Ladies and gentlemen, good day and welcome to Arvind Fashions Limited Q2 FY 2027 Earning 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Girdhar Chitlangia from Arvind Fashions Limited. Thank you, and over to you, Mr. Girdhar.
Thanks, Siddhant. Hello, welcome everyone, and thank you for joining us on the Arvind Fashions Limited Earnings Conference Call for the second quarter ended 30th September 2026. I am joined here today by Kulin Lalbhai, Vice Chairman and Non-Executive Director, and Amisha Jain, Managing Director and CEO. Please note that results, press release, and earnings presentation have been mailed across to you yesterday, 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 strategic thoughts on our second quarter performance, post that Amisha will cover the financial performance and business highlights. 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 the risks and uncertainties we face. A detailed statement of these risks is available in this quarter's earning presentation. The company does not undertake to update these forward-looking statements publicly. With that said, I would now hand the call over to Kulin to share his views. Thank you, and over to you, Kulin.
Thanks, Girdhar. A very good afternoon to you all. Thank you for joining us for the Q2 results. We are pleased to share that AFL has delivered its highest-ever quarterly revenue and EBITDA for the quarter ended 30th September 2026. This is backed by a strong performance across channels despite geopolitical uncertainty and inflationary pressures. The demand environment for us remains stable and positive. This trajectory of impressive growth and high-performing business outcomes is as a result of sustained efforts across all fronts in our business. Despite festive and online tower event shifts this quarter, we have achieved a top-line growth of 10%, aided by higher marketing investments. Adjusted for the shifts in festive and online tower events, we grew by nearly 15%. I am happy to share that the business delivered a very strong 67 basis points EBITDA expansion.
Better channel mix, a strong like-for-like growth, and lower discounting led to a strong gross margin expansion. Our investments in brand and people, coupled with focus on superior retail execution, have enabled us to deliver a very healthy like-for-like growth of 7.3% in retail and 28% in the online direct-to-consumer channel. Again, adjusted for festive and online tower events, we delivered a 10% LTL growth and a 45% growth in the online D2C business. Our PAT grew by nearly 30% as compared to the same quarter in the previous year. We remain committed to maintaining our growth trajectory through investments in tech and AI initiatives, keeping the consumer at the core, and building a strong direct-to-consumer business by expanding the retail network and continuing to grow in the online D2C channel.
We remain watchful of external headwinds and will manage pricing and cost proactively to mitigate any downside impact and continue to stay focused on our mantra of profitable growth, resulting in further improvement in return on capital employed and strong cash flow generation. I would like to now hand it over to Amisha Jain to take us through the specifics and more details about our financial performance.
Good afternoon, everyone, and a warm welcome to our investor call for Q2 FY 2027. Continuing our trajectory that was set in FY 2026, all our drivers of performance are firing and have helped us deliver a very strong Q2 despite the festive and online tower event shifts. We have continued our double-digit growth trajectory in Q2 with GM, EBITDA margins, and ROCE up. All our brands have delivered as per our expectations. Three things that I would like to highlight. Revenue momentum continues as per guidance. Q2 revenue grew by 10% with NSV at INR 1,559 crores versus INR 1,418 crores in the same quarter last year. Adjusted for festive and online tower event shift, we have grown nearly 15%. Two, profitability is structural. Gross margins have increased by 136 basis points year-over-year, aided by strong LTL with lower discounting and better channel mix.
Our investment in marketing is also up by 24 basis points on a year-over-year basis. Our focus on cost has helped EBITDA expansion. EBITDA excluding other income was INR 216 crores versus INR 187 crores last year. That is a 67 basis points improvement and 15.5% growth over last year in absolute terms. PAT came in at INR 48 crores versus INR 37 crores in Q2 last year, a growth of 29%. On a pre-Ind AS basis, EBITDA and PAT grew by 18% and 38% respectively. Third, inventory and working capital. While inventory days have gone up, there is a corresponding decline in receivable days. This keeps GWC days stable at 157 days, the same as the previous quarter closing. NWC days are flat at 65. Now moving on to channel performance. Our D2C engine is continuing to fire.
Direct channels now account for 53% of sales, up nearly 380 basis points year-over-year. Retail grew by 15.4%. We delivered a robust like-for-like of 7.3% in retail, and adjusted for festive and calendar shift, retail L4L is at 10%. 24 EBOs were added in this quarter. Our online B2C grew by 28% in Q2, taking its share from 12% to 13%. This is in line with our intent to pivot away from B2B online. Adjusted for festive and online tower event shift, online B2C grew by 45%. We also launched the Tommy Hilfiger website and app in September, and the remaining brands will follow in quick succession. Moving on to wholesale, primary sales grew at a high double digit in Q2. The channels are now well stocked to cater to the upcoming festive season.
