Q3FY24 Review: Go Fashion: Weak demand trends persist

7 Feb 2024 , 11:34 AM

Go Fashion reported a broadly in-line quarter at sales/Ebitda level on weak expectations with flattish same store sales. With tepid demand trends continuing, management is likely to miss its earlier net store addition guidance in FY24, but has reiterated its FY25 guidance at 150 stores, contingent on a timely recovery in demand. Analysts of IIFL Capital Services maintain ADD rating on the stock with a target price of ₹1,200. 

Broadly in-line at Ebitda level: 

Go Fashion reported Q3FY24 results broadly in-line with our estimates at sales / Ebitda level. Sales / Ebitda grew 15%/13% with same store sales and volumes being flat YoY. The company has added 74 stores during M9FY24 (net of 13 closures). ASP was flat during the quarter vs. 5% increase in Q2, driven by unfavourable product mix and festive bill level promotions. Pre IND AS Ebitda contracted ~230bps to 19.7% owing to negative operating leverage from flat SSS performance. Higher depreciation, interest costs and tax rate drove a 4% decline at PAT level 

Demand environment remains uncertain: 

Management reduced its net store addition guidance of 100-110 stores in FY24 (vs. 120-130 stores earlier) but reiterated its guidance of 150 stores in FY25, hopeful of a recovery. However, demand trends in Q4FY24 so far remain uncertain with the company likely to again clock a mid-teens growth in Q4FY24. Reduction in inventory levels remains on track with inventory in Dec’23 at ~100 days (trailing 12M basis) vs. ~125 days in FY23. 

Ebitda downgrade of 3-6%: 

Analysts of IIFL Capital Services factor in a more gradual recovery and lower their store addition as well as SSS growth estimates, resulting in a downgrade of 4%/6%/3% at adj Ebitda level for FY24/25/26. Closure of promoter pledges (16% of promoter holdings) is likely to be delayed by a few months (earlier expectation of Mar’24). While the stock has corrected 13.5% in the past three months, and is trading at reasonable valuations (32x FY25 adj Ebitda), a delay in demand recovery could result in further downgrades. Analysts of IIFL Capital Services maintain ADD rating with a target price of ₹1,200.