Q2 21/22

Oct 21, 2021

Ladies and gentlemen, good day, and welcome to ShoborStops Limited Q2 FY 'twenty two Earnings Conference Call hosted by Axis Capital Limited. I must remind you that the discussion on today's earnings call may include certain forward looking statements and must be viewed, therefore, in conjunction with the risks that the company faces. Please restrict your questions to the quarter and yearly performance and to strategic questions only. Housekeeping questions can be dealt with separately with the IR team. 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 0 on your touchtone phone. Please note that this conference is being recorded. And I'll hand the conference over to Mr. Gaurav Jukani from Axis Capital. Thank you. And over to you, Mr. Chikani. Thank you, Neera. Good morning, everyone. On behalf of Access Capital, Mr. Veni Gopal Nayak, MD and CEO Mr. Karuna Karan Mohanasundaram, CFO and Mr. Jayatakash Maheshwari, VP Finance and Accounts. I would now like to hand over the call to the management for their opening remarks, post which we can start the Q and A session. Thank you and over to you sir. Thank you, Gaurav, and good morning friends. Thanks for joining us today to discuss the Shopify financial results for the Q2 of the fiscal year 2022 that ended on the 30th September. We have shared our Q2 results, the investor deck and the press release with you, And I hope you've had a chance to browse through the thing. Today, I'll talk to you about the Q2 performance and as always, give you an update on the progress on our strategic pillars and the way forward. To start off, in the Q2, we saw a strong rebound from the 2nd wave of COVID-nineteen, and the consumer confidence has rebounded sharply. Our GAAP sales was INR709 crores, a growth of 117% over Q2 FY 2021 with margins growing by 4.90 basis points and EBITDA by 3 86%. The reopening of stores and the recovery from the closures in Quarter 1 was varied through different states, and there was growth in sales in each of the 3 months of the quarter on a sequential basis. We've had a strong start to the festive season, and Currently, we are nearly at the same levels of sales as pre COVID. This suggests that we are likely to have a strong comeback over Diwali and Christmas. Apart from the strong sales in stores, our sales through our digital channels continue to perform strongly and grew by 103% over FY 'twenty one, same quarter. I would also like to call out at the total level as a business, Now we have had 6 consecutive quarters where our average bill value has been increasing. This is a clear indication of a higher level of engagement with our customers and that they are spending more with us every time they visit us in our stores or online. On the operational costs, We continue to save versus FY 'twenty. In the Q2, we paid INR 62 crores. The savings have been on lease rentals, employee costs and admin and operating expenses. We manage our inventory efficiently, Adopting the lessons learned from last year when the first year hit. Our inventory has reduced by INR 82 crores compared to the same period last year. Again, this needs to be taken in the context that this is with sales being at a much higher level than last year. With strong sales and tight control on costs, we reported an EBITDA of INR 138 crores as per GAAP Financials and INR 1 crore as per the non GAAP reporting. During the quarter, we invested INR 20 crores on OpEx in building our e commerce and digital technology as we continue to transform ourselves into an omnichannel retailer. Apart from that, we also invested INR35 crores across CapEx and OpEx in opening new stores and refurbishing our existing stores. In our store renovations, we have been focusing on improving productivity of the stores. And a good example of this is our store in Inovitch, Hyderabad. In this store, we reduced the store area by 35%, And yet the sales have reached the same levels as pre COVID, improving the profitability of the store significantly. We are also happy to state that during the quarter, we completed the sale of CrossWorld for INR 41.6 crores. So that's an overview in terms of our overall performance. If I now move on to strategic pillars, and I will talk to you about each of them in turn. We continue to make good progress in each of our strategic pillars, and we are very happy with the way we are progressing on it. Our first strategic pillar of First Citizen, our loyalty program, and this continues to grow strongly with 75% of our sales coming from them. We are growing our 1st Citizen Black for customer enrollment, which is an annual subscription program wherein our customer pays INR 4,500 for an annual membership to be a part of this program. This customer visits us 3 times more frequently than our average First Citizen customer, which leads to much higher annual spends. We migrated the 4th citizen loyalty program to a new campaign management platform called Gravity last year. And In the second phase of this, this is now being linked with our data warehouse. This will give us the ability to engage with our customers in an even more targeted manner, improving our conversion and growing our overall sales through better engagement. On our second strategic pillar of omni specifically, and I'll come to omni channel in greater detail later, but just on First Citizen, Our sales on omni from our 1st citizen customers grew from 21% to 40%. As mentioned before, We are engaging with our 1st dividend customers very closely. 33% of the customers who have shopped online have also shopped in store, and they spent 6 times more than the average online customer. It just shows how much more engaged of First Citizen customers are when they are shopping boatjack and hence, our endeavor to continue to increase Share of First Citizen customers spending online even as we continue to attract new customers. Our unique service to our customers, personal shoppers, continues to be a strong offering for our customers a differentiated offering that we give. Personal shoppers and sales growth through the personal shoppers has been consistent and contributed to 14% of our sales with an average ticket size of 2.8x higher than our normal. We also do styling vegetables through our personal shoppers, both online and offline. Our other search services as White Glove continues to contribute to our sales. All of this helping to make the 1st citizen customer, our loyal customer feel special in our stores. Moving on to our 2nd strategic pillar of Private Brands. Our strategy of growing our Private Brands in apparel and beauty is working well. Private brands contributed to 14% of our total business, which is the 18% in our online business. Bulk of our private brands are on apparel, and skin apparel private brands contributed to 19.4% of the total sales of apparel. The 9 brands that we have in apparel continue to grow faster than the company. We have invested in getting the price right for these power brands, and this has led to a volume growth of 59%. In the last call, I had mentioned to you about the launch of Inference, our sleepwear brand. And this, I'm happy to report, has now jumped to being one of the top brands in our women's westernwear. In women's Indianwear, our private brand sales now contributes to nearly half of the total sales of this category. In men's, we launched Bandeia. Again, this was something which I had shared with you at the last call. Andeya is a range of men's ethnicwear, and this is now the biggest ethnicwear brand performance in our department stores. And finally, in Kid Square, our