered double-digit growth in EBITDA in quarter four. I'm happy to state that Arrow and Flying Machine have moved to the next stage in the profitability journey. These are encouraging signs. Both Tommy Hilfiger and Calvin Klein have also continued their stellar journey in FY 2025 with double-digit NSV growth as well as EBITDA growth.
At brand level, our efforts have been to offer differentiated products, high-quality shopping experience, and premium brand experience through a 360-degree approach involving retail, online presence, as well as heightened marketing investment. Our focus has been on pushing revenue growth through direct channels of EBO retail and online B2C. Both these channels have grown handsomely in FY 2025. The retail growth in each of the last three quarters has been at a healthy 10%, and this growth is likely to sustain and hopefully improve further. With good like-to-like growth of around 5% in the current market condition, a large sq ft expansion of nearly 120,000 sq ft in full year, and around 20% growth in revenue from adjacent categories.
Along with premiumization drive and high-quality execution of shopping experience, this retail channel of around INR 2,000 crore value has very healthy momentum and is likely to grow at a similar and higher pace going forward. With good reduction in discounting and with leverage of this 5% like-to-like growth, retail channel profitability has also grown very well. The other growth channel of B2C online has also grown rapidly at a pace higher than 25%. We have built significant capability on the online B2C side, including websites, large omni coverage, development of analytics-driven online exclusive assortment, and with better cost control on discounting and on cost of doing business, we have seen very impressive improvement in channel margin for B2C online channels. Both these direct channels have continued to take lead in growing AFL numbers towards its 12%-15% growth aspiration.
We have also continued our higher investment in marketing, and this investment has remained at more than 4% in the last three quarters. Let me focus on a huge tentpole event in early March we did in Delhi for our marquee brand, U.S. Polo Association. This impactful event saw an exhibition polo game, a fashion show, and a celeb evening in Delhi in the presence of brand ambassador Sawai Padmanabh Singh of Jaipur Royal Family and Global CEO of U.S. Polo Association, Mr. Michael Prince. We got huge media coverage, which helped the brand remain top of the mind, enabling it to deliver market-leading business in offline as well as online channels. Recently, we also had a marquee event in Mumbai for our brand, Tommy Hilfiger, for which Mr. Tommy Hilfiger visited Mumbai. This was his first India visit in the last 11 years.
This event saw a sailing regatta near Gateway of India and also an A-lister celeb evening party hosted by Tommy Hilfiger in the presence of key celebrities like Sara Ali Khan, Ibrahim Ali Khan, Aditya Roy Kapur, Karan Johar, Vishal Patni, and cricketer Shikhar Dhawan, etc. This also injected a strong dose of energy into the market-leading brand, Tommy Hilfiger, in India. We will continue to invest strongly into marketing to keep the brand strong. Australia, and we will continue to up the market investment as a percentage of revenue. As market leaders, we want to take lead in marketing investment and ensure that our brand remains top of mind and high on the consideration thread for immediate purchases. We are clearly seeing the trend of strong brands becoming stronger. The pivot towards casualization is also helping like-to-like growth of our brand.
You will recall that Q3 retail like-to-like was double-digit at 11%, and it was 5% in both quarter two and now also in quarter four at 5.2%. In quarter four also, we have invested nearly 30 basis points higher into marketing. Coming to adjacent category buildup, we are seeing these categories reaching more than 20% of revenue share with healthy growth of around 20%. In quarter four, footwear increases growth to double digits as inventory buildup started to happen. As further improvement in inventory levels happens, we expect footwear business to reach 15% growth, and there is a scope to further increase it and go back to the usual 20% growth in footwear business. Innerwear has also grown in FY 2025 at more than 15%, with its momentum likely to continue on the back of strong performance in online channels.
Women's wear business of US Polo Association has been growing at 100%, and with this high pace, this adjacent category will continue to grow next year at around 50% or so. All our key growth drivers, including sq ft expansion, like-to-like growth, adjacent category growth, digital business, premiumization, renovation of stores, and higher marketing spend are all in very good health and ready to further fuel higher growth for AFL in the next year. Wholesale channels have recorded low single digits in FY 2025, while the consumer sales have grown at a higher single digit level. We are encouraged by this tertiary sales growth of high single digits, and we have continued to work hard, including on cleanup of inventory management in FY 2025 to ensure high freshness index and meet inventory norms without any unnecessary buildup of stock in the sluggish condition.
We have been maintaining strict hygiene norms and parallelly sharpening inventory management for higher metabolism in wholesale channels in the near future. We are confident that with improvement in marketing condition, wholesale channels will go back to their growth levels in high single digits, while direct channels will take lead in growth, thereby helping AFL meet its aspirations of 12%-15% revenue growth. I also take this moment to look at three-year scorecard for AFL since FY 2022, which we had indicated in our investor deck. We clearly see there's a consistent smart performance of AFL in the last three years, where revenue has grown by a CAGR of 18%.