On brand performance, USPA continues to deliver strong performance with high revenue growth, LTL, and profitability expansion. This growth is on top of a high base in Q2 last year. PVH brands are gaining momentum and have recovered from their GST setback. Arrow and Flying Machine are in a transition year. Our focus is deliberately on enabling structural efficiency over near-term scale and on setting the brands up for success going forward. FY 2027 balance of year outlook. As we enter H2, both Puja and Diwali sales are tracking well ahead of our expectations, and we are clocking nearly high double-digit LTLs. The overall consumption pattern remains positive during festive and with consumer sales across all channels showing encouraging offtake. On the macro, we continue to remain watchful of external factors like inflation, geopolitical developments, a potential El Niño effect, and repo rate changes.
We will take proactive steps to mitigate any inflationary impacts through smart pricing and cost controls. Our focus remains firmly on four things. One, accelerating profitable growth across our brands, deepening our consumer engagement, increasing the share of direct channels, and driving efficiency across our business. We are confident of delivering our guided growth and EBITDA objectives. I will touch upon CapEx, cash, and debt in the next few minutes. In H1, almost INR 100 crores of CapEx was spent on the following: a new shirt manufacturing factory in Madhya Pradesh, a new corporate office, we have been in the current office location for nearly two decades and our business requirements have outgrown our current office, and third is store expansion.
As mentioned in our previous call, we have been working to further strengthen our India-based sourcing, and as a step towards this, we are setting up a shirt factory in Madhya Pradesh. This will serve as a de-risking strategy for imports from Bangladesh, which over the last three, four seasons have been impacted due to geopolitical disturbances. The depreciating rupee is also adding to our sourcing cost. This is a state-of-the-art new age manufacturing setup and will serve as an important proof of concept to get us closer to the market. As a steady state, this factory will produce 3 lakh units per month and will meet 25%- 30% of total shirt requirements for us. We expect a payback of about three through three and a half years on this investment. Moving to cash.
Cash requirements in our business is at its peak in Q2, and given the seasonality in our business, there will be a natural unwinding in working capital in H2. In H2 of fiscal 2027, we estimate cash release of about INR 150 -INR 175 crores of free cash flow. A large part of this will be used to pare down our debt. Next, I will take a few minutes to highlight and revisit our vision and way forward. As you may recall, we spoke about this two quarters back. Our strategy rests on five pillars, and over the last two to three quarters, we have steadily moved from strategy to execution on each of them. Just as a reminder, I will list out the five pillars. The first one is portfolio diversification.
We aim to deepen our leadership in menswear by establishing a top position in our largest five apparel categories: shirts, polos, denims, T-shirts, and blazers. At the same time, we are doubling down on adjacencies like footwear and innerwear, which are already contributing to 25% of our business. Second, building a differentiated brand of scale and desire. Our portfolio of five brands has meaningful headroom to grow. The unlock is sharper positioning, deeper consumer connection, and a strong merchandising grid led by innovation across our brands. Along these lines, we continue to scale U.S. Polo, and on Arrow and Flying Machine, we have initiated focused work across brand positioning, product market fit, and channel and marketing strategy. Third, building a world-class direct-to-consumer organization. We will continue to double down on our D2C journey with a vision to take the share of D2C to 65%.
Driving retail excellence and building a digital powerhouse remains our priority. On offline retail, we will continue our expansion and up-sizing journey with a relentless focus on LTL and conversion, driven by right product, brand experience, and service. Building a digital powerhouse through our dotcom and marketplace partnerships remains a priority. We expect each brand to have its own dotcom and app live this fiscal year. These will be the foundation for a great brand experience and scalable commerce. Number four, transforming with data, analytics, and AI. This is a growth driver for us and not a back-office initiative. Our investments will target two outcomes. One is leveraging AI to drive cost efficiencies across functions, where we have already piloted use cases in finance and sourcing. The second is leveraging analytics and AI to drive content effectiveness in areas such as retail excellence, pricing, assortment, and marketing effectiveness.
As mentioned earlier, we have put together a specialist team that is now working on tech, AI, consumer analytics, and growth. Further, we have also set up an AI governance council. This will ensure that each of our use cases delivers measurable productivity gains and the knowledge gets institutionalized within the organization. Last but not the least, a nimble supply chain that sits closer to demand, which should yield shorter cycles, faster leads, and less inventory risk. As mentioned earlier, we are setting up a new shirt manufacturing facility, which will help us get closer to market. As we have spoken about before, in order to deliver against these strategic pillars, we have reorganized ourselves into a business unit structure for sharper accountability and speed. At the same time, we have centralized consumer brand marketing, digital data, and AI initiatives to build deep leverageable capabilities.
To summarize, with a clear strategy and the right organizational design now in place, we are confident of sustaining mid-double-digit growth in the balance of the year, with 30 - 40 basis points of EBITDA margin expansion. With the unifying goal of one team, one mission, driving cohesiveness and collaboration in Arvind Fashions Limited, we are poised to embark on the next phase of growth. Thank you so much. We are now happy to take your questions.