private brand sales have been way ahead of all of the other categories, growing by 162%. So to summarize, Across all of our panel, our private brands continue to grow well, and we are pleased with the progress we are making. Moving on to a 3rd pillar of beauty. And in beauty, we continue to build on our leadership in the offline space, and we are increasing the number of brands that we retail. In parallel, we are adding a lot more brands, which would be available only online There's a great opportunity to have Shoppers Talk as a strong omni channel player. We have added 19 brands in the 2nd quarter and we'll be adding another 41 in the Q3. We also continue to build our private brand, Arcelia in beauty. Just last week, we have launched 10 new perfumes across men's and women's, and we've been launching 20 Different varieties of deodorants in the next 4 weeks. We've launched accessories, sheet masks, and some of these are priced extremely attractively. Further, we will be launching over 200 variants of lipsticks and nails nail polishes in the Q4 of this financial year as we continue to grow ArcelorMittalYa as our private brand. With makeovers now being allowed in stores, we are seeing higher customer footfalls for beauty, and they are spending more time in the store. Makeup categories grew by 133% over the same period last year. We will be launching 3 new Beauty by Shoppers Stop stores in the next 12 weeks. These are stand alone beauty stores, and they will be destination for beauty specifically. And our plan is to open 10 to 15 of these stand alone beauty stores over the next 12 months. Finally moving to the 4th strategic pillar of omnichannel. And here, we continue to transform ourselves into an omnichannel retailer with shopperstop.com firmly established as a shopping destination for our customers. I must emphasize every single store of Shoppers Stop and all of our stand alone beauty stores are now linked with shopperslop.com on a real time basis, giving customers the choice outline every product that we have in our stores, and it's available to our customers on shoppersoft.com at all times. Apart from that, we also have additional brands which are available only on shopistop.com, expanding the range that is available for our customers even more. As a result of all of this, our digital sales was up 103% on FY 'twenty one and contributed to 8% of our total sales. We have strong unit economics on shopperstop.com as also through Amazon and on the S. P. Lawler online sales that we do. As mentioned before, this is an area we are continuing to invest, and we are investing to improve the customer experience on our app, on martech, on analytics and on insights, which will lead to higher conversion and sales. The first phase of this will be implemented in December of this year and the 2nd phase in March 'twenty two. In order to further strengthen our omni channel play, I am pleased to share that we have now 2 Board members joining us from pure marketplace and omni channel background with good domestic and global exposure. Christine Casaus comes from John Lewis in the UK, having extensive retail experience and a proven track record of identifying future consumer trends and delivering market leading propositions across multiple product categories, including home, fashion, beauty, nursery and sports. I'm also pleased to welcome Arun Surajmukh, on to our call. Arun has been associated with the fashion business in India for over 25 years and has been some of India's largest and strongest fashion brands and retail businesses such as Reliance Trends, Amazon Fashion, to name a few. Arun is presently leading the largest electronic vehicle 2 wheeler business as SPP and Global Business Head, Ola Electric and also as CEO, Ola Cars in India. Moving on to expansion. We have opened 2 beauty stores of Estee Lauder in the 2nd quarter, And we also renovated 5 of our department stores. Our expansion program is back on track, and we plan to open 6 department stores and 3 beauty stores in the 3rd quarter. 2 of the department stores are fully ready and will be open as soon as the mall starts trading over the next few weeks. For the next 2 years, our target is to open 10 to 12 department stores and 20 beauty stand alone stores every year. Last but not the least, we have most of our team in place now. We have a very strong management team with extensive international and domestic experience with clear domain expertise in each of those areas. Having a clear plan, strong focus on our strategic pillars and a great management teams puts us in a good place to take our business forward strongly. In summary, we've had a very strong and encouraging quarter. We are trending strongly into the festive period. Our strategy is working well, and The team that we have in place is well placed to deliver on our plans, capitalizing on the high loyalty and great trust our customers' place on the Shoppers Stop brand. Thanks for listening, and we'll open to questions now. Thank you very much. We will now begin the question and answer question. Nirav, We already received probably 7 or 8 questions. What we thought, Vinu and I will read the question and answer it And probably that will avoid a similar question from the analyst. So we will do that. And then probably we'll open with the questions. I mean we should not take more than finance to answer all these questions. Sure, sir. Okay. So I'll quickly go through them. The first one was We are at 75% of Q2 FY 'twenty sales despite 87 operational wins. Do we expect to cross 100 percent of Q3 FY 'twenty in Q3 FY 'twenty one? What do we expect to end FY 'twenty two as a percentage of FY 'twenty sales. So on the first part, in terms of 87% of the No, no, no, stores being opened for 87% of the operational base. It is true that they were open, but as you all know, in the month of July, COVID was still a fear and the number of hours that stores were operational were quite perfect. Add to that, in a number of cities, The stores are not open during the weekends, which do tend to be a significant part of our sales. So hence, that 87% Operational base is not directly comparable to the sales recovery of 75%. On the second part, We are trending well. And as I mentioned, currently, our sales are close to FY 2020 number for the festive period, which gives us an indication of where we are progressing. 2nd question, please can you provide on the cost savings? Are they largely from rentals or other areas? Savings, Again, I think I mentioned this in my initial talk. Savings are from across various expense sets, including employment, operation costs, electricity and service office costs. 