Metro Brands CEO Confident Of Achieving 15–18% CAGR Target Over Five Years
The festive season and wedding dates coming up in Q3 and Q4 are also going to help Metro Brands generate more revenues, CEO Nissan Joseph said.
Metro Brands Ltd., which owns brands like Metro Shoes, Mochi India and Crocs India, is confident of achieving its compound annual growth rate guidance of 15–18% over five years, according to the company’s Chief Executive Officer Nissan Joseph.
The multi-brand footwear retail company had announced its results for the financial year ended Sept. 30 on Wednesday, reporting a muted growth in its financials.
Revenue during the quarter rose 5.4% year-on-year to Rs 585 crore from Rs 556 crore a year ago. In the July-September quarter, net profit grew 6.1% YoY to Rs 72 crore from Rs 68 crore in the corresponding period of the previous fiscal.
Talking to NDTV Profit, Joseph said that Metro Brands had been sustaining its CAGR despite some recent lumpy quarters.
“We have guided for a 15% to 18% CAGR over five years. Despite recent lumpy quarters, we are still trending over 14%,” he said.
“We’re optimistic about achieving these numbers (CAGR) due to the strength of the Metro Brands and India’s growth trajectory,” the top executive added.
With most of the liquidation behind, Joseph anticipated a turnaround in Q3 for his company.
The festive season and wedding dates coming up in Q3 and Q4 are also going to help Metro Brands generate more revenues, the CEO noted.
“This festive season is unique as both Durga Puja and Dussehra are earlier this year. We’re expecting a positive lift in October because of this timing. Additionally, there are significantly more wedding dates in November and December compared to last year, which is a major revenue driver for us,” he said.
“I am confident that we will be able to deliver the numbers we have guided to,” Joseph added.
He emphasised that the company will not require any eternal funding to drive its expansion.
“We generate a lot of cash from our operations, so we don’t foresee the need for external funding. We’re strategic about our investments,” he said.
Shares of Metro Brands Ltd. declined 1.24% on Thursday to close at Rs 1,165 apiece on the NSE. Compared to this, benchmark Nifty 50 closed 0.15% lower.
Watch The Conversation Here
Here Are The Excerpts
Before I talk about the quarter per se Mr. Joseph, I would love to understand from you where or what is your view on this whole conversation that is coming up about the urban versus rural demand suddenly, with companies like HUL and Nestle, talking about different categories, albeit, but talking about how rural demand is picking up, but urban demand is waning. It set the cat amongst the pigeons. I would love to know your views here?
Nissan Joseph: We don't look at it as urban versus rural, because, you know, the recovery was different. If you go back post Covid, what you're seeing post Covid Is the lumpy recovery and in a good way too. So, we had a great year the year after Covid, and everybody had a little bit of a challenge. So, when it recovers and the economy tends to normalise, well consumption tends to normalise. It's not a straight-line recovery or normalisation. It tends to be a little bit lumpy.
You know, what we are really happy about, though, is the fact that two things, one is our Q2, numbers saw an improvement over our Q1. As far as you know, year-to-year growth. That's number one. Number two, you know, we continue to maintain our profit percent, though we did not have the revenue growth, which shows that, you know, there's some strong operational and financial discipline inside our organisation. The other point I want to point out is that in Q2 we have Crocs doing extremely well. So that's on the tailwind side, and, you know, because of the monsoons, and it did very well for us over the monsoon season.
On the headwind side, you know, we have to liquidate some of our inventories in FILA and take some accruals for that inventory, that last bit of inventory that's left over that depresses the margins a little bit. It is also a quarter where we have the end of season sales, so you don't have an upside of a lot of full price sales happening the same quarter. So there's a couple of headwind tailwinds in that quarter. But overall, I'm quite pleased to see that we came out and we maintained our profitability, both in percentages and also the EBIT took a little bit of a hit. But like I was saying, that was only because of gross margin erosion and also the fact that we started investing in marketing late in Q2, getting ready for our Q3 season.