In the last three years, GP has grown up at an average of 275 basis points every year and is likely to grow at a healthy pace that we saw in FY 2025, where GP went up by 130 basis points in full year. In these three years, cadre for EBITDA is 36%, with an average 160 basis points increase in EBITDA every year. We are confident of increasing margins by a minimum of 100 basis points every year going forward. Coming specifically to quarter four, AFL recorded an NSV of INR 1,189 crore, a growth of 9%, backed up by very healthy growth in direct channels and a like-to-like of 5.2% in retail channels, coupled with reduction in discounting of nearly 2% in retail. Retail channels grew 13% and gained 2% of revenue mix. Online B2C business also grew at more than 20%, with significant improvement in channel margins.
In Q4, GP was 53.9%, an increase of 270 basis points over last year due to a 2% discount reduction in retail. Discounting reduction of nearly 2% in retail, this is a key achievement of this quarter and is a reflection of the strength of our brand portfolio and the quality of execution. We de-emphasized USPA in winter because winter had set in early in November itself, and we sold a lot of winter goods in the October-December quarter at full price. We also preponed spring goods because spring had also set in early in February, almost a month ahead of last year. This helped us to get better sales realization and lower discounting in retail by close to 2%. This has also led to healthy like-to-like growth in retail of 5.2%, delivering a 13% revenue growth in quarter four in retail channels with nearly 2% increase in revenue mix.
The channel margin also went up handsomely because of the healthy like-to-like growth along with reduction in discounting. In quarter four, GP was 53.9%, with a 270 basis points increase over last year due to this 2% reduction in retail discounting, richer channel mix, and a large gain from sourcing efficiency for spring-summer 2025 season. Despite a 30 basis points increase in marketing, a large part of GP has flown into EBITDA, which has grown by 15% in value in Q4 to reach INR 170 crore in value, an increase of 80 basis points over last year. The EBITDA stood at 14.3%. The gains in EBITDA have flown into PPT and SAP, which have grown handsomely at a healthy pace. Business has generated good improvement on FOCF, and there is a reduction in debt of nearly INR 75 crore at both gross and net level.
With our asset-light mindset, CHIPEX has remained in the expected range of close to INR 100 crore. We believe that with likely uptick in growth, continuous improvement in GP and EBITDA, and with low debt levels, AFL business will generate significantly higher cash in the near term and its ROSI is likely to increase further. The key agenda in FY 2026 will continue to be profitable growth, with expectation of higher % growth supporting higher profitability. While a lot of growth is linked to external market conditions and business does get influenced by economic realities, we are confident of continuing uptick in revenue growth with even better like-to-like growth, higher sq ft addition, and fast pivot from online B2 online B2C. Request Ankit to take power. Sure.
Thanks, Shailesh. Avith, we can now open it up for our question- and- answer session.
Thank you very much.
We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on the touchstone 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. The first question is from the line of Chetan from Systematix. Please go ahead.
Yeah, hi. Thank you for the opportunity. I have two questions. First, on adjacent categories. So, footwear, women's, kids, and innerwear currently contribute over, say, 20% of revenue and are not a drag on overall profitability. Could you elaborate on the individual profitability profiles of these specific adjacent categories relatively to their core apparel business?
Are there any of these categories currently operating at, say, significantly lower margins than the apparel business? Yeah.
Hi, Chetan. Adjacent category, we've been very, very focused on our mantra of profitable growth. For all the adjacent categories, one of the expectations is to not be very margin dilutive. While we do sometimes increase a lot of marketing investment, at a GP level, at a discount level, at a channel margin level, all the adjacent categories are quite profitable. In fact, categories like footwear are even more profitable than the apparel business, and that performs really well. Also, innerwear, we have seen a big turnaround in profitability in the last two years. The pivot towards online business, the margin increase in innerwear has been very, very good. Women's wear, we relaunched. We had shut down the earlier business and relaunched.
We've been very, very watchful in terms of making sure that it remains very profitable. The growth is coming at profit at a comparable margin. While sometimes we do invest more aggressively in marketing, at a fundamental, at a business level, all the adjacent categories are fairly profitable and comparably profitable compared to the other apparel businesses, Chetan.
Okay, that was helpful. Second question is on the new format stores. We have introduced and are expanding new formats like Club A, Stride, Megamart, etc. As of today, what is the stock count of such formats? What percentage of your planned 15% net sq ft addition is expected to come from these distinct formats in the coming years?
Chetan, Ankit here. The new formats are, of course, slightly smaller on scale as of now. Club A, we would have around five stores.