3rd question, we have made investments in technology to help our digital presence. Are we happy with our current digital presence? Do we plan to spend more to ramp up our presence? We are progressing well, and we are continuing to invest to improve the experience that customers have on our app, on MarTech, on analytics, on insights. And we believe all of this will help us to serve our customer better, engage with them at a more personal level, which should lead to higher conversion and sales. Are we happy with Where we are? We are happy with the progress we are making, but we believe we will continue to improve and we'll continue to get better in this area. I'll move on to the next question, which is, are we now comfortable with the inventory and net debt levels? Any further reduction optimization in the second half? Yes, net debt has reduced sequentially from INR 96 crores in the Q2 of FY 'twenty one to INR 96 crores in the Q1 of FY 'twenty two to INR 62 crores in the Q2 of FY 'twenty two, and we expect to be debt free by the end of Q3. Next one, next question. Do we see any cause of concern as Reliance Retail has acquired stake in Manish Malhotra and Rupu Kumbha, Just as ABFRL has done with Pabdis Archie and Sofia Baul. I wouldn't I'll talk about competition or what their strategy is. But what I can say is that if you look at the overall size of the market in India, Only 29% of the total retail sales comes from the organized sector and the rest is in the unorganized sector. And over the years, this has been expanding. We continue to or we expect to Continue to see this market or organized market grow and expand. And I think there are years and years of growth Yes, to come in. And hence, there's enough place for a lot of players to be in there. What's important is your ability for us to engage with our customers, to recharge with our customers and delight them every time they engage with us. And that's what we are aiming to do. That's what we are doing. The next question is a similar vein, a lot of players are getting aggressive on the beauty and personal care category, how we plan to maintain customer share of wallet and stay relevant. What I mentioned about the market in a few minutes back continues holds for this category as well. The one thing which is different and plays in our favor, usually in the beauty and personal care space, is The experience that customer gets when they walk into the store. When it comes to beauty, makeovers and the ability to actually have services that they can use in the store is extremely vital. And this is something which we have been doing and we have Almost made it into a fine art over the last 15 years that we have been doing this. Our customer service associates in store are Extremely well paid, are highly trained and they offer a very unique experience to our customers, which gives us a unique point of difference. We also have strong brand partnerships, which have been there for many years now. And using that brand partnerships, working with our brand partners, we are able to offer curated ranges, which is a major play in the premium category that we work in. We also have our loyalty program, which gives us a single view of our customer, which again is a point of difference that we have and which has been built over the last 15 years. Also the ability for our customers to crop shop across beauty and personal care when they walk into our stores When they are buying accessories, watches, sunglasses, apparel, our brands, so on and so forth. And finally, The private brand that we are growing in the beauty space again gives us an edge. And all of this, I believe, puts us in an extremely Unique and strong position in the market. Moving on to the next point, which is on performance of private label and the steps to increase the sales. Parib brand continues to grow, as I mentioned in my earlier comments. We are focusing on our 9 power plants. And the way we are focusing on this is by firstly getting the product right. We strongly believe that product is at the heart of everything that we do. And getting the product right, offering fantastic quality, latest trends at absolutely stunning prices is the most important thing, and that's what we have been working on, getting that product right, getting the price right. Further to that, having sharp Demarcation of the brands, making sure that each brand is placed to its CORE offers a clear end use. Each brand is for a specific lifestyle and having clear focus on that makes that brand come alive. And finally, to grow our private brand, apart from The existing power plants, we continue to look at white spaces, and we will grow in that. The latest of that was Inference and Fleetwear, which we did, Bandeya for ethnic wear and also Infuse, which is our Direct to customer online only brand, which we have just gotten. So that's the way we want to continue to progress on private brand, focusing on product, price, brand and voice prices. The last one that we have The question begins to us was the progress on omni channel initiatives. I think I have covered that already, so I won't go into that again. Suffice to say that we made good progress on omni channel. We are Continuing to grow the number of customers who are buying from us online. They are also Talking there also our 4th citizen customers are engaging with us more online. And Our investments into the UI UX or the customer experience on the app, on also on the Martech, personalization, insights, all of this will help us to grow our business And we are truly omni channel retailer, which is the transformation that we had embarked on a few quarters back, and we are continuing to grow well. As I said, we are probably one of the very few retailers who have every single store of us across department stores and the standalone beauty stores. Every store is linked on a real time basis to our shoposhop.com. Those are the questions that came to us. So we thought that we will answer that. Doro, over to you and we are happy to answer the questions from any other analysts or individual investors. Thank you very much. We'll now begin the question and answer Ladies and gentlemen, we'll wait for a moment while the question The first question is from the line of Parthi Bandhuti from IFL Securities. Please go ahead. Hi, sir. Congrats on a good set of numbers. My question is on the margins. So despite a fairly good recovery, we are just about breakeven EBITDA on our India Adjusted result. And this also, I think, includes INR28 crores of rental waiver. Am I right? Yes. Okay. So my question is that if I do a simple kind of math, where let's say I Assume that the sales, instead of being 25% down versus 2 years ago, supposing if it was sort of 0% versus 2 years ago. And on that incremental sale, I take, let's say, 40% gross margin and assume that Gross profit flows through directly to the EBITDA line. And then I add back this INR28 crores of rental, which will go away once things normalize. I get adjusted EBITDA margin of about 4.4%. So isn't that Fairly low margin. Wouldn't we have aspirations of doing higher? And if so, what will drive it from this 4.5 percent level to a higher level? Preeti, thanks for a question to speak. Karuna here. See, there are a number of assumptions what we have made. I'm not validating that. But see, Q2 is one of the lowest quarter for us. So normally, our average margin of 6% to 7% is for the full year, considering the significantly higher margin for Q3. That's 1. 2nd, the lease rental reduction, what we're talking about, also includes some of the Gentle savings due to permanent closure of stores, which we are last making in the previous year, but also includes that. 3rd, As has been see, Ben, while I agree, the operating margins are 30 percentage. Please do understand that for this quarter, because of some liquidation of the private brands, our margins are not as Probably as it ought to be. So there are a number of other factors we have to consider for a particular quarter. It's not As probably as you are expecting, so if all goes well and if we are to be At the same level of, say, last year because it is, our EBITDA margin should be definitely higher than FY 'twenty. Okay. So what would you be internally targeting for margins for FY 'twenty three assuming no third wave or anything? Paseem, normally, we don't give any future guidance. You are aware of that. But we are targeting a Very aggressive increase compared to FY 'twenty for FY 'twenty three. Right. And this quarter, apart from the rental waiver, In the cost below the gross margin, are there any savings which are temporary in maintenance for this quarter? No, but in fact, for the last six quarters, we have been saying that our savings On a like like basis, we should be able to save INR 200 crores per annum. This quarter, specifically, we saved INR 62 crores, I agree. 