Does that reverse, the last part, Mr. Joseph, let's stick to Metro now. Does it reverse in Q3? Is the old inventory stock largely over and are the marketing spends, the velocity, at least behind you now?
Nissan Joseph: Absolutely, the large part of the dealer liquidation is now behind us. There are still some small pieces left, but nothing of a significant nature. So that's number one. The marketing spends, what we did was we spent more in Q2 this year than we did last year. So now that's going to normalise. Not that we're not spending on marketing in Q3 we will, but then we have those numbers to go up against last year too.
But what's really exciting is when you look at all the other expenses that we had in our business, we were able to maintain control on them, and hence deliver the profitability that we did.
Okay, fair call. Now, what about the revenues though, I hear you that the operational metrics may improve in Q3 itself. How was the start of the season, if you will, been thus far, it's about 24 days or 22 days from the time pitrupaksh got over. I don't think that impacts sales for a product such as yours. But how has the festive season been thus far?
Nissan Joseph: Well, so you know, this festive season is unique in the sense that both the two big drivers for Durga Puja and Dussehra and Diwali are both earlier this year. So, what’s going to happen is you're going to see a lift in October, because both those seasons come in early, and it would impact October. So we're seeing that come very positively and good.
But then also in November, where we have a tailwind there for us is the fact that there are significantly larger wedding dates for both November and December than last year, and that's a big driver to our revenue as well as, you know, in Q1 we were challenged with it because there were absolutely zero wedding days compared to the year before. So we're seeing some good tailwinds coming up in the future. You couple that with the fact that we have deep operational rigour and financial discipline, you know, I'm confident that, you know, we would be able to deliver to the numbers that we've always guided to.
Okay, Foot Locker was supposedly a big thing, and probably still is, but they have now an additional tie up as well. I believe with Nykaa, is this a negative? How do you characterise this?
Nissan Joseph: So first of all, I think it's very exciting that Foot Locker is launched in India, a great day for all of us to start having access to global brands in a different way. They're the only multi brand retail that we have in the country that sells premium athletic footwear. So that's very exciting. The other thing that any retail brand needs to do is to ensure that they have both a digital presence and a brick-and-mortar presence. So we coincided, both of them on the same day, and Nykaa are great partners for us to do that with. They have a great reach. They have a great footprint in the country. So I think it's a very exciting partnership where we're able to leverage two best in class operators.
You know, you have Metro that's an absolute best in class when it comes to retail brick and mortar, and you have Nykaa that does extremely well in the digital space. So it was a very successful combination of partnerships, a unique one, both for Foot Locker and I don't think we've seen too much of that in India. So it's a unique one that creates, actually, a lot of good synergy.
Okay, interesting. You talk about the thing as us, Mr. Joseph, good to see that. But you don't foresee that it will take away some of the sheen that might have happened if it was an exclusive partnership with you?
Nissan Joseph: Listen, what we are keen about is, are we taking care of the customer as best as we can. Right? It's not about sheen and shine. It's not proprietary or not. What we want to make sure is that the consumer has a seamless experience, both, you know, for a Metro business and for a Foot Locker business, you know, both digitally and offline and we feel that that's been accomplished with this move.
Okay, fair call. Now talk about your own presence. You are presuming ramping up some of the E-commerce sales as well. There is also joined at the hip to that is the performance of the revenue per square foot trend for you, which, if I look at it in a slightly micro fashion, over the last three quarters, the numbers have come off a little bit. 4,800 I believe in Q4 FY 24 the last reported number, if I'm not wrong, is 4,300?
Nissan Joseph: That is correct. You know, Q2 is at our lowest quarter for a lot of our metrics. It's just the nature of the retail business. That's number one. Number two, you know, we've also seen our penetration into tier three cities go from 15% to 16%. Right now, I know that just seems like a small number, but when you're talking about 850-odd stores, that's a significant move, right?
