Ladies and gentlemen, good day and welcome to the V-Mart Retail Limited 2Q FY 2027 earnings conference call hosted by Avendus Spark. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference has been recorded. I now hand the conference over to Mr. Ranganathan , sir, Avendus Spark. Thank you, and over to you.
Thank you. Hi, good evening all. Thanks for joining today's earnings call with the management of V-Mart Retail. From the management side, we have Mr. Lalit Agarwal, Managing Director, and Mr. Anand Agarwal, CFO and COO. Let me hand over the call to the management for opening remarks. Over to you, sir.
Good evening, everyone. Happy Navratri, and this is the completion, but happy Diwali for everyone, which is in the coming week. Largely, we are back with during those peak times, these times before Diwali, four days, five days before Diwali, generally a little busy time for V-Mart in retail. But our team has done a great job here on time announcing our results. We definitely continue to see similar opportunity and the aspirations of consumers and the demand for better products in India. I think what we have seen in the overall environment this time, the business environment or the broader business environment, certainly has been largely dominated by the geopolitical uncertainty. We have definitely seen lot of volatility in energy, raw material. Raw material prices have really moved up and down.
Supply chain has remained very, very difficult or has been a very important consideration this time because of the movement in raw material prices, because of the movement in overall cost, there has been always a challenge in the supply chain side. But yes, largely for value traders like us, these do create an impact on our sourcing cost or product availability, and ultimately also the budget of the household or the consumers who come to shop to us.
And for us, because these customers are value-seeking customers, their average earning capabilities are very low, so the impact on them seems to be very high, added by the food inflation which we have seen, which is one of the highest food inflation that we have noticed in the last month. That is again adding much more pressure on the consumer's pocket. That is what we are seeing here.
But yes, certainly, there are signs of consumption going down, there are signs of consumption going up. There are weather-impacted areas. Either there is a very good monsoon in certain part of the geography, or there are little lower monsoons where the rainfall has been more than or deficient by 20%, 25%, 30% also in certain belt. But yes, large part of India, which we were fearing that the monsoon could be little bad, did not get so worse monsoon. It was manageable, it was better. The agriculture incomes also seem to be in line. There are few markets where the agriculture income is a challenge. Definitely, festival timing is another piece, which is a big piece which happened in this particular year, because every three years we see this festival getting shifted. This year also, it got shifted by 19 days.
Especially in our markets, festival spending or the wedding spending, which is also linked with the festival days, is very large. If you look at the Bharat customer, we definitely believe that they want better fashion. They are very careful also on how much they spend. But yes, we also have seen a very high growth of young consumer in our stores. We could see almost the young consumer, which is what we call Gen Z or even from Gen Alpha, almost touching to greater than 45% of our total consumer set who comes to shop with us. This younger customer definitely discovers trend faster, and as we are seeing a very high rise of social media, Instagram, so they definitely expect more newness. The family also is becoming Gen Zs are also having lot of families now.
Those Gen Zs are not only stags, but they are also getting older. In our towns in Bihar, Uttar Pradesh, Odisha, Bengal, we see even younger couples having babies. They come with family but are still Gen Zs is what we call. So, they do seek fashion as well as dependable quality and very clear value. That is something that we believe is there is a responsibility for us to bring in these expectations together, especially at an affordable prices. The highlighting part of our performance, and certainly there has been lot of competitive openings which have been happening. There's a lot of drama, which is there's a lot of work which is happening in the competition as well. There's a lot of work which the competitor space has done.
There are a lot of store openings that they are doing, and we are also seeing some competitors becoming stronger versus some competitors actually getting a little more weaker and weaker. These scenarios will keep on going on, but what we understood that there were almost 70 - 75 locations where we actually got impacted by, or where we saw competitor opening up near our stores, or in the similar territory or in the similar market where we are located. But overall, if we see, there is more than 150 stores which have been opened by competitors, which we target in our market, because there may be more than one or two competitors which have also opened.
Against that backdrop, the team has really done a fantastic job, and then we have been able to see some good growth coming in, both from the like-for-like stores as well as the new stores opening, and the number of new store opening has also been very good. We have seen some good growth coming in. We definitely have to normalize this time with the festivals, as we have already reported, and you must have seen that. As such, our growth looks a little lower, but we adjust it for the festival, it definitely looks better. The highlight of this particular performance was also the biggest highlight was the Unlimited market, the South India, which stood out both in terms of growth as well as the profitability.