Megamart, we would have about 40-50, but that serves a different purpose. Stride would be around 15. Of course, there is a very, very distinct plan. I just ask Shailesh to kind of delve on the sq ft expansion.
See, you know, I'll just give you a little more color on these new formats. Megamart, now we have more than 50 stores. Last three years, we have really expanded. It's a point where it's growing very rapidly in terms of footprint as well as in terms of top line and the efficiency. That business is really growing very well and rapidly growing. Stride has grown to more than 15 stores in a very, very quick succession. Three years back, we had only two stores. Now we are close to 15 stores.
We had this issue of BIS recently, where the inventory became a constraint. Otherwise, we would have opened more stores because we at times struggled to even feed the existing Stride stores. Now, BIS is in many ways behind us. The inventory has started to come. In the next six months, we are very confident that all the supply chain initiatives we have taken on the footwear business, the inventory availability assortment will reach its normal level. There is a huge scope to take the footwear business and also the Stride as a part of the footwear studies to go forward because we want to double the footwear business in the next three years. Stride will also show that energy. Club A, currently we have five stores in South. We are still sort of piloting the model.
We opened recently the last fortnight of stores in Hyderabad. We have stores now in Surat, in Bangalore, in Hyderabad. That model is being still carefully piloted. We see huge potential in that format. We still want to see some data. Once we get the answer of data, we will then maybe in the next six months see the model as green and we'll expand it rapidly. Other two formats, Stride and Megamart, are already expanding quite rapidly.
Okay, thank you.
Thank you. The next question is from the line of Manish Bhandhari from Vallum Advisors.
Please go ahead.
Hi, good afternoon, Shailesh. Thanks for keeping up your bait with the return on capital employed over these last two years. My question is related to the—my question is related to the store additions.
What I see and observe is that you have a lot of store opening and a lot of store closures in the last two years. So, neck and neck, we have just opened 27 stores on our page. I wanted to know about the breakup of the brand-wide store additions and deletions, if you can give me some idea.
You know, we've been aggressively expanding. In fact, just to Manish to say that we've added nearly 1.2 lakh net sq ft in this year, which is one of the highest ever for Arvind Fashions Limited. In this quarter, we added 50,000 sq ft, which is again a very healthy pace of expansion. Also, Manish, in this year, we've added 120 stores gross. We also closed 70-odd stores, but we opened—to give you a final number—we opened 50 stores of adding up 1.22 lakh sq ft.
In ideal world, maybe next year we should look at 1.5 lakh and higher than that. We have also shut down because some of the stores were too small, strategic, where the sales throughs were not good, discounting was higher, and also the margin profile of those stores were not. We took a tough decision because we're always saying that our growth has to be profitable and the healthy growth in that mantra. Most of this cleaning up is behind us, Manish, now. We have closed across the brand stores which didn't make sense. A lot of these were smaller size stores. The stores that we open are much bigger size. The numbers sometimes do not tell the story because we opened 50 stores, but the average size of those stores is much larger than the average size of the stores that we shut down.
The data that I'm looking at is FY 2025. We added highest ever sq ft of 122,000 sq ft. We want to up it further. It should, in FY 2026, in our view, go up to more than 150,000 sq ft. We want to look at a figure of between 12%-15%, more like 15% for sq ft expansion. That's the plan. We have done a lot of back-end work. We've beefed up the team on business development. A new head is in the process of joining. A lot of efforts have been made in FY 2025 to clean up, increase the profitability of the retail channel. That's why the GPUC is growing very rapidly. That's why the discounting is coming down. That's why our sales throughs are going up.
Then now we want to go ahead and focus on one single agenda: open stores, open stores of larger size across the country. We are sitting today, we feel very confident that we will take the sq ft addition to close to 150,000 sq ft in FY 2026.
Sure. Shailesh, my second question was related to last two years back you embarked on the journey of repositioning Arrow brand and how successful we are for Arrow as well as for Flying Machine. You have some profitability target in your mind which you want to achieve. Is Flying Machine still a work in progress, or it is done, and we will see the results for both Arrow and Flying Machine in the next two years' timeframe, or maybe what timeframe you could be very precise in putting up?
Manish, you know, I'm very happy with both Arrow and Flying Machine, the progress they've made on the profitability side in quarter four. Also, when I look at the data for H2 for Flying Machine and Arrow, they've made good progress. We are happy with the progress because the profitability in these brands in the low single digits, we want to take it to the mid single digit, and the journey is on. If I look back at what we have achieved in H2 of FY 2025, it gives me a lot of encouragement that we are on the right path and a lot of cleaning up has happened. Even in soft market condition, we have seen good improvement in EBITDA profile of these brands. I'm confident that the short-term target of mid single digit we will be able to achieve for Arrow and FM.
They're going in the right direction, Manish.
Thank you, Shailesh. Thanks a lot.
