Q1FY24 Review: Go Fashion: Hopeful of volume growth pickup from Q3

1 Aug 2023 , 11:11 AM

Go Fashion reported a weak Q1FY24, with SSS growth muted at 2.5% and same store volumes declining by ~4%. Overall sales grew 15%, driven by 25 net EBO additions in Q1. Management was hopeful of an improvement in volumes from Q2 onwards and a pickup in Q3 lifted by festive demand. While the annual store addition guidance was reiterated at 120-130 stores in FY24, the company is targeting to accelerate the pace of store addition to 150-170 stores from FY25. Analysts of IIFL Capital Services upgrade their adj. Ebitda estimates by 3-4% to factor in higher store additions in FY25/26 and maintain ADD rating with a target price of Rs1,250. 

Slight beat on lower ad-spends: 

Go Fashion reported a weak Q1FY24 performance with same store volumes declining by ~4% and SSS growth muted at 2.5%. ASP increased by 7%, driven largely by product mix. The company added 25 EBOs on a net basis, driving overall sales growth of 15% during the quarter (1% below analysts of IIFL Capital Services estimate). Gross margin expansion (including sub-contracting expenses) and sharp reduction in ad-spends resulted in 20% Ebitda growth (3% above analysts of IIFL Capital Services estimate). 

Hopeful of a pickup in vol. growth from Q3: 

With weak consumer sentiment persisting, management is hopeful of flattish volumes (along with consistent ~5-6% contributed by product mix improvement) in Q2FY24 and a pickup from Q3FY24 onwards, driven by festive demand. Management reiterated its store addition guidance at 120-130 EBOs in FY24. With investments behind expansion of the business development team, it is aiming to accelerate EBO store additions to 150-170 from FY25 onwards. 

Ebitda upgrade of 3-4%: 

Analysts of IIFL Capital Services factor in a steady pickup in SSS growth from Q2FY24 and also increase their EBO store addition estimates to 150/160 stores in FY25/26 — resulting in 3%/3%/4% upgrade in their adj. Ebitda estimates for FY24/25/26. They are factoring in 5.5% SSS growth in FY24 (vs. 2.5% delivered in Q1) and an acceleration to 10% SSS growth in FY25/26. Trading at 32x EV / adj. Ebitda (FY25), the stock is reasonably valued, but delay in growth pickup could result in Ebitda downgrades. analysts of IIFL Capital Services forecast adj. Ebitda Cagr of 21% and maintain ADD rating with a target price of Rs1,250.