Our South India business continues to fire, and we have seen multiple quarters in the past three, four, five quarters, we have been seeing the South India market firing for us. There has been a lot of learning that we have implemented, a lot of good things that we are doing, and the consumers are realizing it, and we have started getting it.
I think the biggest news for us is that the South India or the Unlimited market is almost matching the sales per square foot number of V-Mart, is almost, or has delivered higher profitability or higher EBITDA, the surge in EBITDA, which I think there was a pertinent question from all the analysts continuously for the last three, four years that we have been listening and learning, that when will Unlimited hit that mark, that mark of that similar profitability or even the sales per square foot. I think the time has come. It has come a little faster. The team has done a great job.
Both the front-end team there as well as the back-end team here, we have really been able to steer this acquisition very nicely, and it has now started showing greater output and greater potentiality to throw much more better output in the coming days, because we are now very confident. As you all know that the South India market has a higher per capita income, the ability for the consumer to buy better product is much more. The ability to buy more number of products is also very high. We have more potential to get into South India market, both in terms of Tier 2, Tier 3, as well as some Tier 4 towns, which are almost like Tier 3 in the rest of India. That has been a good highlight. Other than that, we have also seen our online business doing very good.
Our LimeRoad business that we also acquired, this year we saw a very good growth in terms of our business. We have seen a growth of almost 55% on our top-line, which you must have seen over the last few quarters. We have reported a subtle growth or a negative growth also on the top -line because we wanted to consolidate and we wanted to bring in the profitability under control or the losses under control. If you look at the losses, in spite of 55% growth, we have seen the losses coming down by almost 32%, which is, if you look at a percentage level, the losses which used to be almost 18% of our revenue, now stands at 8% of our revenue.
This is definitely powered by our omnichannel conversion, which is very important because what we really worked on is the scaling up of our endless aisle, wherein we grew our digital users by 27%. We definitely really worked on creating orders from our store customers. 58% of our online orders actually get fulfilled from our physical V-Mart store inventory. This is very important because all our 613 stores have been fulfilling these orders and driving online sales without adding separate warehouse cost or even the inventory risk. That is very important and that was the driver. But yes, apart from that, our strategy is largely to also work not only for the online sales, but also to drive footfall synergy and create more synergy across the local catchment where our stores are, and how do we drive that.
There also we have seen a great work happening because 41 lakh customers who engaged digitally in our LimeRoad platform, we saw them getting converted into our physical touchpoints, which is our stores, within 15 days of they browsing that on our channel. I think that is the real use case of omnichannel, and that is where, once again, we are seeing a larger potentiality because we are also seeing these customers who are dwelling into both the channels, whether online plus offline, they seem to have a higher annual customer, annual basket value. So their annual purchase value from our stores seems to be much higher.
This is another highlight which I would want to highlight here, that these two important things that we did in our last five years, which is acquiring Unlimited as well as acquiring LimeRoad, both are turning out to be positive news, both are turning out to be better potential driver of our growth and our performance. Apart from that, I think . Suddenly, our store productivity, in spite of opening almost 23 new stores that we did, 15% of new store area addition that we did, we definitely also have increased our sales per square feet. If you look at the competitor space, people do generally report that when you open up new store, your sales per square feet seems to be lower.
But in our cases, we have tried to ensure that both from our like-for-like stores as well as from our new stores, we deliver similar or better sales per square feet. That's the overall focus that we are trying to drive. I think overall, it is definitely a lot of work internally, a lot of work where we are seeing a lot of changes in our leadership areas. Anand, who has taken over the entire operations and our retail business. Here, I think Anand is now firmly settled in his role, and he's definitely brought in his commercial rigor and operational discipline in the store operation. We definitely are seeing a lot of like-for-like momentum, which is building, which is this is where we are building.