30% to 35% probably 30% to 35% is from these returns. The other expenses what we think are permanent nature. And I also want to reiterate, Pathy, we have invested in Vomdi quite a significant amount, which we spoke during his speech. So, Anil, I didn't get you. Yes, I didn't get what you were saying. You invested in what? We invested in omni channel, plus we also invested in stores repositioning. So we have invested in those two items. So That would come in the balance sheet, sir, or in the P and L? No. E com investments are all in P and L, Kashi. And they are not recurring investments, so to say? Probably for this year, we will be investing it. Next year, it will be significantly Understood. Understood. Understood. And how much would be that e commerce investments hitting the EBITDA this quarter? Between INR10 to INR15 crores totally, and the loan refurbishing would be Another 5 to 6 groups. Okay. Understood. And what I meant by savings which are temporary in nature is what I meant is, let's say, right now, The travel would not have sort of returned completely to a normal. So supposing COVID goes away completely, Wouldn't the travel cost naturally go up? And when your sort of sales goes up, wouldn't your advertisement cost Also go up as a percentage of sales, it will go up in absolute terms. So I'm just wondering whether these items Should be increased so as to not overstate the operating leverage when I'm doing your model. Okay. Let me conclude that, Percy. Our travel expenses are very, very small. I mean, that doesn't constitute Probably ATV 0.2 percent or 0.25 percent, not more than that. And if you see our marketing expenses As a percentage to revenue, this quarter is higher than the FY 'twenty quarter. We are already investing in the marketing. Okay. Okay. Very clear. Secondly, this digital assets sales that you have 8%, that is across all types 3 comments, what I wanted to understand is out of this 8%, how much is from your own assets that is your own website? You mean Amazon and Yes, excluding the aggregator websites or the platforms. And if you look at only your own assets, how much would be the And if you look at only your own assets, how much would be the contribution of that to the total sales? I'll take that firstly. I think overall, close to 75% of the sales in the last quarter came from our own app, And the balance would be from Amazon and SGL order. Okay, okay. Understood. And last question, if I might. What would be the contribution of the beauty segment That is not inside your shopper's top, but the other stores that you have here, SP Loder or MAC or ACV or whatever. What is the contribution of those beauty stores to the top line and the EBITDA in a normal year? Prathy, these are all been sensitive data. We don't like to shut at all. I can see they are reasonably healthy, And our mix has been quite better, Prathy. So we said on a very, very sensitive data and we cannot share enough a big forum metrics. I'm sorry about that. Yes, sure. No problem. But would you say that Sorry, Tim. I'll come back in the question queue for a follow-up. Yes, no problem. My questions are done anyway. Thank you. The next question is from the line of Shalini Gupta from Ashikhar Securities. Please go ahead. Yes. Good morning, sir. I have one two questions actually. So as per in AS, basically what we saw is that depreciation and Interest expenses are going up and we will say that they're going to be higher in the initial year and they will reduce as time goes by. So, sir, my question is when do we start seeing the reduction? Shalini, we have discussed in the past. See, our depreciation and interest includes Normal depreciation as well as the lease interest, which asset in the assets includes both depreciation and interest. Answering your question specifically, if I include if I see even the GAAP accounts, last year, we had depreciation and Finance cost of close to INR 110 crores that has already come to INR 85 crores, okay. So that reduction of INR 85 crores has already happened. And if you see only the non GAAP depreciation, which is the actual disposition that was also compound by INR 7 crores or INR 8 crores This is last year. So overall, the depreciation is coming down slightly. Okay. Sir, my second question is that Sir, I think because this month, September 'twenty one, we saw under the government due to some COVID concerns because of which you were able to take the savings on rental as in the other income line. So, Phil, when do you expect this to continue? Shalini, please listen both our GAAP and non GAAP accounts. In the GAAP accounts, we have considered as another income, whereas in the non GAAP accounts, we have reduced the lease rental from the lease rental expense. So in the first two quarters, watermark reduction has come in. It has come in and reflected both in GAAP and non GAAP accounts. We are negotiating with our land loss for the possible reduction in Q3, but it looks A bit difficult because all the stores are opening and the sales are also good. So way forward, our view is the rental reductions may not be We will get back to what was Q1 and Q2. Okay. And so my last question, regarding the incentives, looking So look at the presentation and compare the GAAP and non GAAP financials with the EBITDA line, if you see there's a gap of something like INR137 And there's a gap of about INR 20 on the revenue front. So would I be correct in the June that The rental for quarter was something like 100 of service now? Slightly lower to that. We are almost Spot on. The recent release will be anywhere between INR 90 to INR 95 crores for Q2, Shalini, and weight power, it will be slightly higher than INR 100 crores. Okay. And yes, and Sachin was talking about savings of INR 28 crores and rentals. So basically, does that does those savings already in the profit and loss account? Yes, you are right. It's already there, Q1 and Q3. You are right, Shali. Okay. Thank you, sir. Thanks. Thank you. The next question is from the line of Ankit Kerria from Philip Capital. Please go ahead. Sir, my question is regarding the revenue recovery. When you say in Q3, we could be close to Q3 FY 'twenty numbers, but if you look from the number of stores or the square feet, we would be significantly lower or sitting up there because we have closed the bigger square feet stores. So is it fair to assume that once Maharashtra comes to normal, Given that now in the malls, you need double vaccination now only allowed and recovery is full swing. So the like for like underlying growth could be significantly higher than the So Ankit, your point is very valid that we have closed some of our nonprofitable stores and hence the numbers that we would be looking at is not a true comparison On a total basis. However, the guidance that I was giving you or the numbers that we did say, we were talking on a like for like basis. Understood. And sir, can you share the recovery outside Maharashtra? Because Maharashtra would be still double digit contribution, And there are still restrictions which are getting listed in Maharashtra now. So the underlying growth ex Maharashtra, if you can share some indication of that? It varies by region quite significantly, Ankit. So to that extent, I mean, other