Thank you. The next question is from the line of Sameer Gupta from India Infoline. Please go ahead.
Hi, good afternoon. Thanks for taking my question, sir. Just wanted to understand on your adjacent categories, innerwear and footwear, what is the absolute revenues that you are clocking in each of these, and what is the contribution of online channels here?
See, you know, we have guided that the adjacent category revenue share is more than 20% of the company's revenue. And footwear has already crossed INR 300 crore mark. It's in the journey to reach INR 500 crore. We've stated this regularly. For the BIS implementation, we would have been higher than where we are, close to INR 300 crore.
With the BIS behind us, all the supply chain initiatives taken, and now we are seeing assortment improving and availability improving, we will hit INR 500 crore target in footwear. The largest part coming from US Polo, Tommy Hilfiger, Calvin Klein also have a healthy footwear business. And footwear was started as an online-first mindset, and it had a higher online share. It continues to be a very strong leader in all the portals like Myntra. So, very high, healthy, very profitable share coming from online for footwear. That will continue while we've also increased the physical footprint. The share from the US Polo store has really grown handsomely. Now footwear is a very large contributor to the sale at the US Polo stores. US Polo is opening a lot of big stores, and footwear is a big solution to a lot of these retail initiatives.
Footwear will continue to grow both offline and online with very strong presence in online. Innerwear is a business. We are seeing it will cross INR 200 crore in the near future. The issue is that it is very, very strong. The pivot we have made from the largely wholesale business in embryo channel to now large online place. Again, this is another category where the online is very, very strong. The profitability of that business is healthy. In the last two years, innerwear business has improved its profitability significantly, and it will grow rapidly in the US Polo Association stores and in online channel, which is very, very strong. That is a space on innerwear. Women's wear, we relaunched. Here we started with a digital first mindset. The business is largely online.
We have recently done shop-in-shop for US Polo women in around 30-odd locations across the country. One message I want to just give here is that online is turning out to be a big, as a nice way to initiate or launch new initiatives, test them before we go offline. Online is becoming very, very important in terms of initiation of new categories and new businesses for us. It is a fairly strong channel. We get a lot of young customers. We get a lot of zip codes which we normally do not service. Online channel and our strength in the online channel that we have achieved over the last five years is helping us to launch a lot of these new adjacent categories and grow them profitably.
Got it, sir.
Sir, the reason why I ask is that what we have seen in other brands is that online helps you grow to a level very fast. Beyond that, it just stagnates, and you have to do the hard grind of offline. That is why I was asking the online contribution in these categories.
You're quite right. We've been also adding Omni initiatives and physical retail and also Omni connectivity in our physical sales. Footwear started as a largely online play. Then we opened Stride, and we opened US Polo Assn. stores. Innerwear, we have done the same thing. Women's wear also, we started with online and now going offline. Our mantra is profitable growth. Our brands are quite strong. We get access to department stores, to malls, to online players readily.
That is why we are very conscious that we want to have a multi-channel and very profitable growth of our brands.
Just to add, Samir, what Shailesh said, you are right. What we are really doing in a sense and summary is in an Omni channel world today, we are testing the entire product range, new categories online first, ensuring unit economics come to a state where we would like, which helps us do that because we are able to service pin codes and service the demand very, very quickly. We have our entire close to more than 950 stores available for us to kind of really go out once the unit economics is set and have an Omni channel play to ensure the growth continues. Of course, it will start largely online to test the unit economics and do everything and then move to offline store.
Got it. Got it. Thanks very much for that detailed answer.
Thank you. Before we take the next question, we would like to remind participants that you may press star and one to ask a question. The next question is from the line of Suryan Narayan from Sunidhi Securities. Please go ahead.
Hello.
Hi, how are you?
Hi. Yes, I see you. Hi, Shailesh. Thanks for taking the question. Just to understand that our sq ft per store is rising from maybe 50 sq ft per store. Are we heading towards closer to 1,500 kind of figure per sq ft on a long term? To understand whether larger format stores have more operating leverage than smaller ones in terms of managing admin expenses and all this. Thirdly, if you can, give the sq ft price data for the Club A and Megamart and Stride. Yeah, good luck.
See, there are a lot of layers to your question. The average size of the store varies from brand to brand and format to format. Even, let's say, take a US Polo. If US Polo is a kid, then it will have a certain sq ft ideally. When it has a pure accessory plus men largely, it will have a certain size. When we do women inside and kids inside and all the accessory, it is a couple of those mega stores that we open which are around 4,000 sq ft. It's difficult to say, but I can say one thing is that our focus is on two things. One is to represent our brand very strongly, and the shopping experience should be worthwhile for a customer to park the car and come into our store and shop. That leads to certain minimum size.