And then I think we need to have this cadence continued because we have been reporting positive growth across last 12 quarters consecutively. We want that to be much, much better because there is a lot of potentiality that we had lost in earlier days during COVID and post-COVID scenario, but now we have really been able to do. Once again, here, we have really brought in a new leadership at the merchandising lens also, because here also we have brought in Varin, who is my son, who has now taken up the charge to lead this particular function.
And where a refreshed, the entire team is getting into the realignment and trying to understand these Gen Z audience much, much better. Because what we have understood that around 50% or 45% of our customers are Gen Z. So this is very important to understand.
And here, once again, we reiterate that Bharat is not one market. We all know about it. And fashion preference across our geographies are very sharply differentiated, whether it is because of the culture or because of the occasions or festivals or even the climatic conditions or the physical body that the consumers have. If you look at a Punjab person versus a Bengal or a Bihar person, so there's a lot of sizing differences. So we really started working a lot on our buying methodology, and then we are grouping these stores into different clusters and identifying the differentiated needs or distinct needs, and then creating an algorithm, creating a technology behind that, and ensuring that these data actually convert into great actions and great decisions.
The team is really working hard on developing those technological models, building intelligence within those models, trying to very clearly bring in the discipline of the breadth of the number of options or the depth in the number of options or the kind of size mix which is required in the time of procurement, and also the timing wherein how do we really work with the vendor to try and get a better outcome. Because in these inflationary times, the efficiency once again becomes a bigger piece. And how do we really integrate with our vendor manufacturing vendor bases to try and bring in those kind of efficiencies and reduce the turnaround time in the production so that our availability at the store level and the change in the fashion preferences of the seasonal pieces are being taken care of.
All of these integrations are very, very important, and we are really doing a lot of work in the vendor partnerships as well, so that we are able to give benefits to our vendor by maybe shortening our payment cycle, because we have also seen that our team has been able to manage our cash flow very nicely and even have been able to satisfy our vendor base by paying them nine days earlier, which is also a very, very important piece. This is very important. It may look like that our working capital days have gone up, but for us, it is really very important for us to also look at vendor strategy, and vendor becomes a critical point with the growth of so much growth of value retailer, as we have already spoken in the previous times.
For us, that partnership is also very, very important. Then there has been a lot of work that we have done in the supply chain and inventory management. There also, I think, the result you can see is almost the days of inventory has been reduced by nine days, which is because there has been a lot of work which has happened in the entire allocation model that we have built. How do we actually convert this model into faster selling models, the inventory quality, the timeliness of the inventory, or even the quantity at which the inventory should be bought?
Then the entire supply chain on the physical chain, wherein the operation of warehouse, the operation of the entire logistics fleet, how do we actually plan all of those, wherein we are able to reduce the turnaround time and the reaction time from the sales to the supply. All of those has really brought in lot of good benefits. I think these are very critical points. I have taken a lot of time. But yes, there are one more thing that we definitely also have touched our 600 store mark this year. That brings in me the thought process and remembrance that [Non-english content] It took almost 10 .5- 11 years for me to reach there. But now, we are able to do these 100 stores in the 14-month period itself.
In the past, last year we did it in 14 months. But I think in the coming days, Anand has taken up the challenge to maybe do it in the 12-month period. We will definitely put it more on Anand, and let's hear from the horse's mouth, and maybe over to Anand, and then we will open up for question-and-answer. Thank you.
Thank you.
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 touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.
Hello? Hello? We need to open the lines for Anand. Anand has to speak. Are you there?
Just a moment, sir. I will reconnect the management.
Hold the question asked. Maybe Anand will speak on the same phone, maybe. Just wait. Don't take the question first. Hello? Hello? Yes, sir?
Sir, just a moment.
Yes, sir. You may go ahead, sir.
Okay. Thank you, Lalit, and sorry for this confusion. I think my network got disconnected, so I am now back online. I will be very quick. I have a lot to speak, but I will just limit myself to the main points. Quarter two is seasonally the smallest quarter of our year, and this year it was also affected by the shift of the festive calendar that Lalit has also spoken about. The festive date shifted by 19 days, with Navratri commencing on 11th October this year against 22nd September last year, which moved the entire festive period out of quarter two into quarter three. But despite this, our revenues grew by 18% and SSSG of 3%. Adjusted for the festival shift, like-to-like growth was 11%, reflecting the underlying health of the business.
