TCNSBRANDSNSEQ1 FY2023August 12, 2022

TCNS Clothing Co. Limited

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12analyst exchanges

2executives

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Management on call

Anant Daga

MANAGING DIRECTOR - TCNS CLOTHING COMPANY LIMITED

Amit Chand

CHIEF FINANCIAL OFFICER - TCNS CLOTHING COMPANY LIMITED

Key numbers — 39 extracted

ming to our performance for Q1 2023, despite overall slower segment recovery our Q1 revenues grew 3x year-on-year to reach pre-COVID Q1 sales. While the overall offline sales store recovery is still

35%

spite a large base in Q1 last year. Specifically the brands website scaled up faster at a rate of 35% over last year. While the recorded book sales are lower it is more of a primary and secondary sal

1.5x

le of stores, all the remaining stores are tracking ahead of expectation and are already clocking 1.5x to 2x sales. This growth, despite overall recovery being slightly slower, obviously is encouragin

ores, all the remaining stores are tracking ahead of expectation and are already clocking 1.5x to 2x sales. This growth, despite overall recovery being slightly slower, obviously is encouraging for

10%

r future. In Q1 the brand website grew by 35% year-on-year, omni channel fulfillment scaled up to 10% of overall online business with addition of more marketplace partners. In line with our strategy

Rs 100 Crore

ll representation of footwear and accessories. We are committed to reaching an annual run rate of Rs 100 Crores on consumer sales by the end of FY23 for the new forays cumulatively. All in all we are excited

Rs.276 Crore

veryone. Let me share the update on our financial performance for FY2023 Q1. Our Q1 revenues were Rs.276 Crores which is a growth of 195% over our FY2022 Q1 revenues of Rs.94 Crores and a growth of 18% over F

195%

our financial performance for FY2023 Q1. Our Q1 revenues were Rs.276 Crores which is a growth of 195% over our FY2022 Q1 revenues of Rs.94 Crores and a growth of 18% over FY2022 Q4 revenues of Rs.234

Rs.94 Crore

3 Q1. Our Q1 revenues were Rs.276 Crores which is a growth of 195% over our FY2022 Q1 revenues of Rs.94 Crores and a growth of 18% over FY2022 Q4 revenues of Rs.234 Crores. Our gross margin for the quarter w

18%

.276 Crores which is a growth of 195% over our FY2022 Q1 revenues of Rs.94 Crores and a growth of 18% over FY2022 Q4 revenues of Rs.234 Crores. Our gross margin for the quarter was 69.1% versus 55.8%

Rs.234 Crore

f 195% over our FY2022 Q1 revenues of Rs.94 Crores and a growth of 18% over FY2022 Q4 revenues of Rs.234 Crores. Our gross margin for the quarter was 69.1% versus 55.8% last year in FY2022 Q1 and 68.9% in FY2

69.1%

nd a growth of 18% over FY2022 Q4 revenues of Rs.234 Crores. Our gross margin for the quarter was 69.1% versus 55.8% last year in FY2022 Q1 and 68.9% in FY2022 Q4. As we have mentioned earlier, we shou

Guidance — 20 items

Anant Daga

opening

“This will be backed by digital first marketing campaign which cuts across online and offline channels, marketing tie-up with key partners and a whole new retail identity for W in some of the top markets across the country.”

Anant Daga

opening

“In addition to these 17 stores, we have upgraded another 6 stores under project rise initiative, taking the project rise initiative store tally to 20 stores.”

Anant Daga

opening

“For project rise our flagship store upgradation initiative we have already opened 20 stores across strategic markets in the country.”

Anant Daga

opening

“Now we have a project rise store closer to people who are in Mumbai.”

Anant Daga

opening

“With the success of this concept, we are now working on our new retail identity for Aurelia as well which will be unveiled shortly.”

Anant Daga

opening

“In Q2 we are targeting to open 25 stores on net basis plus project rise store upgradation.”

Anant Daga

opening

“As of now we are firmly on track to open 100 plus new stores on a net basis and 25 project rise upgradation in FY2023.”

Anant Daga

opening

“Second focus area for us is online, with the reorientation of the marketplace towards D2C, we are now aiming to build online channel as a primary sales channel for future.”

Anant Daga

opening

“In line with our strategy of building online as a primary sales channel we will be creating online first products, integrating additional platforms to omni channel model, upgrade the website experience and invest in digital first campaigns.”

Rakesh Wadhwani

“Just wanted to clarify in online as our W brand of TCNS will be selling directly to the customer or it will be like a third-party.”