We can't have too many small stores where the assortment gets compromised, and we need for conversion need a certain assortment. The sizes are going up for each of our brands because we want to represent the brand in a correct way, in a very stress-free way. Also, our categories are increasing for each of our brands. You look at U.S. Polo , look at Arrow, look at Tommy Hilfiger, look at Calvin Klein. Each of our brands is adding new adjacent categories. The size is to go up. For all the logic, the sq ft of our store, our brand for each of the formats is going up. That's the reality. We are encouraging that increase in sq ft for each of our formats.
The second and important thing is that we also want a certain sales density or sales per sq ft per day or per month because if you do not deliver that productivity, the profitability of the margin profile of the retail will not come through. We always do a sort of a judicious mix that we need a certain minimum sq ft, but we also want a minimum sales per sq ft. That is based on these two lenses we take a decision on the store. It is a fact that average size is going up, and we are very keen to open larger size stores to put the might of our brand in front of consumers in a very strong way.
Another question is that how do you judge a new store's performance in terms of seasons?
Was it two seasons or three seasons before you decide whether to close it or not?
That's typical. The industry lens on sales density, on the conversion of the customers who walked in, on the sell-through at full price, the stock turn. That remains the same. Basically, based on the consumer relationship and also profitability of the capital asset that we have built, on those two grounds, we take a call after a couple of seasons whether to exit or to continue.
Okay. Currently, the adjacents are also giving around 20% contribution. If we grow at least 9%-10% minimum, where do we land in maybe two years to three years, will it be the same or will it rise?
Maybe growth is not 10% in adjacent category. Growth is almost like it's higher than that. Overall growth.
I'm talking overall growth, right? Whether the 20% pie will shrink or grow.
No, see, in the short term, we want our AFL growth to move up from current 8.5% for the year. Last year was 4.5%. So, we moved from 4.5% - 8.5%. We are really working hard towards the double-digit revenue growth for AFL in the very near future. The adjacent category, the way the momentum they have, they will continue to grow at more than 20% and help. They are the main reason, a very key reason why the AFL growth will go up from 8.5% to maybe double-digit in that. In the short term, I see that adjacent category will grow faster and will help AFL to grow higher. Maybe in the near term, that share might go up from 20% to slightly higher.
Okay.
If you can give the Club A, Megamart, and Stride average sq ft.
I'll request Ankit to take your details, Suryan Rayan, and we can send all the details to you, Suryan Rayan.
Okay. Yeah. Thank you.
Thank you, Suryan Rayan.
Yeah.
Thank you. The next question is from the line of Naysar Parikh from Native Capital. Please go ahead.
Yeah. Hi. Thank you. My first question is that you're talking about accessories and other than apparel items, I wanted to check especially in your brands like CK and Tommy. Besides the innerwear, footwear, are there any other accessories that you look to add like bags and belts and other accessories which are not there currently? Is there a scope to kind of increase your palette to that extent?
Mr. Parekh, Tommy Hilfiger probably is the best case in India for accessorization of a brand.
In our stores, which deliver very high sales density, the contribution of accessories is more than 20%. The watches, for example, we sell a very large number of watches of Tommy Hilfiger. It is a leading category for Tommy Hilfiger. The revenue, if I look at MRP, is into a few hundred crore. It is a very, very large business for Tommy Hilfiger. We also do eyewear, and we are sort of top three brands for eyewear in India. We sell many lakh pieces of eyewear in India, less from our own stores, but eyewear has its own dedicated optician and the eyewear channel and online presence, and we sell from there. We also sell, we are the leader, in fact, in department store and other places for belts and wallets. We sell many lakh pieces a year of belts and wallets in Tommy Hilfiger. Very, very large business.
We also do luggage, which sells from the luggage MBOs and also from online channels. Very, very large business. We sell kids' wear, very well-developed kids' line in Tommy Hilfiger. We sell socks. We sell perfume. The idea is that once a consumer, he or she walks into a store, it should convert. Every usage need, a casual, semi-formal, accessory. We get a lot of young customers who cannot buy expensive apparel come to buy accessories, and they become our future customers. Tommy is a very, very large accessory, probably the best in the country in our industry, a very large business. Also, CK belt with a certain monogram of CK is a very, very powerful category.
Perfume, CK around the world is one of the strongest perfume brands, and some of its perfumes like Obsession, Eternity, CK One are global stars in the space. Underwear, CK is one of the best brands for men underwear and also for women lingerie products in the country. We did a big campaign. We've been doing with Disha Patni. The underwear at the top end, CK is the market leader in India. It's a fairly decent-sized business. We do handbags. We do laptop bags. We do eyewear. In these brands, already very high level of accessorization has happened, Mr. Parekh. US Polo is the next brand where you are seeing a lot of new categories, adjacent category coming and doing. Similarly, we're looking at for other brands like Flying Machine with the ties and the pocket square and the belts and the wallets.