We also opened 23 stores and closed one, crossing the 600-store milestone this quarter and taking the tally to 613 stores across 351 cities. The customer engagement remained healthy throughout the quarter. Footfalls grew by 36%, a very healthy number, and the memo count also grew by 15%. As we have spoken multiple times in the past, the footfall count base has had anomalies in the previous year's base data, which is getting streamlined. Going forward, the right conversion metrics to look at should be closer to 35%. Apparel ASPs remained flat year-on-year despite the shift of the festive as a result of better full-price sell-throughs and a limited amount of price increase during the quarter. Regionally, all geographies held up well through the quarter.
Pujo, as we all know, is the dominant festival in the East, which moved out of quarter two, but which will get subsumed with adequate growth and reflect much better in quarter three numbers. South under Unlimited continued its strong growth momentum. Unlimited sales per square foot is now INR 681 on a YTD basis, up 15%, as the stores we have opened over the last two years continue to deliver materially better productivity than the acquired legacy stores. This trend should continue as the average of the new stores begin to overshadow the older legacy stores.
Coming to gross margins, gross margin for the quarter was stable at 33.5% against 33.6% last year, with rupee margins actually growing by 18% in line with sales. On the expenses side, the employee cost grew by 15%, while the other expenses grew 18% in line with sales growth of 18%.
The savings in employee cost gave a net impact, which was a modest improvement in the expense ratio, and that is what allowed the EBITDA margin to hold in a quarter where the festive sales shifted. On a pre-Ind AS basis, EBITDA is now therefore up 32%, with margins flat at 0.6%. Quarter two is a seasonally thin quarter, and this line is always small. On a post-Ind AS basis, EBITDA grew by 20%, with margin at 9% against 8.9% last year. By format, V-Mart delivered EBITDA of 8.8%, while Unlimited delivered 11.6% against 10.5% last year.
Even YTD basis, Unlimited is now ahead of V-Mart on EBITDA margin, even at a pre-Ind AS level. I believe we should continue to see this improvement build up more as we move forward, which is also encouraging us to open more stores in South and West India.
Below the EBITDA line, the quarter reflects the accounting of a materially larger lease network. Depreciation rose by 25% and finance cost rose 18%, but the entire increase is Ind AS 116-led depreciation on right-of-use assets and the notional finance charges on lease liabilities. The right comparison to look at would be on a pre-Ind AS basis, where the depreciation was flat at INR 28 crore, and the actual interest outgo was also flat at around INR 6 crore. So again, on a pre-Ind AS basis, PBT actually improved to a loss of INR 26 crore versus a loss of INR 28 crore in last year. Coming to cash and CapEx, net CapEx for the half year was INR 85 crore, against INR 60 crore spent last year. This was mainly towards new store openings, store refurbishments, a new office setup, and technology investments.
We have recently shifted to our new office in Gurgaon, which allows us to get all the LimeRoad team also sit together with the V-Mart team and drive even greater synergies together. Inventory increased by 12% year-on-year, reflecting the festive stock build, which this year sits entirely inside quarter two. Days of inventory came down by seven days to 90 from 97. Per store inventory is lower year-on-year, even though this year's festive stock sits inside the quarter rather than having partly sold through by September in last year. The inventory remains very healthy, and as sales productivity grows, we should see further improvements in days of inventory going forward. There is a slight but controlled increase in the working capital utilization at the quarter-end due to festive inventory buildup, higher CapEx, and faster vendor payments.
Short-term borrowings stood at INR 190 crore as at the quarter-end, against INR 100 crore at March -end. This is purely a working capital utilization at the festive stocking peak and short-term in nature. There is no long-term debt on the books, as always. Online part, I think LimeRoad, Lalit already spoke about, but one thing I just wanted to highlight here was that we continue to chase operational excellence on the LimeRoad piece with scale, but not at the cost of profitability. We are consistently moving towards making this business sustainable, and we are very happy to see the LimeRoad turnaround is now visible, sustainable, and also asset-light, driven by the omnification of our combined customer base.
