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00:00Mr. Nisan Joseph, CEO of Metro Brands Johnson right now on the show.
00:03Mr. Joseph, good having you, thanks for joining in.
00:05Before I talk about the quarter per se, Mr. Joseph,
00:09would love to understand from you where or what is your view on this whole conversation
00:16that is coming up about the urban versus rural demand.
00:20Suddenly, with companies like HUL and Nestle talking about different categories albeit,
00:26but talking about how rural demand is picking up,
00:29but urban is waning, it's like the cat amongst the pigeons.
00:33I would love to know your views here, sir.
00:35Thank you, Neeraj, for having me this morning.
00:38You know, we don't look at it as urban versus rural because, you know,
00:41the recovery was different if you go back post-COVID.
00:44What you're seeing post-COVID is a lumpy recovery, right?
00:48And in a good way, too.
00:49So, we had a great year, the year after COVID, and everybody had a little bit of a challenge.
00:53So, when it recovers and the economy tends to normalize,
00:57consumption tends to normalize, it's not a straight line recovery or normalization.
01:01It tends to be a little bit lumpy.
01:03You know, what we're really happy about, though, is the fact that two things,
01:06one is our Q2 numbers saw an improvement over our Q1 as far as, you know, year-to-year growth.
01:11That's number one.
01:13Number two, you know, we continue to maintain our profit percent,
01:16though we did not have the revenue growth, which shows that, you know,
01:19there's some strong operational and financial discipline inside our organization.
01:23The other point I want to point out is that in Q2, we have crossed us extremely well.
01:30So, that's on the tailwind side and, you know, because of the monsoons,
01:33and it did very well for us over the monsoon season.
01:36On the headwind side, you know, we have to liquidate some of our inventories in FILA
01:40and take some accruals for that inventory, that last bit of inventory that's left over,
01:44that depressed the margins a little bit.
01:45It is also a quarter where we have the end-of-season sales.
01:49So, you don't have an upside of a lot of full-price sales happening in the same quarter.
01:53So, there's a couple of headwinds, tailwinds in that quarter,
01:55but overall, I'm quite pleased to see that we came out and we maintained our profitability,
01:59both in percentages and also in the EBIT took a little bit of a hit.
02:03But like I was saying, that was only because of gross margin erosion
02:07and also the fact that we started investing in marketing late in Q2, getting ready for our Q3 season.
02:13So, does that reverse the last part, Mr. Joseph?
02:16Let's stick to Metro now. Does it reverse in quarter three?
02:19Is the old inventory stocked largely over?
02:21And are the marketing spends, the velocity at least, behind you now?
02:27Yeah. So, absolutely, the large part of the FILA liquidation is now behind us, right?
02:33There's still some small pieces left, but nothing of a significant nature.
02:36So, that's number one, right? The marketing spends,
02:39what we did was we spent more in Q2 this year than we did last year.
02:42So, now that's going to normalize.
02:44Not that we're not spending on marketing in Q3, we will,
02:47but then we have those numbers to go up against last year, too.
02:50But what's really exciting though, Neeraj, is when you look at all the other expenses
02:53that we had in our business, we were able to maintain control on them
02:57and hence deliver the profitability that we did.
03:03Okay. Fair call. Now, what about revenues, though?
03:07I hear you that the operational metrics may improve in quarter three itself.
03:11How has the start of the season, if you will, been thus far?
03:16Or 22 days from the time Pitru Paksh got over,
03:19though I don't think that impacts sales for a product such as yours,
03:22but how has the festive season been thus far?
03:25Well, so, you know, this festive season is unique in the sense that both the two big drivers
03:29for Durga Puja and Dussehra and Diwali are both earlier this year, right?
03:33So, what's going to happen is you're going to see a lift in October
03:37because both those seasons come in early and they would impact October.
03:40So, we're seeing that coming very positively and good.
03:43But then also in November, where we have as a tailwind there for us is the fact
03:47that there are significantly larger wedding dates for both November and December than last year.
03:53And that's a big driver to our revenue as well.
03:55As you know, in Q1, we were challenged with it
03:59because there were absolutely zero wedding days compared to the year before.
04:02So, we're seeing some good tailwinds coming up in the future.
04:06You couple that with the fact that we have deep operational rigor and financial discipline.
04:10You know, I'm confident that we would be able to deliver to the numbers that we've always guided to.
04:15Okay. Foot Locker was supposedly a big thing and probably still is,
04:21but they have now an additional tie-up as well, I believe with Nika.
04:25Is this a negative? How do you characterize this?
04:29So, first of all, I think it's very exciting that Foot Locker launched in India.
04:33It's a great day for all of us to start having access to global brands in a different way.
04:38They're the only multi-brand retailer that we have in the country that sells premium athletic footwear.
04:42So, that's very exciting.
04:44The other thing that any retail brand needs to do
04:47is to ensure that they have both a digital presence and a brick-and-mortar presence, right?
04:52So, we coincided both of them on the same day.
04:54And Nika are great partners for us to do that with.
04:57They have a great reach. They have a great footprint in the country.
05:00So, I think it's a very exciting partnership where we're able to leverage two best-in-class operators.
05:05You have Metro that's an absolute best-in-class when it comes to retail brick-and-mortar,
05:09and you have Nika that does extremely well in the digital space.
05:12So, it was a very successful combination of partnerships, a unique one, both for Foot Locker,
05:17and I don't think we've seen too much of that in India.
05:19So, it's a unique one that creates actually a lot of good synergy.
05:23Okay. Interesting you talk about that thing as us, Mr. Joseph.
05:28Good to see that.
05:29But you don't foresee that it will take away some of the sheen that might have happened
05:34if it was an exclusive partnership with you.
05:36Listen, what we're keen about is are we taking care of the customer as best as we can, right?