Risks & concerns — 6 flagged

And on the online side you mentioned that our secondary sale is pretty healthy, but primary is because of that weak.

— Jignesh Kamani

Yes, so if you take out entire year so like we have two quarter of the primary sales decline so if you take out entire year you will see secondary and primary both growing on similar line.

— Jignesh Kamani

If I look at revenue CAGR from three year point of view so in large format store we have clocked 14% CAGR whereas in EBOs there is a 3% decline so can you please help us understand that why there is such a big divergence and I am asking this question in the context that this quarter has been relatively COVID free with regard to restrictions on mobility etc.

— Varun Singh

See this is slightly difficult to predict because even within channel the model change can really impact gross margins so see suppose if in Q2 the B2B of online is higher that will impact.

— Anant Daga

So, quarter-on-quarter there will be changes and this is very difficult to explain.

— Anant Daga

One was obviously festive and second was reopening of offices and workwear and so I think both has an impact on this, frankly it is very difficult to pinpoint and exactly attribute reasons to this but our sense, especially after talking to all our peers, all our channel partners this is what it is.

— Anant Daga

Q&A — 12 exchanges

Thanks for the opportunity. Sir I wanted to ask have we taken any price hike in this quarter because the gross margins are improved. Is it because of the only channel mix or because we have taken some price hike for the product.

Anant Daga

No so again as Amit was mentioning I think it should be seen in conjunction with selling and distribution expenses as well. So while we have maintain the gross margins in that range I don’t think there is any significant change. Second talking about price increases, yes there has been a single digit price increases across select capsules. And one more question may we talk about the omni channel and online sales. Just wanted to clarify in online as our W brand of TCNS will be selling directly to the customer or it will be like a third-party. No so we have these models both, so we sell through o

Thanks for the opportunity. Anant, you mentioned that you expect best ever festive season this year. Can you also throw some more light on this in terms of same store sales recovery because obviously our best of year festive season can also be due to higher store additions versus earlier periods so just on same store sales recovery what are your expectations for this year it would be really helpful.

Anant Daga

So, again see we will have to see how exactly festive builds up but if I talk about any category wherein the occasion usage trigger has played out, I think most of the categories are seeing a double-digit kind of SSSG recoveries compared to FY2020. So, I guess that is the least of the expectation that one should have from SSSG come festive. And online revenues over the last two quarters have been relatively lower much lower in fact versus what we did over the previous year so what is the reason for slower traction here number one. Secondly I guess with D2C sales with higher component of D2C sa

Thanks a lot. I just wanted to understand. If I look at it the pre-COVID which is Q1 FY2020 our revenues have kind of been flat through the entire three-year window. So how do you really look at let us say over the next two to three years from a growth perspective given the fact that last three years we have basically been flat.

Anant Daga

See again typically as a company we do not give future guidances but I will just give you construct which we think is very much possible in the industry we operate in. Organized ethnic wear is supposed to grow at, at least mid to high teens number over next few years and the whole shift from unorganized to organized and the market being so fragmented I think people who are able to execute it well should be growing easily at a rate of 20%, 25% plus and frankly as an organization that would be an aspiration and as per your point about last three years obviously when we first spoke even on this c

If you take about first quarter you have seen a very good wedding demand and everything and number of wedding days was very healthy. But somehow, we have not able to seen that traction in the wishful. Any reason why.

Anant Daga

No, so if you look at two things out here first is wishful is also not really wedding occasion it is a light to a medium occasion there. So in our portfolio we really do not cater to wedding demand. For us the bigger occasions are the Poojas, the Diwali and the lighter occasions having said that if you look at wishful obviously where we were I think we have come from the lower point that we hit in earlier quarter it is again coming back to historical averages. So wishful is again the share is at 6%, 7% odd which is probably in line with pre-COVID levels and better than growth which we have see

Thank you very much Sir. Two questions. First I have been looking at your channel mix. Large format stores I say that from a three year CAGR perceptive. If I look at revenue CAGR from three year point of view so in large format store we have clocked 14% CAGR whereas in EBOs there is a 3% decline so can you please help us understand that why there is such a big divergence and I am asking this question in the context that this quarter has been relatively COVID free with regard to restrictions on mobility etc. and so also looking at competitions performance I understand that primary sales has not

Anant Daga

Varun I am not very sure of exactly is where you are getting these number from. In fact if we look at our numbers I think EBOs spread equally well it is on the similar levels as LFS. So maybe we have to discuss these numbers offline I think probably we are reading a different set of numbers maybe we can clarify. And so, my number is 116 Crores revenue in current quarter from large format stores and from EBOs 122 Crores and I am comparing this number from the base of Q1 FY2020 and taking a three year CAGR the simple looking up power 1/3 calculations that I have been doing. So even we are referr

Sir, couple of questions from my side. One of the large LFS players Central actually closed down their stores in quarter one. What was the impact for us from that because some of the other brands did call out some percentage points declining LFS because of that.