Lastly, on the store expansion, we opened 23 stores in quarter two and 38 in the first half, against two closures, taking the network to 613 stores. With SPSF across the network improving 5% despite a 15% store addition in the last one year, the NSO ramp-up remains promising and healthy. We remain committed to open at least 90- 100 new stores in the current financial year. As Lalit has given a challenge, I will definitely want to honor the 100 store a year openings going forward. That's all from my side, and I request the moderator now to open the house for questions. Thank you.
Thank you, sir. We'll 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 handset while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Avi Mehta from 360. Please go ahead.
Yeah. Hi, Lalit . Hi, Anand. Just few questions. First, I wanted to understand from a medium-term perspective, in this journey to improve inventory, kind of make more agile operations and get the portfolio positioning correct, where would you say you've reached versus what you want to be? Is it like 80% there, and hence the reflection should kind of start going into SSS growth going forward? The reason why I'm saying is when you are looking to ramp up store additions, I'm basing it on that fact, so would love to understand that part. That's question one. Question two is on the pre-Ind AS margin. Versus history, we are probably much far off. What do you think is required for us to get back to those levels, and how do you see that journey panning out?
Last but not the least, if you could give some near-term color on how do you see the gross margin profile behaving, and is most of the pressures now in? Those are the three questions. Thank you very much.
Yeah, thank you so much. I think you're absolutely right. Our margins still is below what we had projected and given in 2017-2018 or 2018-2019. So there's certainly more room. But yes, see, the overall efficiency of the business is what we told. We were getting pulled down by Unlimited business, we were getting pulled out by LimeRoad business. Now suddenly there is not the same environment. There is a very, very high competitive environment in the market. So the sales have also got shared between few players, and suddenly we are looking forward to that and improvising even the SPSF, because it's a function of SPSF and SSSG.
As you have seen that we have consecutively delivered growth in the SSSG for the last 10 quarters, this is showing a uptick and an uptrend in also the gross EBITDA margin. I think this should continue, but suddenly we need to be very, very careful in the ways in which we report that, in the ways we actually do our provisioning, in the ways we actually do our accounting, in the ways we are actually able to clear up our old inventories as well. So we are very, very agile even on those sides, wherein we are very regularly clearing our old or the non-sellable or the lesser fashion inventory. So that is also very, very important, wherein you have seen that our margins also this year has not been low, but has not been too high. So, we've been lucky.
This particular quarter, if you look at it, we actually had more number of days to dispose of our seasonal stock. That because 19 days shift in festival also says that newer inventory gets launched a little later. I think overall, from a margin perspective, certainly there is a huge pressure of cost. There is lot of fight, lot of working which is happening in terms of the cost management, in terms of the negotiation with the vendor base, in terms of bringing efficiency on their part, so that we are able to do both.
One, neither go on the price rise for the consumer, because the entire price rise of raw material, if I just pass it on to the consumer, it is going to be very, very steep for the consumer, where we have seen a bad response in 2022-2023. We don't want to do that.
We are creating lot of efficiency, but still, we will see some 5%-6% of the ASP growth which will come into the market. But we are trying to manage that we don't lose margin. Maybe maximum we'll be compromising with 0.5 or we may be adding another 0.5, so it might depend upon the times. I think we are in control of the margins.
Got it, sir. Got it. Sir, on the near term, how should we see this? Is this like a bottoming of the gross margin now from here on? Is it largely reflective of the input cost pressures in this quarter?
Are you trying to put words in my mouth?
No, sir. It would be useful to understand. But thank you.
I have already explained it nicely.
No issue, sir. Got it. Thank you. That is all from my side. This is useful. Thank you.
Thank you. The next question is from the line of Dhruv Sitlani from Leo Capital. Please go ahead.
Thanks for the opportunity and congratulations on a great set of execution. My first question is, what has been the same store growth in the month of October, and how have the trends in the festive season been? What sort of same store sales growth do we expect for the full-year?
Did you ask October?
Yes, sir.
Sorry, we cannot report that right now. We do not have a policy to report mid-month of same store sales growth. But yes, if you ask me about the festive outlook, I think it has been positive, but still below our targets, because we had anticipated a better sales growth, and we are still not getting those kind of sales growth, but it is positive.
Okay. My second question is, what are the overall demand trends for this particular industry, and what sort of the store addition and sales growth outlook we expect for the next six months and the coming year?
