ARVINDFASN - Arvind Fashions Limited Share Price

Management Outlook:
Arvind Fashions Limited (AFL) remains optimistic about sustaining growth momentum, targeting 12"“15% revenue growth in the medium term. They aim to improve EBITDA margins by at least 100 basis points annually, driven by higher gross margins (GP) from direct channels, disciplined discounting, and operational efficiencies. Management expects recent tax cuts to boost consumer demand, particularly in wholesale channels, and plans to accelerate direct channel contribution (retail, online B2C) to ~66% of revenue. Return on Capital Employed (ROCE) is projected to exceed 20%, supported by inventory optimization and working capital discipline.

Key Highlights:

1. Q3 FY25 Performance:

   • Revenue growth: 7% YoY (retail channel +15%, driven by 11% like-to-like growth).
   • EBITDA: Record high of Rs.174 Cr (+16% YoY), with margin expansion of 110 bps.
   • Profitability: PAT more than doubled YoY.

2. Growth Drivers:

   • Direct channels (55% of revenue): Focus on retail expansion (+15% sq. ft. annually), premiumization, and online B2C growth (+20% in Q3).
   • Brand strength: Celebrity collaborations (e.g., Orry for Flying Machine, Disha Patani for Calvin Klein) drove premium collections and reduced discounting.
   • Adjacent categories: Womenswear (2x growth), innerwear (mid-teens growth), and kids' wear (pilots underway).

3. Challenges & Mitigation:

   • Footwear: Impacted by BIS regulations; recovery expected in 6 months.
   • Wholesale: Temporary moderation due to partner exits/early Diwali billing; underlying growth potential remains 8"“10%.

4. Balance Sheet & Cash Flow:

   • Inventory days reduced by 5 days YoY; NWC stable at 60 days.
   • Focus on asset-light model and debt reduction to boost free cash flow.

5. Brand-Specific Strategies:

   • Arrow/Flying Machine: Double-digit retail growth, margin improvements.
   • USPA: Strong momentum with celebrity tie-ups.
   • Tommy Hilfiger/Calvin Klein: Leading premiumization with teens growth.

Management reiterated confidence in sustaining profitable growth through brand leadership, operational rigor, and consumer-centric execution.

1. Question: "Solid set of performance and congratulations team for the great numbers. Shailesh, my question is on online B2C versus a total channel growth of online and others. So there has been a divergence. When do you think the transition within online, which is towards B2C, will get completed?"
Answer: The transition from B2B to B2C is ongoing, driven by better consumer experience, controlled discounting, and online-exclusive assortments. B2C grew 20% in Q3 and is expected to surpass B2B (currently 50-50 mix) to become two-thirds of online revenue. The online business overall targets ~10% growth, offsetting B2B declines.

2. Question: "My second question on the wholesale, which you alluded that you exited some large department store... What would have been the growth excluding this exit?"
Answer: Underlying wholesale growth potential remains 8"“10%. The decline was due to a partner's format shutdown (industry-wide impact) and Q2's early festival billing. Department stores and MBO channels are expected to rebound with tax cuts and improved execution.

3. Question: "On Flying Machine and Arrow... is the game plan around completely focusing on B2C?"
Answer: Arrow and Flying Machine are expanding across channels (EBOs, MBOs, department stores). Both brands delivered double-digit LFL growth, with distribution expansion opportunities in wholesale and direct channels.

4. Question: "Is it fair that [Arrow and Flying Machine] drag on margins will no longer be there as we enter FY26?"
Answer: All brands contributed to 11% LFL growth. EBITDA margin guidance is +100 bps annually, aided by scale leverage, GP improvement, and cost control. Arrow and FM's margin trajectory is improving faster than the company average.

5. Question: "How do you see the square foot addition for retail space in FY26?"
Answer: Net square footage expansion targets 15% annually (~150k sq. ft. added yearly). Focus is on larger, high-quality stores (e.g., Club A) and shutting smaller, unprofitable formats.

6. Question: "Can you update us on the progress on the footwear business... and emerging segments like womenswear and kids wear?"
Answer: Footwear faced temporary BIS-related inventory issues but is recovering. Womenswear doubled YTD, and kids wear is piloting new formats. Adjacent categories (20% of revenue) grew 15"“20%, led by innerwear and sneakers.

7. Question: "Why is net margin only 1% despite high single-digit EBITDA margins for brands ex-PVH?"
Answer: PAT (ex-minority interest) has doubled YTD, reflecting drag reduction from Arrow/FM. Scale improvements and revenue acceleration will further boost margins.

8. Question: "Which brands grew above/below company average?"
Answer: PVH brands (Tommy Hilfiger, Calvin Klein) grew fastest due to premiumization. All brands, including USPA, Arrow, and FM, delivered healthy growth and profitability.

9. Question: "Where exactly are we reducing inventory?"
Answer: Inventory optimization spans all channels. Turns improved to 4.2x via fresher stock and controlled discounting. Growth occurred with minimal inventory value increase.

10. Question: "Why were net EBO additions low despite gross expansion?"
Answer: Mall delays postponed store openings. Focus shifted to closing smaller stores and opening larger, profitable formats (e.g., 4,000 sq. ft. stores).

11. Question: "What's the volume-price mix for 11% LTL growth?"
Answer: Volume drove most of the LTL growth. Full-price sales dominated Q3, with minimal discounting.

12. Question: "When will Arrow/FM turn PAT-positive?"
Answer: Arrow/FM's drag is reducing. Their profitability journey depends on market conditions but is on track for improvement.

13. Question: "How will PAT scale with EBITDA margin improvements?"
Answer: PAT (ex-minority) grew 130% YTD. Continued scale and Arrow/FM's margin recovery will accelerate bottom-line growth.

14. Question: "Do you maintain 12"“15% revenue growth guidance?"
Answer: Yes. Growth drivers include retail/B2C acceleration, wholesale recovery, and adjacencies. FY25 growth improved to ~8.5% from 4.5% in FY24.

15. Question: "How much of Q3 sales came from discounts versus full-price?"
Answer: Minimal EOSS impact in Q3. Growth was driven by full-price sales (discounting down 1% in retail, 2% in B2C), aided by strong collections and marketing.

16. Question: "How did AFL outperform in a muted macro?"
Answer: Portfolio strength (casualization trend), premiumization, and execution (e.g., celeb collaborations, inventory control) drove market share gains despite industry challenges.