Thank you. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Avinash Karumanchi from MOSL. Please go ahead.
Hi, sir. [inaudible] good afternoon. My first question is regarding the gross margin. For the last few quarters, we have been front-loading the inventory in anticipation of price hikes. My question is, out of this 140 basis points, how much of the margin expansion would be attributed to this, and how much would be to the sales or discounts or higher premium products?
I will answer that, Avinash. You see, as we have explained in our previous quarter, we are in a very long lead inventory cycle, right? The cost impact for us will come only when we launch the new season product in SS27. Right now, most of the gains are because of [inaudible]. Sorry, most of the gains are because of the discount improvement and changing channel mix.
Okay. You are saying that even in the third quarter, you will be still sitting on a low-cost inventory. Is that
Yes
question right?
Our earliest impact will be when we start inwarding products in January.
Okay. So, second half also should see a similar kind of a gross margin expansion?
Yeah. I mean, gross margin expansion is a function of changing channel mix also, Avinash. I mean, if channel mix changes, which we are, of course, working towards that, it is true.
Yeah. Okay. Second question is regarding PVH performance. Can you give some sense on how the brands have been doing after GST? Because if I look at from the minority interest, there was no growth at all there for the PVH.
I think PVH for us continues to grow, and as I said in my comments, PVH is actually on growth trajectory. The GST impact is behind us, and it does continue to grow. If you look at the minority interest year-over-year also, you will see an increase in that.
There was a low base on the minority interest in Q3 of last year. Since then, it has shown an upward trajectory. The growth in the PVH products, PVH brands is high single digit, almost touching double digits now. They have also delivered a very high single digit LTL also.
Okay, got it. And the last question is regarding the cash flow generation. So, this INR 150 crore- INR 170 crore, are you referring to the cash flow from operations or FCF after CapEx?
No, this is FCF, Avinash.
Okay. So, basically, my question is coming from this quarter, we are seeing wholesale, there is a good amount of growth despite the festivals moving into the next quarter. So, what led to this kind of growth in the wholesale business?
Wholesale, we've continued to see, if you look at our last few quarters, our consumer sales uptake has been pretty solid in wholesale. There is a movement in terms of primary, where we have sort of the wholesale channel is also stocked and ready for growth from an upcoming festive season's perspective as well.
Okay. So, both primary and secondary are tracking together. This is not because of any kind of [inaudible] the wholesale growth that you are looking at?
No, certainly not.
Okay. Thank you, sir. I will join the queue for more questions.
Thank you. A reminder to all the participants that you may press star and one to ask a question. The next question comes from the line of Karan Gupta from Asit Mehta Investment. Please go ahead.
Yeah, hi. My question is on the gross margin again. The expansion of 140 basis or 136 basis.
Karan, we are not able to hear you clearly. If you can just be closer to the mic.
Yeah. Now it's audible?
Yeah, this is better.
Yeah. Yeah. My question on the gross margin side, 136 basis point of expansion. As you said, low-cost inventory you have earlier from the previous quarters. How much the inventory you have for the upcoming quarters, and when the new pricing of inventory will come up in the channel? That is one. On the breakup of gross margin, if you can share that how much you get from the sourcing of the raw materials or the finished goods from maybe the brands, and how much you got from the EBITDA from the manufacturing side?
We say, the 136 or 140 basis point improvement is largely coming 50/50 between cost improvement as well as channel mix and discounting. To your question on how much stocks we have, I think all our early AW26 inwards are at previous pricing. I think as we get into the new season or the last drop of the AW26, we will see increase in cost. Having said that, our cost increases will be mitigated, as we have said earlier also, by an approximate increase of 1.5%-2% in our MRPs.
Okay. Okay. But if we can see on the manufacturing expense side, there is a 100 basis point of increase. On a sequentially if you check or the YoY basis, after gross margin, there is an increase in the manufacturing expenses, YoY basis on couple of quarters.
We have said it.
after the inventory get replaced, the older inventory get replenished by new inventory, then what will be the estimated impact on the gross margin side and the EBITDA margin side?
I have answered that already. I think manufacturing and selling expenses are largely also related to the changing channel mix. The cost increase is largely reflective of our changing channel mix. Now, to answer your question on-
The main side, then you say.
Sorry?
You can go.
Yeah. To answer your question on how much will be the cost increase, as we speak, I think our cost increase will be about 5%. We are fairly confident of mitigating that through MRP increases.
I think I just want to kind of step back on gross margin a little bit. I think there are, as Girdhar has mentioned, I think there are three things that are driving an improved gross margin. One is lower discounting. The second is overall product innovation and premiumization in our portfolio. The third is the channel mix change. All three of these impact the way the product pricing goes, and hence also how you see the GP improvement as well. As our brands have been premiumizing over a period of time, there is a significant offtake in the brands, and that's the journey of our overall strategy as well, right? As the next season comes in, while we may have to take a little bit of pricing action here or there, we actually remain pretty confident around our pricing power.