I think we always give an estimation of around 17%-20% of sales growth on a total level, and we will continue to have that. As I said on the expansion, we will want to add more stores. We have added almost, what, 48 stores till now, and we would maybe, we should try to add maybe, if not similar, at least 40, 42 more stores.
Okay. Sir, are you seeing a meaningful improvement in consumer spending and store level traction during the festive period?
See, certainly the inflation is high. Whatever consumers do, there is a little higher basket size that we are seeing. There is a little jump in the ASP. There is a pressure that we are also seeing from the consumer side because of inflation and the inflationary pressure on them. As of now, we are not seeing a very high growth in the basket size of the consumer, but because of the ASP rise, we are seeing certain movement in the ABS, the average bill size.
Still, I think the number of customers that has to come out to buy could go down, but that is how we are trying to do a lot of activities in terms of trying to acquire more market share, because the overall consumer sentiment may be little lower, but we have our plans to acquire more customers in our store.
Okay, sir. Thank you.
Thank you. A reminder to all participants that you may press star and one to ask question. The next question is from the line of Kaivalya Baing from IIFL Capital. Please go ahead.
Hi, sir. Thanks for the opportunity. My first question is regarding the store areas for the new stores. If we can look at the store addition and the area addition, it implies a smaller area for the newer stores. Is that understanding correct?
Yes. We have not opened large stores. We have kept our size constraint. We have been hovering around between 7,000 - 8,000 sq ft of stores, size of stores.
Going forward, sir, are we expected to reduce the store size for accelerating the expansion, or can we expect the-
That is our model. We are averaging around 8,000 sq ft. 7,500 sq ft is our average sweet spot. Anything around that is what we get. It depends upon the location -to- location or property- to- property, how well do we fit into that model.
Understood. Secondly, sir, on competition, you highlighted in your outlook that you are seeing increase in the competitive intensity. Could you just throw some color as to the region or the places where that intensity is picking up? Also, with price hikes expected going ahead, do you think that could weigh on our performance?
You said what is the region, and then one more, what is the second question that you asked?
Regarding the future quarters, sir, I am presuming that there would be some price hikes to combat the inflation. Do you think the competitors may undercut us on that front?
Yeah. No, I think, your first question on competitive space, where is the maximum intensity that we are able to see? I think we are able to see lot of intensity in the Hindi heartland, especially in the eastern and the central northern belt, which is the Odisha, Bengal, Bihar, Jharkhand, and U.P. This particular belt, we are seeing lot of retailers, both East India-based retailers as well as North India-based retailers jumping there and bringing their stores there, as well as some of the Bombay-based or the national retailers also trying to add lot of stores in these markets. These are bigger battlegrounds versus the other markets is what we are seeing.
On the typical price rise, I think I have indicated that we would expect and we are seeing a 5%-6% price rise growth that we have to pass it on to consumer around 5%. But because of our strategy change, we may see a little bit higher ASP improvement. But yes, I think overall we are targeting around 5%-6% of price rise.
Understood. That is all from my end. Wishing you the best of luck.
Thank you, sir. A reminder to all participants, the team has pressed star and one to ask questions. The next question is from the line of Avinash Karumanchi from MOSL. Please go ahead.
Hi sir, good evening. Congrats on good set of numbers. My question is regarding Unlimited. There is a significant turnaround in case of Unlimited. On a YTD basis, it is almost close to V-Mart in terms of SPSF. Can you sum it up like what all things have you worked out in order to drive this performance? Furthermore, how can we see going forward Unlimited versus V-Mart, the SPSF wise?
See, I mean, certainly, we had initiated lot of strategic inputs almost three years back. Something worked, something did not work. Something continue, we continue pushing lot of areas and we continue bettering those areas. I think it is largely more about the product lines, the belief system that we have got, our core competency of delivering the core value product or the lower price point product as well as the youth product. Because these two are the biggest drivers for Unlimited market. Because for us, we saw that the original Unlimited consumer persona was little more millennial and was little more per capita, higher per capita income consumer. We wanted to attract a little lower per capita income consumer also, and we wanted to attract lower age group consumers.