Each of the accessorization, the adjacent category growth is a very core growth driver for AFL. In each of our brands, we'll continue to launch successfully adjacent categories.
Got it. Just to follow up, things you mentioned like watches and eyewear and luggage and all that, I'm assuming for that also, does the revenue flow to you? Because I'm assuming there are other franchisees who are kind of looking at each of those, right? Do you still get the revenues from them as well?
Mr. Parekh, most of the time, we don't get the revenue except for our own stores, Coco Store for Tommy Small Business. There, the focus is on consumer relationship, and we earn the licensing income. It comes as a bottom line.
Understood.
Basically, you're saying that the other—so, from your revenue perspective, what you are doing is what you will continue to do?
Yeah. Some of the adjacent category, we do it ourselves. Kids' wear, for example, Tommy, we do the entire business. We get the top line and bottom line. A lot of categories which we are not the expert, somebody else is, we license out like Titan does watches. They get the revenue, and we get the royalty income.
Understood. Okay. My second question is especially for something like US Polo, right? You reach INR 2,000 crore, which I think not many brands in India are at that level in apparel.
Now, going forward, obviously, if we just look at the core business, keeping the fact that obviously you're going to do more of innerwear, footwear, etc., but just the core men's apparel business, how do we see growth over there? What avenues will we be looking at? Is there scope in more Tier 4, Tier 3 towns? How do we think about the core US Polo business, especially given the scale it has reached?
In fact, a very good question. We've always been saying first thing is to grow the core categories of a brand and then look at adjacent categories because the core business has to grow, and that shows the strength of the brand. When we do the consumer trust, we always check how's the response and affinity with the core categories which are like polo T-shirts or outerwear or jeans and chinos, etc.
Now, if you look at US Polo, we see a lot of categories, core categories having a chance of growth, and they're doing it. Then there's our distribution solution also on the product side. Look at bottom wear share. US Polo Association has been a bigger—not largely, but a bigger top wear brand, very strong casual shirts, very strong polo T-shirts. We have been adding a much higher quality line of jeans which is seeing very good traction with the consumer. Our share of bottom wear has gone up in the last two years significantly. Our team has done a very good job on the chinos and the jeans. Also, categories like round-neck tees, we're seeing good traction. That's growing really well.
In the core category itself, we see large scope of growth share, increasing the share of the wallet or share of the wardrobe for our core consumers. Also, there are scope for distribution, like you said. The good thing is that at every tier, we see growth. In mega metros, we are opening this large size 4,000 sq ft, moving from a 1,500 sq ft to a 4,000 sq ft for a higher market share gain. Second thing is that we're also going to the suburbs of the big cities because many, many opportunities like Bombay, Ghaziabad becomes important, or Dombivli and the airport comes in Pune, Pune becomes important. We are seeing traction in the suburbs of the big metros. The third is the small tier town.
Any retailer, any mall in a small town or a department store going would want US Polo as the first brand in its own box. We are fortunate. Now, for making sure this happens, the core categories grow and we increase the share of wardrobe from the bottom wear, for example, or we go to all the tiers of distribution growth, we are making sure the brand remains very salient or top of the mind. That is why you see in US Polo, we have upped the marketing spend significantly. We are focusing on the demand engine so that our market share gain that we are seeing in the brand continues very smoothly. To ensure that these core businesses grow, we are ensuring that marketing investment increases. Every year, we are increasing marketing as a percentage of sale.
We are increasing that, and we're doing very large events. We did one in Delhi in the beginning of March for US Polo Assn. wear. The global CEO came down. We had a lot of celebrities. We had a polo game, which I mentioned in my opening commentary. We had an evening there. A lot of efforts are to make sure the brand remains very salient, top of the mind so that both product level growth of the core categories and also distribution side growth of the core business stays for a brand like US Polo Assn. I think there's a huge opportunity for growth ahead for US Polo Assn.
Got last question for me, just for Arrow and FM. Could you give us what was the sell-through last season and what is it looking like for this season?
In fact, both the brands, we track certain KPIs for full price.
After the first U.S. sells, the full season sell-through. We are quite happy across our brand, including for Flying Machine and Arrow, we are doing quite well. We will continue to focus on the sell-through so that our discounting comes down. When I say our retail discounting came down by 2%, it came down in Arrow and Flying Machine also. When I said last quarter or quarter three our like-to-like growth in retail was more than 10%, it was 11%. At that time, Arrow and Flying Machine had also grown like-to-like at double digits. Arrow and FM are doing well in their journey, just that they have a slightly smaller scale and that leverage does not happen. We are working on both solving the efficiency side of Arrow FM and also the scale side so that the brands become even more profitable.
Okay.
