Q2FY24 Review: Go Fashion: Hopeful of pick-up in festive period

1 Nov 2023 , 11:27 AM

Go Fashion reported a broadly in-line Q2FY24 performance on weak expectations. Same store sales declined by 1%, driven by continued weakness in demand and a festive mismatch. While management is confident of meeting its annual store addition target of 120-130 EBOs in FY24 (48 added in H1), its FY24 revenue target of Rs8bn is contingent on a pick-up in SSS performance in H2. Analysts of IIFL Capital Services forecast sales/Ebitda Cagr of 20%/22% over FY23-26 and maintain ADD rating with a TP of Rs1,300. 

An in-line quarter on weak expectations: 

Go Fashion reported a broadly in-line quarter with sales/Ebitda/PAT growing by 15%/14%/4% respectively. Same store sales declined by 1% (vs. 2.5% growth recorded in 1QFY24), driven by continued weakness in consumption and a festive mismatch vs. the base quarter. LFL channel (22% of sales) recorded a healthy growth of 34%, driven by new store additions. Ebitda margin adjusted for IND AS 116, contracted by 150bps to 16.5%, implying Ebitda growth of ~5%. 

Guidance reiterated on FY24 store additions and revenues: 

Go Fashion has added 48 EBOs in H1FY24 and is on track to add 120-130 EBOs in FY24. It reiterated its store addition guidance of 150-170 stores in FY25. While management also reiterated its revenue target of Rs8bn in FY24, it would depend on a pick-up in demand in H2. While SSS growth pertaining to the pujo period has been modest at ~5%, eastern geography has a relatively low salience for Go Fashion and all eyes are now on the festive demand during Diwali in mid-November. 

Broadly maintain estimates: 

Analysts of IIFL Capital Services factor in a pick-up in SSS growth and ~80 EBO additions in H2FY24. They also forecast improvement in gross margin trajectory as the benefit of lower cotton prices flows through. In FY25/26, they are building in a SSS growth of 10% alongwith 150/160 EBO additions. For a company poised to deliver a 22% Ebitda Cagr over FY23-26, the stock is reasonably valued at 34x EV/adj Ebitda (FY25). However, a delay in SSS growth pick-up or slower than expected EBO addition could lead to Ebitda downgrades. Maintain ADD rating with a target price of Rs1300.