These two drives helped us to actually bring in lot of new customers, wherein we saw lot of new customers, both youth as well as young families. Young families gave us lot of kids wear sales. Our kids wear has been doing very well there. Young consumers have brought in lot of denims and jerseys. The contribution of new fashion has really grown up. We continue to have retained our millennial customer base. I think all of those, the strategy has really worked out. Similarly, consumer realization is now there, and it is now becoming a word of mouth that there is a good proposition which is available at Unlimited in the store. Because other competitors, the likes of Reliance Trends or Max, their average selling price is much higher than what we do.
So that is how we are able to clearly have a very clear differentiator in terms of our pricing as well as in terms of our fashion. That is what is paying off for Unlimited.
How much further improvement in SPSF can we see in case of Unlimited going forward?
[Non-english content]
[Non-english content ] Your previous mature stores you are seeing like since the acquisition there are a lot of mature stores which were you had turnaround and then the new stores were there. I am just saying.
Suddenly we are anticipating better growth. So we are targeting higher percentage of like-for-like growth than the entire market. The like-for-like growth, it goes beyond double digit. So I think we will be continuing to increase on our sales per square feet. It is just not about our existing store like-for-like, but it is also about the new store that we are opening up. The performance of all the new stores that we have opened up in that market is also very good. There the sales per square feet is also very good. So that is also bringing in the higher sales per square feet into the overall Unlimited market.
Okay, got it, sir. The second thing is regarding the cash flows. I mean, this year, now there is inventory shift, I can understand. But going forward, there will be significant amount of free cash flow being generated from next year onwards. What are you thinking about deploying these cash towards?
Let me take that. The way our entire expansion plans have always been structured is that we want to utilize maximum amount of cash flows towards organic expansion, and bulk of that cash flow should get utilized in the same cause. That is how we've always remained a very healthy business, earning whatever cash is generated by the business, redeploying it back into the business in terms of new store expansions and capacity expansions. So that's the whole idea. At least for the near to medium term, that is what I perceive that should remain the case.
Okay, got it, sir. Thank you. That's it from our side.
Thank you. The next question is from the line of Yash Sonthaliya from Edelweiss Public. Please go ahead.
Hi, team. Thank you for taking my question, and congrats on good set of numbers. Two questions from my end. Number one, this quarter we have seen a good operating efficiency on the operating cost. If you can allude a little bit upon it, how should we see it going ahead? Is it something what we used to talk about and now it is coming into numbers?
Yes, Yash. I think [Non-english content] I think the team is doing a good job. There is a lot of efficiency-driving mechanisms which has got built in. Ultimately, it is more about product delivery, it is more about retaining your gross margin, and it is more about sales per square foot. Because if you have more sales per square foot, the fixed cost remains constant, you definitely get those delta in terms of efficiency. I think it is largely about understanding the consumers in a better way, driving better fashion, giving them sustainable quality, giving them trust so that the consumer repeat rate is very good. If you look at our repeat rate, our 72% of sales comes from our repeat customers, and that is something which drives our belief system and drives our trust level.
That comes largely from, ultimately, customer buys product and customer wants product. Certainly, product has to be added up with the experiences that is supposed to be there, and the supply chain, because availability is also as important as the experience. All of these has brought in a lot of efficiency, and I think we will continue driving those efficiencies as long as we are able to keep our eyes and use those technologies and use those clear indicators and have good partnerships with our vendor ecosystem, and our design team continues to bring in better designs. We will certainly create better efficiencies in the coming days as well.
Got it. Just to follow- up on the same, what I really wanted to understand is, in this quarter, our employee cost and other expense has done a decent efficiency, right? Because at 2% SSSG also, we were able to maintain the gap between our gross margin and EBITDA margin. Is it something which happened because the festive shift has happened, or is it something which we will see structurally going ahead in next few quarters also?
This is very difficult. Ultimately, what I have told you is, it is more about the same-store sales growth. You are saying 2%. Yes, on the calendar side, we are seeing 2%. There are few good uses of good government benefits also, which has been given on the labor productivity or labor recruitment. We have also tried to use some of those. Certainly, there have been increase in minimum wages, and that is actually pinching us. If you look at our cost, per employee cost has gone up. There are a lot of states, and our major states like Uttar Pradesh, Haryana, they have gone up very high on the minimum wages. The increase is very, very high. It is steep.