Got it. Thank you so much.
Thank you. The next question is from the line of Jaymin from ARDEKO Asset Management. Please go ahead.
Hello. Hello. Can you hear me?
Hi. We can hear you clearly.
Yeah. Hi, Shailesh. Thanks for taking my call, sir. I just wanted to understand two parts. One is, I mean, if you're planning to add 150,000 sq ft any fund, how is it going to be split between your new retail formats like Club A or Megamart versus your monobrand store network? And versus, I mean, different brands also? Your network was not that clear, but what I'm sensing, you're asking for a sq ft expansion, right? I do. I mean, you're planning to add 150,000 sq ft ready for 2026.
How is it going to split between your new retail format, Club A, Megamart, or SKY versus your monobrand store network?
See, the bulk of the sq ft will come from the existing brands and existing formats, monobrand stores, what you call, right? That is where the bulk of our expansion will happen. Like I said, try it once the inventory gets. We are going to sort of ramp up further. Megamart is already—we have grown from zero stores to now 52 lakh size, 4,000 sq ft plus kind of stores in the last three years. The bulk will be the, what you call, US Polo stores. The bulk will be the Arrow stores, Flying Machine stores, Tommy Hilfiger stores, Calvin Klein stores. Those will be the core of the expansion.
A lot of our brands are subscale in terms of the EBO network compared to competition. There are many high streets and many places, many towns where we are not present. We have seen in some of our brands, the competition has stores, and we have the sense on the sales numbers of the competitor. We have clearly bridged the gap, and we will want to expand overall sq ft. The new formats will be between 10%-15% of the share, and the remaining 85% or what percent will come from the core businesses.
Okay. Second question on the acquisition category. I mean, on the US Polo, it is around close to 25% of the revenue.
How are you going to ensure that the expansion into categories like footwear, innerwear, or womanwear strengthens and values the USPA's core brand identity or even the premium position?
No, I mean, your point is very valid, and we are very focused on profitable growth, making sure the adjacent category are relevant. We are not going into complete diversification of the brand. We have the global sort of help from the global head office in Miami of U.S. Polo they've done extension in some countries like the U.S. or some other countries where few have worked, few have not worked. We are also learning from their global experiences, category work. We are very, very careful, watchful. We only focus on a few, four, five categories and make them big because if you don't make them big, it will not be profitable.
We are not trying to add too many categories, and they become small, small, and we do not get the margin profile. We will be very careful. Whatever we decide, we will go wholehearted, and we will invest heavily behind the growth of those channels. We will not shy away. We do a few things, but we will go very deep in those few things.
Thanks. That is it from my side.
Thank you. The next question is from the line of Devanshu Bansal from Emkay Global. Please go ahead.
Hi, sir. Thanks for the opportunity and congratulations on good execution in FY 2025. Thank you. Sir, my question is on Q1 till the 12th, right? Q4 has seen some 90-like moderation. Q3, we were double-digit, and now we are back to single digit, which suggests that the demand environment is still sluggish.
I wanted to understand whether the current trends are already reflecting the expectation of 10%-15% kind of growth for FI26.
Whatever we witnessed in the first 45 days of quarter one, we have witnessed some uptick in our like-to-like and growth rates. Of course, in the early days, there's still a lot of quarter left, but we are quite happy with the way the Q1 is going till now. Also, to increase for the full year, the growth, we will need to open much more sq ft, and we are working very hard to make sure that our sq ft expansion crosses 1.5 lakh net that I spoke about earlier in the call.
We are also hoping that some of the government efforts on tax or on interest rates sort of work out, and there is some tailwinds which will help us so that we can improve our like-to-like growth. Last year was 5%, and if the market supports a little bit, it could be a little higher percentage, and that could also help us go. We are also seeing the online, this whole B2B to B2C pivot has become strong. B2C is growing really rapidly, more than 25%. As the B2C gains continue to have that momentum, the growth rate will go up. We are very confident that if markets sort of support a little bit, we will hit our aspiration of 12%-15% and surely higher than 8.5% that we have delivered in FY 2025. That, of course, it all depends on the market condition.
We cannot guarantee, but our efforts are all—we feel confident that we will be able to, given the normal market and slightly better market, we will be able to take it 8.5% to double digit and then to 12%-15%.
Very encouraging, Sridhesh. Another thing which I wanted to understand from a brand perspective, whatever growth acceleration we are anticipating, is there any specific brands that should grow faster, or the entire portfolio of five brands should grow more or less in line with overall?
I think every brand has its own dynamics. U.S. Polo has very strong momentum. It has very strong investment done in FY 2025. Based on that strength of the brand and the investment, it should have the momentum; it should grow faster. Arrow and Flying Machine have a lower scale.