We do believe that that premiumization journey and product mix has enabled us to drive actually better consumer demand as well.
Okay. But the premiumization part, how much you're seeing that the margin expansion will play out due to premiumization, right? Because there will be some cap, right? Even if you say the channel mix, how much channel mix will drive the gross margin side?
We have said in the past, Karan-
Sorry. We have said in the past that we are on a journey of changing our channel mix towards a D2C business. That includes retail and online B2C. I mean, this quarter it was 53%, and our holy grail on this is approximately 65%. You will see this journey continuing over the next few quarters.
65% you are saying the gross margin?
Yeah. 65% channel mix for retail and B2C.
Okay. For retail.
Right.
Now it is 53 something .
Yes.
Okay. Okay. Sure. I will ask more questions.
Yeah.
Come back in the queue.
Thank you. A reminder to all the participants that you may press star and one to ask a question. The next question comes from the line of Mohammed Haris from YES SECURITIES . Please go ahead.
Yeah. Hi, sir. Thank you for the opportunity. If you can please give us some details on how the wholesale and retail mix changes across brands, that would be helpful. Yeah.
I think overall the journey the company has been on is to move towards direct-to-consumer. We've spoken about that in the past, where both our retail and online B2C is going in an upward direction. All our brands are on that journey. So in terms of the brand mix, yes, there are brands which would be probably a couple of basis points lower. But overall, currently, the number that we've kind of highlighted also is that our mix from direct-to-consumer, or rather retail and online B2C, is 53%. And we are looking to kind of drive this upwards to about 65%.
I was just asking, for example, a brand like Arrow, would it be having a much higher contribution from wholesale compared to, say, U.S. Polo? Just some idea.
Yes. Relatively, yes. Arrow is on the journey to movement towards direct-to-consumer, and there has been a significant uptake in online as well. Relatively speaking, yes, Arrow has more wholesale presence compared to U.S. Polo. Just to kind of give you something contextually, the direct channel performance is about 35%, showing about 35% growth in online B2C for Arrow.
Understood. Understood. Another question on the marketing front. We have been consistently guiding to improving our marketing front. Wanted to understand, where is it going? Is it towards brand ambassador investments or social media marketing? Where is bulk of it, which is being handed?
Marketing for us, marketing is not a peanut butter approach for us. Across our brands, it is very different. Each of the brand has its own marketing strategy. At this point in time, what we are after is to ensure that we are driving the brand priorities through the channel which is most relevant. To give you an example, the way we would think about a Flying Machine versus the way we would think about a U.S. Polo would be very different. For example, you would have seen a few campaigns around with the Maharaja, with Pacho out there, in case of U.S. Polo. Vis-a-vis in Arrow, you will see us talk a lot more about functional benefits and product marketing through the social and online channels, through social media channels. In case of Flying Machine, the same will apply.
You will probably see a little more nimble, bite-sized content coming up through, again, our social channels, right? It is not a one-size-fits-all sort of a thought process. It is also a lot to do with where the brand is in its journey.
Right. Right. Thank you for that. I had just one accounting-related question. You have this inventory numbers which are mismatching both in the presentation and compared to the results report. If you can clarify that.
That is a returnable asset difference. I will connect with you separately and explain that.
Okay. Understood. Thank you. Thank you for the opportunity.
Thank you. A reminder to all the participants that you may press star and one to ask a question. The next question comes from the line of Kaustubh Pawaskar from ICICI Direct. Please go ahead.
Good afternoon, everyone. Thanks for giving me the opportunity. My question is, a couple of questions. First is on Flying Machine. If you can help me understand, how was the performance if we compare it to earlier quarters? Have we seen any improvement in growth? After a lot of things done in the brand and in the portfolio, are we witnessing any improvement or recovery in the growth of Flying Machine?
Yes. Thanks for the question. Flying Machine, actually, we are quite bullish around it. There are a couple of things that we have spoken about this in the past. I think there are a few things that I would like to highlight. First is that we have gone through this journey of building out a sharper positioning for Flying Machine. If I were to highlight, we typically would like to describe in four words. Flying Machine is being built as a him and her brand, anchored in denim, on trend, and targeted towards the Gen Z and younger audience. If you look at the channel strategy, given the kind of audience that we are looking to speak to, obviously online becomes a great platform. What we are now doing is expanding our online presence. We have actually expanded Flying Machine's presence across all marketplaces.
Post our Flipkart acquisition, we have made sure that we have actually expanded the brand across the platform. The direct channel contribution has improved over there by 3% points. We are well-positioned to scale this and grow it faster. As we build this out, we will continue to go after much sharper marketing initiatives as well, and that is what we have been doing. That is showing us solid green shoots as well. I think early, like we had mentioned, for us, this was a very important season, and we continue to see performance as per our expectations in H1, and H2 has been on a good start as well.