than giving you non Maharashtra, it still doesn't give a true picture. What I can say is that Each of the regions are performing strongly, the teams leading their way at over 100%. Sure. So my next question is regarding the beauty. In your opening statement, you mentioned we'll be opening beauty stores by Shoppers' Club. Today, we have Arcilia, we have Estellada Group, Shop in Shop and EDOs. With this coming in, what would be the format of this new store if it is not Arcadia? And what kind of brands would we have in this talk? So thank you for that question, and I will elaborate on it. So these would be 2,000 to 2,500 square feet stores, standalone beauty stores. Beauty by Shoppers' Stops, please remain. That's the working name that we have given to it. And we expect to have 3 of them opened by December this year. The mix of brands here would vary, of course, depending on the cash flow and the mall or the city that it is opening in. And based on that, it could I mean, effectively, it will be The premium when coming to the top end of Maxspecthe, that's the market that we would play in and working with the brand partners that we have and probably some new ones with whom also we are talking to. So our Existing strong our brand partners, the strong ones that we have will definitely be a part of it and a few new ones that we will continue to Bring in, as I mentioned in my remarks. We I mean, we have as I said, we have taken a plan to hire 16 new brands over a 3 month period, and we are well on track on that. We've launched 19 of them. We're launching 1 of our 40 brands. And all of them All of this to make sure that we are bringing in more and more brands for our customers to fuel stock and equally bringing in Strong brands that work with us. These independent beauty stores are an important part of our omni journey because what it does do is the gives us the opportunity to go into a lot more markets. It gives us the opportunity to bring the best of our customer service and the styling that we are our associates are able to offer and reach a far higher number of customers through these independent beauty stores. It gives us the Makes to move much faster than the beauty space and expand and continue the need that we have in physical stores on beauty. I'll request to come back in the question queue for a follow-up question. B. Balaji:] Agit, if you have any questions later with the GPR, I will take that question. Thanks a lot. I'm not sure, sir. Sure, sir. Thank you. The next question is from the line of Nihar Jamm from EDUFA Financial Service. Please go ahead. Yes. Thank you so much and good morning, sir. So a couple of clarifications from my side. First, When you say that the festive period is already at recovering 100%, I'm guessing we are comparing it to the festive few years back. I mean that is Sorry, sorry. Your voice is not clear, Niyal. Hi. Can you Are you asking are we comparing the festive period pre COVID? You said something like that. Yes. Am I audible now? I'm so sorry about Yes, we are comparing the festive period, the pre COVID. And when you said it's underperformance, it was pre COVID, the festive period, Nik. That is helpful. The second part I just wanted to clarify is I think you mentioned that the share of private labels would be online sales was around 18%. Now would it be right to assume that all the sales of private labels or majority of them would be driven via our own app or website? It would be through our own app and also through Amazon, Which is the only marketplace that we have presented. Okay. And just one last bit, if I may, on the cost part of it. Now as I noticed, you mentioned about the example of the Hyderabad store where you optimize the store size. Is that really the main way in which the savings both on the employee and also on the OpEx side, as you mentioned, ex the rental part is coming in, that the optimization of the square feet is mainly the one that is driving this kind of saving? Or is there any other initiatives specifically on the other expense side that you want to highlight for better clarity? Thanks, Meenal. That's a very good question. Let me clarify. We have 5 line items. 1 is the employee cost, Leaf center, electricity, advertisement and marketing and operating other operating expenses, which includes both stores and service areas where we are. Yes. Akermes and Leasing and marketing, which is all the other savings are permanent. That has nothing to do with B. Balaji:] A reduction of speed, yes. Some savings will be there, but we largely optimize the cost when we did the exercise in FY 'twenty. Our marketing cost, largely we follow the curve and we're also investing in omni channel, okay? Our lease rentals, I just clarified. There are one time reductions, but there are also reductions due to the closure of stores. Understood. Just on the other three items, any kind of examples about how these are being achieved? Just for better clarity, if in case you want to share anything around Of course, yes. See, in case of, say, store employees, we have optimized the staff. In case of, say, the space in the established office, we have surrendered some of the spaces. And like what Vinu said, I mean, one of the other reason is We closed some of the loss making stores. So these are the some of the permanent savings I'm talking about, Nika. Some of the examples. I mean, there are quite a few. Understood. I will take that also. Thank you so much. I wish you all the best. Thank you. Thank you. The next question is from the line of Kaustubhavaskar from Sherkhand by BNP Paribas. Please go ahead. So my question is on the average ticket size, which you mentioned in your initial comments that these are the You have seen a 6 consecutive quarter of improvement in the average ticket size. So what is the current average ticket size, if you can Give us the number and what it was during the pre COVID level. And my second question to related to this is, This improvement in the average ticket size is because of the increase in the number of items in The per person ticket or is it because of the improvement in the mix? So the average ticket size currently is circa 4,000. It's just under 4,000 rupees. And the increase is because I mean, it's again a combination of 2 factors. The significant one is that the fact that our customers are buying more items in every basket, And that has gone up and has been consistently going up. There is also an increase in the average selling price in some cases. So combination of the 2. Okay, sir. Fair enough. And so my one question I have about the customer engagement you were speaking about maybe for your citizen customers or customers who are already tied up to add. So can you just throw some more like that? How is this helping you to generate higher conversions? I think there are a number of different things that we do on that, and probably It would not be the right forum to go into our law clinic to each and every one of them. But if I were to give you Some simple ways of engaging better what we do and The fact that we have the ability to see what our customers are buying from us, both online and off line and also comparing that To what customers have a similar persona? So we have our 1st citizen customer base is split into customer personas. And Based on the customer personas, we then create specific targeting that we do. We at a broad level, we have 8 personas that we work with, but then we go further and segment them into almost 40 different segments. And each of these segments then Is based on what else customers like that do. We are able