Tier three cities don't come in at the same square sales per square foot, so as we expand, it takes a while for those stores to mature. We don't expect our sales for square foot to tail off in any way, but you have that little bit of the launch, the rollout impact happening and when you have a low quarter like this, it was while we recovered very well from compared to Q1 it's not where we would normally post our numbers. So you're going to see some of that happening.
Last couple of questions, Mr. Joseph, How would things shape up? So a two-part question, rolled into one. One, I heard you say that there are some exciting days ahead. I was speaking to some other retailers who were saying that the next two quarters will probably have the highest number of wedding dates, maybe until May 2025 but we will have the highest number of wedding dates that India has seen in a particular wedding season. So, does this auger well for you? Part one of my question is that, and part two is, do you compliment that via heightened store additions as well because, if I'm not wrong, you've done about 20 in the quarter gone by. Is that in line with what you had thought of, is it lower and do you expect to expand that number?
Nissan Joseph: So, a couple of things, one at a time. I think you're absolutely right on the wedding dates. It speaks very well for the future of our business when we have more and not only more wedding days, but also spread over a period of time and that actually goes on all the way through July next year, not just through May, the propensity of wedding days compared to the year before we actually have wedding dates in July of this coming year, which we had zero in the year we're in right now.
So that's definitely what we were, very confident and optimistic, that it speaks well for our business. It's not about being optimistic about businesses, but understanding the consumer for us, and then matching your expense lines and your investments in line with that. You know, we opened 20 stores this quarter. We have opened 45 stores for the half so far, we've guided to doing between 200-225 stores over two years, which would put us in about 100-plus range each year and we're confident we will achieve that in the coming quarters.
Mr. Joseph, when I look at what you've done from March ‘21 to March ‘24 right, from 800 to 2400 that's nearly a 3x jump over three years. The trailing 12 month numbers are much better than what you did on March ‘24 as well. What is the medium-term outlook that you have for Metro Brands? Do you reckon, I mean, it may be a formal target, which I may have missed. Then, excuse me, but if there is a, if there is not a formal target, then just informally. Do you reckon that with the business space that you are in, and the way India is growing, that doubling every three, four years, the top line is a possibility?
Nissan Joseph: I love forward looking statements, you know, we've guided to the fact that over a period of time, you know, when you look at a five-year CAGR, we will be in the 15-18% range, you know. So right now, even after a couple of challenging, lumpy quarters, you know, we've had probably four quarters of lumpy sales, you know, we're still trending over 14%.
We're confident that over a period of time, when you look at the long-term horizon, that's a number we're very comfortable guiding to, given the strength of the Metro Brand business, under all its different banners, given the growth of India, given the move and shift to premiumisation, that Metro plays really well. So we're pretty confident about those numbers as we go forward.
Viewers, I should apologise to Mr. Joseph, in some sense, because you can't take a low base or FY‘21 which is impacted by Covid, and then look at the growth for three years, and then try and extrapolate it. But 15-18% number, Mr Joseph, is that what you were saying that you will probably hope to do over the next three-four-five years?
Nissan Joseph: That's correct, that's absolutely correct.
Last question, you won't need any serious equity fundraise to do your expansion plans, or is that something that might happen?
Nissan Joseph: No, we're very fortunate. You know, the way we run our business, we generate a lot of cash in our business. So, it's not a question of having the capital to invest in businesses. But you know, we're also strategic about how we invest, right? So last year, the year before, you saw a lot of retailers grow their stores, expand very heavily. All that does is spike up rental prices. So we decided to just slow down just a tad.
I believe in the last couple of quarters, we've seen other retailers do a net closure of stores. So those things always tend to also be lumpy. As far as rentals go when it's on the high side, we tend to slow down a little when it's on the low side. We're confident enough about the Indian economy, we're confident enough about our business that then we rapidly expand. So we're a little contrarian, but we're confident that growth is there.
