Consumption slowdown, coupled with contraction in some of the non-strategic brands, has led to Arvind Fashions Limited (AFL) posting a net loss of Rs 95.36 crore for the quarter ended June 30, 2019 (Q1FY20). AFL, which demerged last year from the flagship company Arvind Ltd, is the group's branded apparel and retail arm.
Strategic measures taken by the company, along with a consumption slowdown, meant that AFL registered a total revenue of Rs 901.82 crore in Q1FY20, while the same stood at Rs 1,007.97 crore in Q1FY19.
"We have taken few strategic decisions during the quarter that had a negative impact on the reported quarterly financial results, but it will set us up for consistent growth going forward. There is indeed a slowdown in consumption that is impacting the economy. Our business is inherently strong and we remain optimistic towards our future," J Suresh, managing director and chief executive officer of Arvind Fashions Ltd. stated in an official communique.
AFL operates several brands, divided roughly into three categories including power brands comprising US Polo, Arrow, Flying Machine and Tommy Hilfiger, specialty brands including Unlimited, GAP and Sephora, and emerging brands such as Calvin Klein, Aeropostale and Ed Hardy, among others. Among these, the power brand revenues declined by 8 per cent in Q1FY20 to Rs 518 crore, on account of "conscious measures to reduce our exposure to long credit cycle customers as well as aligning our primary sales more closely with our secondary sales, especially for Arrow".
As a result of the measures taken, Q1FY20 earnings before interest, tax, depreciation and amortization (EBITDA) for the power brands, although excluding IndAS 116 impact, declined to Rs 23 crore as against Rs 58 crore in the corresponding quarter of the last year. "While there was de-growth on primary sales basis, inherent secondary sales continued to be strong with retail like-to-like (LTL) growth at 5 per cent and overall retail growth at 11 per cent. Also, we added 30 stores during the quarter," the company stated.
On the other hand, AFL's specialty retail registered a flat revenue in Q1FY20 of Rs 274 crore while its EBITDA margins were lower by 110 bps in Q1FY20 vis-a-vis Q1FY19. "GAP and Sephora continue to post robust growth with improved profitability. Unlimited improved its profitability during Q1 FY20, through multiple cost rationalization initiatives and closure of unviable stores, after a significant dip in its performance in Q4 FY19," AFL stated on specialty retail business.
Emerging brands, however, reported a flat revenue in Q1FY20 at Rs 120 crore even as the company stated that it expected to complete the exit process of brands planned to be discontinued in the second quarter of this fiscal. "With a focused portfolio, emerging brands are set up for profitable growth," it stated.
Providing an outlook for the entire fiscal 2019-20, AFL stated that it would continue to focus on working capital efficiency through disciplined efforts around debt control, secondary sales alignment, reduction in inventory and closure of unviable brands and retail stores.
"This is in-line with our strategy of having a more focused business with better capital efficiency, which will set us up for accelerated growth and profitability in FY21 and beyond. We believe that especially given the broader consumption slowdown in the economy and liquidity pressure, a greater focus on credit control and alignment of primary sales with secondary sales will lay the foundation for a healthier business," AFL stated.
Operationally, the company's efforts would entail improvement in secondary sales, addition to its retail presence, expansion of online sales and continued accelerated growth in categories like premium casual and denimwear, kidswear, innerwear and prestige beauty.
"Our capability build-up in analytics for demand planning and fulfilment as well as omnichannel is continuing and will contribute to growth, profitability and capital efficiency in future. We continue to remain optimistic about the future of our business as we take necessary actions to make the company future ready with right capabilities and fit for profitable growth," AFL stated.