to Offer them, contact or reach out to them whether it is through a basket of brands or through price all through a volume based engagement, a number of things that we could do on that, which we keep doing constantly, specifically with our Black Card customers. So first, it is in Black Card, which is our annual subscription program. And for our Black Card customers, we have a very this is the And for these First Citizen Black customers, what we do a very high level of engagement. So for example, the Store manager is the personal shopper for this customer. For this customer, we do a monthly engagement activity, which are exclusive events open only to the First Citizens Black customers. They have an accelerated points earning capability. And we are able to also have a first in the queue or jump a queue in our stores while they are shopping with us. We also have special offers for them on a monthly basis. And what we ensure is that The value that they get out of this membership far outweighs the annual subscription that they pay. The most important thing is that it is a customer who is engaged with us, who comes back to us and Shops, 3 times more than our average customer, our average first citizen customer. Our average first citizen customer itself It's coming back more than non first citizen customers and the first citizen black customer comes 3 times more. And that's just an example. And the three times is during the COVID period. Pre COVID, it was even higher. So just one example of how we engage with our customers. The next question is from the line of Tejas Shah from Spark Capital Advisors. Please go ahead. Hi. Thanks for the opportunity. Sir, you spoke about Beauty Space and Beauty Space is relatively under understood or underappreciated from our perspective. So Just wanted to understand what is the size of opportunity that we are targeting here and then which all categories are clearly relevant to be part of this bucket On the borderline of Personal Care, counted as beauty, that's first. And second, if you can comment on competitive landscape because in last 6 months alone, we have seen now Tata Beauty and then even Reliance is also launching a dedicated line there. Somebody like Myntra is also having a dedicated plan on Beauty in Okay. So if you can comment on company landscape as well. Thanks. So let me first Start with the market and then get down to specifics. So the total market size of Beauty and Personal Care is estimated to be INR 1,73,000 crores, of which online is 13%. So the rest of it is offline INR 1,73,000 crores. Specialty retail, the market that we play in, is around INR 12,000 crores with online share being around 20%, 80% being offline. Our positioning is in the premium and marketing space, as I mentioned earlier. The categories that we work on or the categories that we focus on is skincare, Makeup, cosmetics, fragrances and accessories. So those are the ones that we are in. And the ones that are growing is clean and natural and men's grooming. Specifically, these are the 2 new categories that have come in, and these are the ones we are also getting into. Specifically, our private brand, Arcadia, I already mentioned about. And through our private brand of Arcadia, we will be growing and Completing the entire office. So we launched Bath and Body in 2 quarters 3 quarters back actually. And obviously within our stores, Bath and Body, Harsilia is now the 3rd largest brand. We're launching fragrances, perfumes were launched last week, launching deodorants in the next 4 weeks. We also launched a whole range of accessories, A number of them being absolutely unique to us and not very players offering something like that. We are also Then into Q4, we will be launching eyes, maids and completing the entire offer on make up over the next three quarters. So that's an ArcelorMittal and how we are dealing with that. We are also Our existing product discovery for our customers through and that again feels repeat purchases. And that's something which This is an advantage compared to a number of the other players because of the strong history and experience that we have in the beauty space. Yes. And sir, any comments on competitive landscape? I mean, I can't I'm not an expert on competition. I wouldn't be able to add any more than what you already know on competition. What I can answer and what I can tell you about my business. Sure. And sir, last bit on private KPI. May I request you to come back in the queue, please? Sure. Thanks. Gauru, we can see number of participants in the queue. And we extend the call by another Rafiq, if you don't mind. Yes, sure sir. Thank you. When I look at your online journey, right, and journey for customers, the reviews on Play Store or as in general or even on Twitter or social media are not that encouraging. How should we think about this journey? I know it's a journey, but How do we see these small issues where the experience is not similar to marketplace apps in terms of buying, selling, refund, etcetera? When do we expect the streamlining of this? That's question number 1. 2nd is, you talked about refurbishing growth and the moment you refurbish the sales are same as What they were pre this refurbishment, right? What is your refurbishment target? So if at all do you have in mind because clearly that includes the payback period? And lastly, you made a comment on doubling your sales over 5 years. I just wanted to know when does those 5 years Is it FY 2021 or FY 2020? Yes. Okay. So let me take few questions one at a time. The first one, I would actually contradict what you said. Our ratings on both The Play Store as well as on the iOS app has consistently been And this is something we track on a fortnightly basis, and we have seen consistent improvement. On iOS, we always used to be Hi, but on the Play Store, we used to be low. And if I broadly if I remember right, about a year back, our Ratings were around 2.7, which has now jumped through almost 4.4 and is comparable with some of the others. Having said that, we are also conscious and appreciate that this is a journey and the experience on our app needs to improve, This is why it's significant investments, which we talked about for top line growth that we incurred in Q2, and We'll continue to incur over the next two quarters to improve that. And the investment going into improving the biggest investment and the biggest shift, we would see even the UI UX, first of which comes through in December, and we'll make the part the second phase in March. Also on Mark MarTech on the customer insights on analytics, all of which will help us to get a far better understanding of our customers, which will help us to improve the conversion and grow our sales. And this is something which we have done. The first phase was to get a All data warehouse where we've got all of our customer data, product data and the store data all assembled together under in the 1 data warehouse that we have. That data we have now been completed, and we are building on that on the analytics inside. So one side is the back end, the other side is the front end and the customer experience through the app. So that's something which we'll continue to do. The second question was on store refurbishment. And store refurbishment is a, I would say, business as usual in some ways. The difference is that we are Being far more efficient is the main way we do it. And the fact that in hydrobars, which I gave you as an example, we reduced Almost 30% of this space. Now that's not something which we would do in every store. Was one particular example