Right. Ma'am, my second question is on, we are focusing more on improving our presence on D2C channel, and we are also trying to improve the mix in terms of the revenues. There are other brands which are coming in this space, especially who are largely focusing on the D2C platform. In that context, the competition which is building up in the market in this space, how you are looking at to tackle with this competition, or what would be your specific strategies to compete with some of these new players who are coming in the market?
Sure.
I can repeat.
One big thing, I think, around Flying Machine is that as we think about it, the audience that we are catering to also kind of drives the thought process around how do we want to build our supply chain. Unlike a traditional brand, Flying Machine is now being built on faster and more frequent drops in the market, which would enable us to kind of basically have more options available to the consumers at a higher frequency. What that does is allows us to catch trends faster. And like I mentioned, from a positioning point of view, this brand is an on-trend brand, and the way we will bring the products to market, that will ensure that we are able to drive that with the consumer.
The second thing is, the other thing that will kind of help us drive is also the way we are looking at our marketing strategy around the brand. Like I mentioned earlier as well, we are looking to drive more bite-sized content that is more consumable by this generation. I think some of those things will kind of differentiate what Flying Machine looks like vis-à-vis other brands, not just in our portfolio, but overall. That will in fact also allow us to compete with the direct-to-consumer brands. Having said that, I just want to also highlight that when you look at this consumer, this is a consumer that is seeking to drive and build engagement with the brands as well.
And so we believe that a brand that does a really good job of engaging with the consumers more from a long-term point of view has a very solid chance of staying in that consumer's wardrobe. I don't see a D2C brand as a competition alone. I think the point, I think we should also consider is, what is the consumer really seeking? And our entire effort is to ensure that we are catering to that consumer through the channels of their choice. And as their choice shifts, as their preferences shift, we will ensure that we will pivot in that direction as well.
Right. My question was-
And just to kind of-
Yeah, sorry.
Sorry. Go ahead.
No, no. My question was specifically for all the brands in your portfolio, because we have seen that a lot of launches have come in a p olo, as a style of apparel, which are there of D2C brands. There are a lot of brands which have come up, which are largely funded brands, and they are trying to grab certain share, not only on the D2C channel, but once they get that commodity space on D2C channel, they obviously look to enter the market through the retail format. In that context, how we are looking to compete with this, some of the funded brands who are trying to create their own shelf space into the retail format, both on D2C as well as retail format?
Sure. Fair enough. I think if we were to step back and look at the journey over the last couple of decades, brands have come in and gone. The one thing that stays is brands that have done really well over this horizon are brands that have actually established themselves as brands and not as labels. What does that mean? I think as long as we have a very strong positioning and product market fit relevant to that consumer, and as long as the brand is relevant in the life of the consumer, the consumer comes back. The second thing is, our product portfolio is actually led through innovation, right? That's one thing that is the strength across our brands. Product innovation is central to whatever we do. We are also driving a premiumization strategy which ensures that we are actually upgrading our product.
We are ensuring that we bring new innovation, we upgrade the product, and that is allowing us to kind of be at center of culture, right? To answer your question, there will always be labels that will keep entering the market. As long as the brand has a solid engagement with the right TG, we will continue to see momentum, and that's what we see. If you look at U.S. Polo, since you mentioned Polo, U.S. Polo has been clocking significant double-digit growth consistently over the years. What we are seeing in the current quarter as well, and in the festive coming up, we are seeing high double-digit growth in terms of L4L as well.
While I understand your question, at this point in time, I think the larger point is that our brands are hitting the note predominantly because of the way the product is aligning, the communication is aligning with the consumers, and how our channels are being stacked up. Last but not the least, our direct-to-consumer approach is predominantly what we have driven. The idea of driving direct-to-consumer was to ensure that we can create this engagement with the consumer. As we move towards that strategy, towards getting to about 65% between retail and online, we do believe that we will understand the consumer signals more deeply. We will be able to take that feedback very quickly, and then hence produce more frequent drops.
The last thing I do want to highlight is also the fact that our strategy to drive closer to market drops in all our brands is on point to deliver exactly against what you are talking about as well, right? I think, all in all, across product, channel, marketing, and our supply chain initiatives, we are quite confident that our brands will continue to serve the consumers for the years to come.
Right. Thanks for the understanding. My last question is a clarification. I just want to know whether we have taken any price increase year to date, or are we planning to take considering the raw material momentum? Because since we have low-cost inventory through quarter three, are we looking at taking the price increase maybe in Q4? Just trying to understand.
Pricing product mix strategies typically, we evaluate it quite dynamically. Pricing is not a cost-plus action for us. We typically look at the product mix, ensure that as the product gets upgraded, we are driving the pricing action accordingly as well, right? There needs to be some value that the consumer wants to pay towards a certain product, right? That is how we typically think about it. There has been a marginal increase in pricing, and we will see that as and when, if we need to take any shifts because of inflation. But at this point in time, I will just say there is a marginal movement.