They are a little subscale, so this offers a little more opportunity for our faster growth on those brands. Tommy TK continued to grow at double digit in the last so many years. They are market leaders. The consumers continue to love them. Each segment, each brand has its own dynamics, but I think overall, our businesses all will grow. We have these five brands, focus brands, and we want to invest wholeheartedly in the demand generation for each of our five brands and grow towards our aspiration for 12%-15%.
As you said, lastly, I wanted to understand, given growth acceleration from top-line perspective, margin improvement of 100 basis points is also very encouraging. Can we also see some improvement on the working capital fund? Do we have some target from that perspective also?
I think we have made a huge progress on balance sheet item, our inventory levels, tons of four. We moved from three tons to four tons consistently if you look at many quarters. From where we are on inventory, for example, further increase will happen, and we are looking at all the analytical tools, the core business, the vector supply chain projects. Some improvement for sure will happen, and we are very ambitious and hungry for that, but it will not necessarily be in the same proportion. It will not go from the way it went from three to four. It will not go to four to five. It will be much harder working strategy from our side, but we are putting shoulders to the wheel.
I must guide you that the balance sheet side, the improvements have been so, so stark and so good that the progress from here would be good, but it will be at a slightly slower pace or better level. Look at our NWC has been consistently below 60 days, and from there onwards, improvements will happen, and we are confident we'll be able to get some better inventory churn. We'll have to do some more transformation, and we are working on some of those thought processes to see how we can improve further.
Very helpful. Thanks for taking the question. This is really encouraging.
Thank you. The next question is from the line of Soumya from Insightsful Investments. Please go ahead.
Hi, sir. Thank you for the opportunity. Am I audible?
Yes, sir. You are very clear to me. Yeah.
Sir, so my question was regarding Arrow and Flying Machine. You said something about mid-single- digit growth, or was it mid-single- digit EBITDA margin that is expected?
What I said was that these brands have low single digit EBITDA, and in the short term, our idea is to take them to medium-term EBITDA margin because eventually, long-term goal is that each of these brands have to be double-digit EBITDA. And when I say EBITDA, pre-indexed I am saying. So pre-indexed EBITDA level, what I had meant was a low single digit EBITDA, which our game plan is to take them to mid-single- digit EBITDA and then hopefully further increase.
Wonderful. Sir, you have achieved already 8.5% of revenue growth this year, and you spoke about double-digit growth in the near term. What timeline are we looking at for the double-digit growth?
I think in FY 2026, our game plan is to hit double digit and why not 12% also. We will need some support from the market because markets have been, some of the channels have been subdued wholesale. Our online direct channels and our direct channel online B2C and retail are growing really well. If you look at the traction, retail last three quarters has been growing closer to 15%, and the sq ft expansion, like-to-like growth, premiumization, all those drivers are helping. Also, on B2C, the growth has been higher than 25%. We have built a lot of capabilities ahead of the time, launching new websites, increasing the Omni coverage, more stores. The whole focus on online exclusive based on analytics, a lot of good work has happened there. We are confident that these direct channels will continue to really accelerate and grow.
We are hoping that some of the slightly slower channels like the wholesale channels, whatever we have done, correction in the inventory and a little bit of improvement in the market condition, they should go back to the potential of high single digit. If the wholesale channels move towards higher single digit growth and with the continued growth of retail and online B2C, we should hit 12% revenue growth per year.
Okay, sir. Understood. Just one last question. You've spoken about how to ensure your assortment and more categories and brands increasing to have larger-sized stores. Will you continue to have FOFO stores, or will the company also have FOFO stores for increased sizes?
See, I said this in many investor calls that our mindset is asset-light, and we want to remain very asset-light in terms of the capital deployment.
Most of our store expansion, the first preference always is a FOFO model with a franchisee's investment. We have figured out a way. We are very motivated, high-quality franchisee in our network. With these partners, we want to grow, and we want to increase the sq ft addition. The only brand where we have been doing FOFO stores is Tommy Hilfiger because that business generates a very large amount of cash. As a part of the cash allocation, we are realizing that the IRR on investment in the Tommy stores is very, very healthy, very, very good. We have taken over more than 70 stores of Tommy on a FOFO basis. Other than that one format, most of the other formats are preferences for an asset-light FOFO model.
Sometimes, based on the uniqueness of property or landlord's wish or some specific incidences, we do FOFO stores, but that's not our strategy. The focus is on asset-light expansion.
Wonderful, sir. Thank you so much.
Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I now hand the call over to Mr. Ankit Arora for closing comments.
Thank you, everybody, for joining us on the call today. If any of you have any further questions, please feel free to reach out to me separately, and I'll be happy to answer them offline. Thank you, and have a good day.
Thank you. On behalf of Arvind Fashions Limited, that concludes this conference. Thank you for joining us, and you may now disconnect the call.