where we did that and the productivity went up. But even where we don't reduce the sales, what we do find is that when we refurbish the store, It is the same with the like for like numbers do grow and that's something which we continue to do. We renovated 5 stores in the first half And we plan to renovate another 4 stores in the second half. What we are also doing is to being to doing the renovation in a far more efficient manner. So one of the other stores that we just did in Bangalore, it is a circa 30,000 to 45,000 square feet store in Garuda Mok. And we did the entire refurbishment in 15 days, which again means that the downtime is much lower. And this is something which we want to Continue doing, and our teams have done a fabulous job in the project team in terms of being able to do that. So that's the second part. And obviously, as we do that, We are able to, a, grow the top line and hence and also be efficient in terms of the investment that we make Okay, Dhruv. Your third question was on just remind me what was your first question. Aspiration to double your sales. B. Balaji:] By FY 'twenty five or 'twenty six? So by FY now let's see, it's 4 to 5 years. And what we had taken in Is that by in the next 4 to 5 years, we will get there. That's what we will put in there. So from FY 'twenty one end or FY 'twenty two end, that's what I just my small question was. When should I consider 4 to 5 years from? Which year do you start? What is t0 for you? See, when we had put this taken this target for ourselves, it was based on the FY 2020 numbers. Now it could have it has got delayed by a year and slightly more because of COVID, and that's the way I would look at it. The The next question is from the line of Deepak Poddar from Sephaya Capital Partners. Please go ahead. Yes. Thank you very much, sir, for the opportunity. So just a clarification, you said in the last participant question that it's based on FY 'twenty as the base? That's right. Yes. You're thinking of doubling the tariffs, right? Yes. Yes, that's right. Okay. Okay. FY 'twenty one was COVID impacted. And what's the margin level we are looking at? Like when we are looking at doubling the sales at that kind of level because the operating leverage advantage is also clear. Because that's a too long a period because we prefer not to give a guidance. So I think Vinu already said that we should be even close to high single digits or low double digit EBITDA margins at that time. That's the overall guidance we prefer to give it. But I'm sure you understand, 5 years is a long period. Yes. Understood. And my last question is on your other income. Now, so we have seen a lot of volatility in that and maybe It might be because of the rental waiver. So just wanted to understand what kind of sustainable level we are looking at once things normalize In other words You are absolutely spot on. I think you are referring to other income in GAAP income statement. Am I right? Right. So it's primarily the lease rental reduction. If you see AS-one hundred and sixteen and Red Brick Institute of Credit Accountants of India's latest guideline last year due to COVID restriction. What they have suggested is any recent reduction, we should take it as another income, And that's the reason we have taken as another income. Otherwise, our other income would be very, very nominal amount, Deepak. Like 7, 8, 10 crores quarter rates. Right. Anywherebykis, yes. And what we also expect is the space on hire and other card income should go up once the business normalizes. So that income should start coming in. And the rental income reduction, which is largely what is included in Q2, will go away. From Q3 onwards, right? That's what you mentioned because the waiver will go away from Q3. You are right. By and large, it will not be there. But still we do we should be giving you a small part of data for Q3 also. I understand. Fair enough. That's all from my side all the way back. Thank you. Thank you, Deepak. Thanks a lot. Thank you. The next question is Apologies. The next question is from the line of Hali Hazgarashatir from Motilah Oswald. Please go ahead. Yes. Thanks for the opportunity. My question is on this growth from the smaller size stores. Now I see we have mentioned that the 20 stores we are looking to add until FY 'twenty three are kind of around 30,000 square feet store against an average above 50,000 store. It's something that we have spoken before as well that basically the smaller store will drive higher productivity. So just wanted to understand what is the experience we have seen in some of the stores we may have added under a smaller size. When are we adding this? Are we going deep into the existing cities? Or is the smaller store setup allowing us to go much wider in our PACE in terms of covering more cities. Yes, and just if you could give a little flavor about how the economics are. Is it Is a smaller store helping you drive better economics? And just coming from the point of view that we were seeing footwalls in the existing stores kind of Clattering or declining. So is a smaller store giving you a little better economics when you go into smaller cities as well? Thank you so much. Thank you, Ali. So in terms of the smaller footprint, and it's smaller relative to where we work, but there are still 30,000 suite stores that we opened, which is one of the larger formats within the country. Where we have gone with these is twofold. 1, in some of the existing city I mean, stores or Cities where we already have a large number of stores and when we go into some of the more secondary catchments within that city, it helps us to add to our portfolio reach to customers better but in a more efficient way. Secondly, and where The smaller stores are used more even the Tier 2 and Tier 3 cities. And the stores that we have opened, we have in Varanasi, we have In more recently in Calcutta and so on and so forth, there are a number of stores that we have opened, and we are very, very P. Vijay Kumar:] With the productivity that we are getting from these stores and the results that we get from them gives us encouragement to go much deeper. So if I look at the next 10 stores that we are planning to open, I think 8 of the 10 or 7 of the 10 are in the Tier 2 cities and Yes. New cities where we do not have these. But equally also, in some places, it does give us the opportunity to open a second store. Like, again, the example I can give you is Seawoods in Washi, where we already have a store in in orbit, Washi, and we opened a second store in Seawoods, Which is the tightest one and the rest of the numbers there from there was Extremely encouraging. Also, what we do see is, of course, I would needless to say, as you would know, the newer stores, the smaller stores have lesser CapEx and hence a much faster payback and our fab better productivity. And also last but not the least, increasingly, we are also Adopting a model where we have capital contribution to these stores from the landlords themselves. So that again helps us pay back. Got it. This is very helpful. So basically, I Can now think that maybe because we are at a smaller store size, hopefully, the kind of store addition pace will pick up quite significantly because that will allow you to probably go much more be put into new cities that we had not seen in the last 5 years probably? Absolutely. You are very right. And to put that in perspective, if you look at our trajectory from 2015 to 2020, It was very, very muted in the 1st 4 years. It was in the financial year 2019, 2020 that we did add 12 stores. And that is the