Okay. Thank you.
Thank you. A reminder to all the participants that you may press star and one to ask a question. The next question comes from the line of Jaymin from Ardeko. Please go ahead.
Yeah. Hi, sir. Thanks for taking my question. Congratulations, Amisha, for completing your first year. Now, when you just look back and go to the last 12 - 15 months, could you share with your early wins you credit
Sorry for interrupting, Mr. Jaymin. There is disturbance in your voice. Could you please come in range and talk again?
Sure. Yeah, congratulations, Amisha, on completing your first year. Now, when you just look back, I mean, last 12 - 15 months, could you share your early wins you would attribute to your leadership?
Sorry, couldn't catch the last part. Could you repeat that again?
Any early wins, I mean, any early wins that you would attribute to your leadership versus having the preceding CEO, which you have implemented after completing your-
Understood. So you're talking about, if I understand correctly, you're talking about, as we kind of set out to kind of with this new strategy that we put in place, what are the early wins that we're seeing? Did I understand your question correctly?
Yeah. Right.
Okay. I just want to kind of Thanks for asking that question. I just want to go back to the strategy and maybe talk about a few things, which I did describe earlier, the five pillars on which we are working on. The first one I do want to talk about is the portfolio diversification across our marquee brands. The one thing that we said is that we will go after the five top largest apparel categories in menswear, and those are shirts, polos, denims, T-shirts, and blazers. If I were to just look at these five categories, we are seeing significant share gain in shirts, polos, denims, and we continue to do really well across our brands over there. U.S. Polo denim uptake has been quite significant, and so is shirts.
I would say that along with that, footwear seems to be on an extremely solid growth trajectory along with innerwear as well. That is one place where we said that we want to go after very sharp portfolio diversification. Having said that, we also wanted to go deeper across some things, and we have been on point on that strategy. The second thing I do want to highlight is that across the portfolio of brands, we did say that we want to build a world-class direct-to-consumer organization, and that has been moving in a great direction. This quarter, we have seen a 400 basis points movement in terms of direct-to-consumer. That upswing along with like-for-like, given that we are backing our retail with solid initiatives around retail excellence, that has been on a good uptake as well.
To just highlight, and I have spoken about this in the past, for us, retail is about detail. We want to make sure that we put the right product, we keep driving great brand experience through great visual merchandising and service. As you will see that is reflecting in the conversions and our like-for-like consistently. This quarter itself, while it is not a festive quarter, we have seen a like-for-like of 7.3% across our portfolio. Currently, as we speak, the festive season is showing high double-digit growth in terms of our like-for-like as well. So that is the other big things that we have seen. The third thing I do want to highlight also is that we started our journey on data analytics and AI in a big way. We said that we will first, A, we organize ourselves to be able to build initiatives around this.
We did put in a team. We resourced ourselves around it, and that has been starting to show early shoots, green shoots there. These initiatives are both around cost efficiencies across functions and also to drive certain front-end effectiveness. We do believe that some of these initiatives will show over the next couple of seasons, we will see those benefits coming in as well. Those are some of the things that we are already seeing. Closer to market is an important initiative for us. As part of our nimbleness across our supply chain, we are also driving a very strong S&OP process to make sure that we bring our overall inventory effectiveness goes up. We are able to ensure that we have an end-to-end view, and we are able to manage the inventory turns better as well.
Some of those initiatives are underway.
Understood. Would it be safe to assume that part of this initiative will be effective in this season or season? You are tangible to-
We are not able to hear what you are saying, Jaymin.
I was just saying if Hello? Hello.
Sorry, go ahead.
Yeah, good. I mean, ma'am, just wanted to understand, I mean, part of the initiatives that you highlighted, that would be visible, I mean, the tangible benefits of that initiative would be visible in upcoming spring summer season?
See, I think the benefits of our closer to market or our direct-to-consumer strategy or our strategy to ensure double down our certain categories, all of that is already starting to kind of show. This is going to be a journey, right? As we bring in new seasons, some of these things will start showing up in the market. To answer your question, yes. We should continue to see sort of the benefits coming through over the next season.
Understood. Could you walk us through the store expansion plan for the second half? Your net square foot addition for the first half appear to be slower.
As we've mentioned earlier, we do want to continue to invest and scale in our stores. Retail is important. Retail strategy is about two things. One is to drive upscaling of our and upsizing of our retail stores across our brands. Again, each brand requires a certain type of store to bring its assortment to life. I think that particular, for every brand, that's one thing that we will continue to drive. The second thing is we also want to make sure that we have stores in the right locations. As we add new fleet, as we add more stores to our fleet, we are also quite cautious around the fact that these stores are showing up in the right malls, on the right high streets, et cetera. You will see us keep adding square footage.
Like we had mentioned earlier in our guidance that we do want to make sure that we continue to open stores in the zone of about gross opening of about 150 stores. We'll continue to add about 12% - 15% net square feet addition in this fiscal year.