But we have created a lot of efficiency by actually looking at our productivity in our stores, in rationalizing our manpower, in actually bettering our attrition rate, so that we have consistent and good manpower. Some of those measures are actually bringing in some results. But yes, these are still lot of variable numbers. As you grow your quantum, you definitely have to also grow your manpower. But largely, if you look at the other costs, there is more cost in terms of the power and fuel. I think there also the team has done a great job, even bringing a lot of analytics into the power consumption has also given us a lot of efficiency. All of these, even now, there are more areas in which we are trying to bring in more efficiency.
We would expect some more efficiency to come in the coming part of the year.
Got it. Makes sense. And sir, one last question upon Unlimited. Basically, like you alluded, the pre-Ind AS margin are now at par with what our core V-Mart stores are at. I wanted to understand, basically what we used to say is Unlimited, the rentals and everything are higher at Unlimited. So, how we are able to manage the EBITDA margin with same or lesser sales per square feet at Unlimited?
Yeah, so while we have spoken about this in the past, the pricing that we maintain at South India and Unlimited is kept 5% higher for the same and similar products. This is a strategy that we have maintained right from day one, since the time we took over Unlimited, and because our operating costs were always higher. In fact, now they have got slightly more streamlined as we open new stores. So now, out of the total entire network, almost 55% of the stores are now new, which are operating at much lower rentals than the legacy stores. As we move forward, we are seeing the rental cost line coming slightly down. The averages are cutting slightly down, while the gross margins are holding up.
That is allowing us to maintain the profitability, and in fact, that is giving us the confidence that if the sales per square feet from the newer stores continues to rise, we will see even better profitability as we move forward. On a YTD basis, while the EBITDA line for Unlimited remains very healthy as compared to V-Mart business, I think we should also consider that V-Mart will be back with its share of profitability or very high profitability in quarter three, because that is where the bulk of the business for V-Mart lies, unlike Unlimited, which is more evenly spread out throughout the year.
Got it, sir. Thank you.
Thank you. A reminder to all participants, please restrict yourself to two questions. The next question is from the line of Kunal Bhatia from Dalal & Broacha. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Sir, in terms of the current gross margins, how much of a commodity inflation is already included? We have also spoken about 5%-6% kind of price increase. Have we already taken it, or still we are in middle of taking the same?
So, see, there has been phases in which the price increases happen for crude. As of now, what is built into the system is a crude oil shift from $55 to $75. So maybe up to that level, we have already built it to the system, and that price, that raw material cost uprise, which is ranging from 5% - 10%, depending upon the product type, has already been built into the pricing. This is not very evident in Q2 because the festival, also there is a mix change which happens during festival. During non-festival period, the mix of lower price point items are little higher. So you would see that price rise also in the Q3 a little more higher. But yes, we have built in up to that level.
But if this new normal of $110 or $115 continues for some more time, it will become difficult, we may have to take another price raise in Q4. That will once again be something that we may have to anticipate.
Okay. My second question is, in terms of the current inventory levels, how much of the inventory would be six month and older?
Very difficult question you have asked. I think you have to get on to one-on-one. I am sure it should be above 85%, 88%, 89%. Yes, you could take it separately with Sudharsan.
Okay. Thank you so much.
Thank you. Due to time constraint, we take this as the last question for today. I would now like to hand over the call to the management for the closing comments.
Yeah, thank you so much. I think there have been a lot of questions on cost pressure. I think the cost pressure definitely require an equally balanced response. Both our raw material as well as the manufacturing cost affecting sourcing. We definitely are there. We are protecting affordability, which remains fundamental, and we will definitely manage cost without weakening either the product quality or the value customer association with V-Mart. I think that is very important. We will continue to maintain our governance standard. We will continue to be very agile on whatever comes in as a learning, and we will continue to give good news and grow in this market. Thank you so much. Wishing everyone a very, very happy Diwali.
Thank you, sir.
Happy Diwali to everyone.
Thank you, sir. On behalf of Avendus Spark, that concludes this conference. Thank you for joining us. You may now disconnect your lines.