momentum that we now want to continue with. We had to hit the pause button because of COVID And because of the fact that a number of projects which we were involved in had the work had got stalled or Scott, they have now all restarted, and we are quite confident that we would open around 8 to 10 stores this financial year and Continue at least 10 per year for the next several years and accelerate that depending on availability of properties. And this is just the department large format stores I'm talking of, excluding the smaller format beauty stores, which would be in addition to this. Understood. And do we think there is any more rigid left in the existing portfolio of stores? When you say rejig, you mean closures? Correct. Any kind of closures? See, I think again, closures is a norm that happens under something which we review every 6 months. We review the performance of the stores. And based on performance of the stores, If the market has shifted, the catchment has shifted and it's not worthwhile, and we try and renovate stores over our 2nd period. And The new investment into that store, if we believe will not be worthwhile, then we would take a call to either resize or shut the store as of May. So I would just call it as ongoing business activity. I agree. But I mean, generally, the pace we have seen probably slightly heard in the last couple of years, probably I think so that should come down, right? That's right. I think largely the most of the corrections have happened. So It's very unlikely that you would see a similar rate to what we saw in the last 2 years, but I wouldn't rule out a few couple of them The The next question is from the line of Shivaji Maipa, individual investor. Please go ahead. So thanks, Subashiv. Thanks a lot. Thank you. The next question is from the line of with Mr. Vijnan Sheriwala from Suniti Securities. Please go ahead. Hi. Thank you for the opportunity. A couple of questions on the guidance that we've given of doubling sales over the next 4 to 5 years taking FY 'twenty as a base. Now in order to achieve this, we would need to grow at roughly about 15% CAGR on FY 'twenty base, right? We are adding stores at the pace of roughly about 3 lakh square feet, which is 7%, 8% of the retail area. So which means that On a like to like basis, our stores would need to grow at least closer to double digit range, right, on an SSG at an SSG level. Can you just help me with your thoughts on this? So the growth, Binar, would come from More than just the opening of new stores, as you rightly pointed out, new stores are a part of it. 2nd is the improvement in the productivity of our existing stores. And what we have found In both private brands and beauty, the productivity tends to be very, very strong. The third factor is omni channel and digital sales. And the digital sales would be in addition to what we get out of stores, and that's the way we would look at it and that's the way we have planned for it. And growth is also the growth in beauty that we look to do. So the space increase is about 8%. The like for like improvement would be quite a single digit to close to double digits online and digital sales including that. And finally, the additional beauty stores, the new beauty stores that we are talking about. Thank you. Thank you, Rob. Yes. Okay. Thank you. Thank you. I think we have still unspeak on the line Can we have this question? And I think we can we can we Ladies and gentlemen, we'll take the last question from the line of Ankit Kadia from Philip Capital. Sai, in your initial remarks, you gave an example of the Hyderabad store [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Well, you had cut the size and the productivity was same. Do you think that is possible in some of the existing stores as well to increase throughput and Is this productivity? There are a few stores where that is possible. I mean, I wouldn't want to get into the detail of How many, where, etcetera? But that is definitely a possibility, and that's something which we will explore every time we look at it I mean, every time we look at refurbishing an existing store. Right. And so second question is on retention rate of our First Citizen customers. While The revenue contribution is between the 70% to 80% band on quarterly basis. But what is the retention rate, if you can highlight what Percentage of customers actually shop in our customer base. That would be more interesting actually. How do you look at that? I think it's a very good question. And it is so firstly, our overall cost of business base is close to 8,000,000 customers. At any point in time, we roughly have between 40% to 45% of them who are active with us and active being defined as people who have shopped with us in the last 1 year. That number dropped in the last 1 year purely because of COVID, as you would appreciate, but that tends to be the number. But also what we do find is Of the people who haven't shopped with us in the last 12 months do come back to us. Some of them will come back after 18 months and so on and so forth. So That level of retention, I mean, the overall retention numbers tend to be very high. The second factor is While the 75% does include a certain number of customers who come in and who have shopped with us During the quarter itself, we enrolled and shopped during the quarter. So that's also part of the 25, and that's quite healthy because the fact that we get New customers to enroll is very, very important. It's I mean, if I just take last quarter as an example, it was 63% was the absolutely new military and repeat customers, 12% out of the balance, 12 out of the 25 were new enrollments who shopped during the quarter. And that tends to be broadly The sort of numbers that we see on a regular basis. And my last question is with Tarunah, sir. Tarunah, the gross margins, if I look at 'nineteen 'twenty, have been in the 42% band. Last 6 quarters, while due to COVID and provisioning, has been around 38%. With increasing share of dry waste level, when do you think we can go back to this 42% kind of a gross margin number? Ankit, you are referring the GAAP numbers, Ankit. I must not go by the GAAP numbers because GAAP numbers tend to fluctuate with the OR and SOR. If you see the non GAAP numbers what we have given, compared to last Here, it was around about 36.8% that has come to 35 percentage. Two reasons: 1, our e comm share has gone up because of which our vehicle is completely There is an adverse mix. And second thing, there is a onetime we have some, what do you call, P. Vijay Kumar:] Internally, we are working on the title. These are the two reasons. Otherwise, our margin for Q2 is by and large after what We are in Q2 FY 'twenty. Understood. That's helpful. Thank you so much and all the best. Thank you. Thank you so much. Thanks, Ankit, and thanks, Gaurav. Ladies and gentlemen, that was the last question for today. I'll now hand the conference over to the management for closing comments. Thank you, Gaurav. And I just want to once again thank Sridhar for taking time out and Joining us for the call, I have I mean, I've already summarized the way forward that the way we are looking. And given that we are Well past your time. I don't want to take any more of everyone's time. All I would like to say before we log off is to wish Each and every one of you are very happy, Diwali, and look forward to continue to see yourself and your friends and your family in our stores, both offline and online. Thank you very much. Thank you very much. On behalf of AXS Capital Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.