Understood. Okay. Thank you so much for all the answers, ma'am.
Thank you. The next question comes from the line of Aabhash Poddar from Aionios Alpha Investment Management. Please go ahead.
Yeah, hi. Thanks for the opportunity. The way you explained on Flying Machine, could you please help us understand for Arrow as well, what are the initiatives you are taking and what are the milestones that we will look for this brand? Also along with that, for the first half, if our LTL is 11.5% and 7% respectively, has Arrow also grown by similar number? That is question one. Question two, if you could just talk a bit about franchise health as well, because from what I understand, we continue to target a 12%-15% revenue growth on an overall basis. Along with that, we also target a similar square footage addition. Ideally, the revenue growth should be faster than the square footage addition, right? If you could just share some thoughts here. These are the two questions.
Sorry, are you asking that the revenue growth should be faster than the square feet addition?
Yes. Yes. If we are adding 12%-15% net square footage, if we keep on improving our revenue per square feet, ideally the revenue growth would be faster, would be my understanding. If you could just help me understand this better.
Sure. So, see, revenue growth is made of two parts, right? One is like-for-like from a current fleet, and then the additional square footage that one would add and topping up with the annualization of it. As we add more stores, and as our productivity is maintained, that will continue to add to the overall retail growth. If you were to see our total retail growth in this quarter has been about 15%, right? That is a mix of course, a 7.3% like-for-like, and rest is the inorganic growth. So, I would say that you will continue to see us scale in that zone over the years as well.
Understood. On the Arrow, if you could just-
Yeah.
talk a bit about it.
Yeah. As we started this work, and again, about three, four quarters back, we did go back to the drawing board to say that what is the consumer looking like? What is the consumer seeking from this formal wear space? We wanted to kind of figure out what is the journey with Arrow going forward, just like Flying Machine, right? In that, we defined the consumer segment and the consumer proposition of Arrow as catering to a modern professional from the lens of driving product innovation through functionality. So, for example, when I say functionality, breathable shirts or whether it is wrinkle-free. So, basically functionality-led product is one thing, and we wanted to make sure we double down on innovation in that space as well.
Craftsmanship has also been a very key anchor of Arrow, and that's another area that we are kind of building from a product range point of view. We went back and said that what is that modern professional seeking from us? And we've defined a few attributes, just like Flying Machine, to say that this is what the framework of Arrow is going to be. As we've established that, we are sort of now going deeper and saying that what does that mean from a brand positioning point of view? What does that mean from a product range point of view? And as we look at AW this season, we have actually edited the range to cater to that consumer.
Arrow is a larger brand compared to Flying Machine, and Arrow is going to be also on this journey of sort of as we go through the product range assortment to be edited out. As we bring in new innovation, you will see that coming through our retail stores over a period of time, as we sort of start implementing some of these initiatives. The second thing with Arrow is that as we did that, we also defined what our marketing strategy around Arrow will look like. Like I had mentioned earlier, unlike the U.S. Polo, for us, Arrow is a lot about speaking about the product benefits. You'll see a lot of product marketing-related campaigns coming out in Arrow, and not so much a celebrity sort of a conversation.
The third thing is we are closely looking at the Arrows, both retail piece and online, and what we have also recognized that we need to accelerate our direct-to-consumer access. And where you will also see that in this last quarter, the online performance of Arrow has been actually quite solid. Arrow continues to move in the right direction. If I were to just look at the absolute last one month, festive performance has been pretty solid. And as the wedding season, et cetera, comes up, we are expecting that Arrow will continue to show momentum.
Would it be fair to say that going forward, Arrow should, if not more, go in line with the company growth? And the initiatives, whatever you have taken, are in the revenue terms, at least it should start showing up, and eventually it should translate into the specific brand profitability. Would that be a fair statement?
Yeah. Arrow will continue, we will continue to push. There are two, I think I have kind of passed this over too. We want to make sure that we are driving sustainable, profitable growth, and hence our focus will be on enabling structural efficiency in the near term, and ensuring that we are able to scale on top of a very solid base. So things like ensuring closer to market shirts that are being brought to the market, to make sure that we are catching trends. Certain things like that will drive revenue growth, but before anything else, we want to make sure that we are able to drive structural efficiencies in the business.
Understood. Thank you. Thank you very much.
Thank you. A reminder to all the participants that you may press star and one to ask a question. The next question comes from the line of Rajiv B from Nuvama . Please go ahead.
Yeah. Good afternoon. Thanks for the opportunity. I would like to know, what is the outlook on your net debt-to-equity number or net debt-to-EBITDA number? In that context, why this manufacturing facility at our end? Because we have a sister concern who is into this manufacturing bit, probably they could have done it. I was thinking that this, our positioning is largely on the retail side. Why get into manufacturing at all and let's not block capital here?