05:41It's not about sheen and shine. It's not about proprietary or not.
05:45What we want to make sure is that the consumer has a seamless experience,
05:48both for our Metro business and for our Foot Locker business, both digitally and offline.
05:53And we feel that that's been accomplished with this move.
05:57Okay. Okay. Fair call.
06:00Now, talk about your own presence, right?
06:03You are, I'm presuming, ramping up some of the e-commerce sales as well.
06:07There is also joined at the hip to that is the performance of the revenue per square foot trend for you,
06:15which, if I look at it in a slightly macro fashion, over the last three quarters,
06:21the numbers have come off a little bit.
06:234,800, I believe, in Q4, FY24.
06:26The last reported number, if I'm not wrong, is 4,300.
06:29Right. That is correct.
06:31You know, Q2 is our lowest quarter for a lot of our metrics, right?
06:35It's just the nature of the retail business. That's number one.
06:38Number two, you know, we've also seen our penetration into tier three cities go from 15% to 16%, right?
06:45Now, I know that just seems like a small number, but when you're talking about 850-odd stores,
06:49that's a significant move, right?
06:51Tier three cities don't come in at the same sales per square foot.
06:54So as we expand, it takes a while for those stores to mature.
06:57We don't expect our sales per square foot to tail off in any way,
07:01but you have that little bit of the launch, the rollout impact happening.
07:07And when you have a low quarter like this, it wasn't while we recovered very well compared to Q1.
07:12It's not where we would normally oppose our numbers.
07:15So you're going to see some of that happening.
07:17Last couple of questions, Mr. Joseph.
07:20How would things shape up?
07:22So two-part question rolled into one.
07:24One, I heard you say that there are some exciting days ahead.
07:27I was speaking to some other retailers who were saying that the next two quarters
07:31will probably have the highest number of wedding dates, maybe until May, May 2025,
07:36but we'll have the highest number of wedding dates that India has seen in a particular wedding season.
07:41So does this augur well for you? Part one of my question is that.
07:45And part two is do you complement that via heightened store additions as well?
07:49Because if I'm not wrong, you've done about 20 in quarter two gone by.
07:53Is that in line with what you had thought of? Is it lower?
07:56And do you expect to expand that number?
07:59Yeah. So a couple of things one at a time.
08:02I think you're absolutely right on the wedding dates.
08:04It speaks very well for the future of our business when we have more and not only more wedding dates,
08:10but also spread over a period of time. Right.
08:12And that actually goes on all the way through July near as of next year,
08:15not just through May, the propensity of wedding days compared to the year before.
08:21We actually have wedding dates in July of this coming year, which we had zero in the year we're in right now.
08:26Right. So that's definitely what we were very confident and optimistic that it speaks well for our business.
08:33You know, it's not about being optimistic about businesses, but understanding the consumer for us
08:37and then matching your expense lines and your investments in line with that.
08:41You know, we did open 20 stores this quarter net. We have opened 45 stores for the half so far.
08:47We've guided to doing between 200 and 225 stores over two years, which would put us about 100 plus range each year.
08:54And we're confident we will achieve that in the coming quarters.
08:58OK. Mr. Joseph, when I look at what you've done from March 21 to March 24, right from 800 to 2400,
09:10that's nearly a three X jump over three years.
09:14The trailing 12 month numbers much better than what you did in March 24 as well.
09:19What is that? What is the medium term outlook that you have for Metro brands?
09:24Do you reckon? I mean, it may be a formal target, which I may have missed.
09:27Then excuse me. But if there is a if there is not a formal target, then just informally.
09:32Do you reckon that with the business space that you are in and the way India is growing,
09:37that doubling every three, four years, the top line is a possibility?
09:43You know, I love forward looking statements. You know, we've guided Neeraj to the fact that over a period of time,
09:49you know, when you look at a five year Kager, we will be in the 15 to 18 percent range.
09:53You know, so right now, even after a couple of challenging, lumpy quarters,
09:58you know, we've had probably four, four quarters of lumpy sales. You know, we're still trending over 14 percent.
10:03Right. We 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.
10:09Given the given the strength of the Metro brand business and under all its different banners,
10:16given the growth of India, given the move and shift to premiumization that Metro plays really well.
10:21And so we're pretty confident about those numbers as we go forward.
10:24Yeah. And yours. I mean, I should apologize to Mr.
10:28Joseph in some sense, because you can't take a low base of a 521,
10:31which is backed by covid and then look at the growth or three years and then try and extrapolate it.
10:36But 15 to 18 percent number, Mr. Joseph, is that is that what you were saying,
10:39that you would probably hope to do over the next three, four, five years?
10:42That's correct. That's absolutely correct. And last question.
10:45You won't need any any any serious equity fundraise to do your expansion plans or is that something that might happen?
10:51No, we're very fortunate. You know, the way we run our business, we generate a lot of cash in our business.
10:56So it's not a question of having the capital to invest in businesses.
10:59But, you know, Neeraj, we're also strategic about how we invest. Right.
11:02So last year, the year before, you saw a lot of retailers grow. These stores expand very heavily.
11:07Right. That all that does is spike up rental prices. So we decided to just slow down just a tad.
11:12And I believe in the last couple of quarters we've seen other retailers do a net closure of stores.
11:17Right. So those things always tend to also be lumpy as far as rentals go.
11:21And when it's when it's on the high side, we tend to slow down a little when it's on the low side.
11:24We are confident enough about the Indian economy. We're confident enough about our business that then we rapidly expand.
11:30So we're a little contrarian, but we're confident that growth is there.
11:34Well, we wish you all the best for that growth.
11:39Mr. Joseph, thanks so much for taking the time out and being with us today.
11:42Thanks, Neeraj.