Rajiv, the core reason for setting up the manufacturing is, at least, as we see, there are two to three reasons. We have continuously faced challenges on the geopolitical issues, and last three, four seasons, some of our imports have been delayed. Number two, the rupee keeps depreciating, and Bangladesh purchases being dollar denominated, over the last two years itself, we have lost almost 10% - 12% on that point alone. Number three, not the most important, but an important reason is MP government is strongly pushing apparel manufacturing, and they are offering huge amount of incentives. Number four, we are using this opportunity to drive closer to market and shorter production cycles for us. To your question on whether it could have been done with by our sister concern-
Girdhar, can I come in here?
Yeah, please.
This is Kulin here. It's a good question. If you look at the group itself and Arvind Limited, its apparel manufacturing is more focused on an export business. In fact, it doesn't service brands in the domestic market. For brands like AFL, companies like AFL, we have historically had smaller entrepreneurs setting up units for us as captive capacities. What we are now seeing in garment manufacturing is that there is a lot of change that is coming in the way you can do highly automated, nimble, quick turnaround, nimble supply chain design sort of activities. At the scale AFL has now reached, the ability of some of our MSME partners to do something like this has also come to a certain limit.
Whilst it doesn't mean we will move into an asset-intensive strategy on manufacturing, having a couple of strategic assets like this which allow us to go to our CTM strategy and allow us to, in a very nimble way, control and speed up our supply chain, some of those small bets will be made. It will not be very capital intensive, but in our next four-year strategy, we believe this is going to create a lot of differentiation for the company. Neither external export-oriented players nor the smaller captive players that typically we've worked with would be able to do it, and therefore, this is the first attempt at doing it. The paybacks also are expected to be quite promising.
Extension of this is, are we going to deploy more capital if there is more opportunity on the manufacturing side going forward as well?
Not in the next year. I think we would first establish our first proof of concept and looking at the success, then see whether any other category requires, because this is a very category-specific, as Girdhar was saying. Shirts is where we had an issue happening with the overall shape of the supply chain, and so this 30% in-house control will really ease our entire supply chain for this category. If we see the need in another category some other day, further down, once we have proven this, we could pick it up, but it is not going to be major capital outlay towards something like this.
Also, if you can touch upon what is the, let's say, long-term net debt to EBITDA or net debt to equity kind of number? Because around this, the current debt levels, and that time the EBITDA was lower, is when we had previous some mishaps in terms of, let's say, debt to EBITDA numbers basically ballooning. Is there a number which you are comfortable and beyond which, I mean, that's the guardrail?
No.
At least
You know, Girdhar, do you want to go ahead or should I?
No, you can take it. You can take it, please.
Yeah. No, so our net debt is, since we are going to generate free cash flow this year, as you move towards the end of the year, the net debt will be coming down vis-à-vis last year. The business's OCF, FCF generation is becoming very material. So, in fact, we will be moving towards having much lower debt in the system going forward. Our net debt to EBITDA ratio is below one, and it will be going to very low levels in the years to come. So, I think this is not a situation where net debt is going to grow in the system, looking at the FCF, OCF plans that the business has in the next three years.
Sure. Lastly, on the inventory number, if I am not wrong, your inventory is close to INR 1,828 crores right now versus INR 1,605 crores, I think, by the end of this year. So, there is a INR 200 crore jump. I see that inventory on, let us say, the Arrow piece itself has gone up by close to 50-odd crores, while the revenue is up, I think, some 1% YoY. Is it getting set up for a large end of season or let us say big discounting because your revenue is not tracking in line with the inventory number on the balance sheet?
With Arrow, one is that, as the festive season comes up, we have sort of now inventory coming in for that part of it, right? Arrow, we are continuing to now move and scale towards a balance of online versus wholesale. Some of that inventory that is coming is because of that. Also, due to a few issues, for example, with Bangladesh, et cetera, we have had delays, and in order to make sure we secure the season, some of those things have also come in. I think the way we are looking at it, we are well underway in terms of driving growth with the brand. This is a journey for the brand, so you will continue to see improvement both in revenue and in the overall performance and efficiency of the brand.
I just wanted to add that if we look at it from a sequential basis, our GWC is overall consistently flat, and we plan to keep it that way. We are driving a few initiatives, and hence, over the next 12 - 18 months, we are looking to bring their inventory turns up, and we are confident that with that, you will see a little better inventory days going forward.
Sure. Just one thing. Post the conflict and procurement which you have done post that, on the raw mat side, what is the kind of inflation you are seeing? In terms of your procurement, for like-for-like, how has that increased the cost?
I think it has been in the zone of about 5%-6%.
Sure. That is all from my side. Thanks a lot.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. We have reached the end of question and answer session. I now hand the conference over to Mr. Girdhar for closing comments.
Thank you, everybody, for joining us on the call today. If you have any more questions, please feel free to reach out to us, and we would be happy to answer them offline. Thank you. Have a good day.
Thank you. On behalf of Arvind Fashions Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.