Anant Daga

Yes, so we had a significant business with both central and brand factory. So we were present in both the channels and I think the impact on top line would be at least in around mid single digit number. And if you look at revenue per EBO in Q1 this quarter and again pre-COVID now we are still down 6%, 7% plus we would have taken some price hikes over three years. So is it fair to assume that the volumes while I know you do not comment on volumes but or if not volume, the footfalls at the store level are still down 20% compared to pre-COVID or at least the foot falls are coming back and convers

Hi! Sir, thanks for the opportunity once again. Just wanted to know when do you expect you will be reaching the per store revenue visit to the pre-COVID level because I alluded to the previous participant like we have a lesser revenue pre-COVID per store. So, when do you think it will be achieve to the pre-COVID and what will be the assessing you expect once we reach there.

Anant Daga

See this is something which I just explained so two things even today when we speak two regions have already ahead of pre-COVID levels. So even in our network we have partners, we have channels and we have regions which are tracking ahead of pre-COVID, so I think it is about two big regions, especially for us, to come back to those levels. See my guess is with festive we should see a big upswing. Now how much that would translate to in terms of same stores sales growth is something that we will see looking at other categories I think it should at least be a double-digit number. Okay that is it

I just want to know about the inventory level currently and how it is compared to YoY and compared to 1Q FY2020.

Anant Daga

So again, in the COVID period, we really optimized inventory and we bought less and that is what I was saying that even in FY2022 the season that we gone back, I think we would have a more conservative approach. Now we have started investing and we have also forwarded our inventory buys by a month or two so that we are able to launch the season on time so obviously inventory levels has been built up. So, it is significantly higher to prepare for the upcoming festival season or it is just marginally higher. No, of course what the kind of revenues we are targeting and monsoon-festive are higher

Good evening, Sir and thanks for the opportunity. Great set of numbers. My question is around the advertising. So, I have never seen the advertise our brand in TV or social media so what is ,for brand awareness what is our strategy so we can gain market share.

Anant Daga

See for the first time we are coming up with digital first campaigns and we will be using digital media as the key channel for new season launches apart from that we have also done significant tie-ups with leading channel partners again after a long, long time so you will see us very prominent in many, many point of sales. As a company we have a huge advantage in terms of our EBO presence and we have some really landmark locations across airports and main high streets. So that also we use very, very effectively for communicating to customers. Project rise is also a great marketing tool for us.

Thanks for the follow up opportunity. Just wanted to check on your commentary related to two regions sort of being higher and the other two sort of being relatively lower this is for Q1, or this is for Q2 so far.

Anant Daga

No, this has been since beginning of Q1 and this continues. So, two regions have been more or less consistently ahead of pre-COVID numbers we started seeing this happening April, May it continues now also but the good thing is other two regions we are seeing catching up happening. I wanted to check so significant portion of your festive sales would also sort of happen in Q2 because of B2B sort of portion of our revenues. So still does that generally your commentary related to double digit expectations. No sorry I did not get your question. I am saying a significant part of your sales comes thr

Hi thank you for the opportunity. Sir with the cotton prices seeing a steep fall from almost Rs.100000 can we go about Rs.65000 a candy will we be cutting prices in line with this fall or do you retain some part of this.

Anant Daga

No, see first of all if you look at our product ranges, we use multiple fabrics and lot of time season on season we also try to play the mix. So overall price impact on our line are also not to that great extent compared to brand or a category where 100% cottons are used. Right now we have taken a single digit kind of price increase but if you know fabric prices come down then obviously we can relook at the prices. Sure, Sir that is all from my side thank you.

Thank you everyone. We take this opportunity to thank you for joining the call. We hope we have been able to answer all your queries for any further information please do get in touch with us or SGA. Have a nice evening, great weekend, take care and stay safe. Thank you.

Management

Speaking time

Anant Daga

Moderator

Devanshu Bansal

Jignesh Kamani

Varun Singh

Rakesh Wadhwani

Ankit Kedia

Amit Chand

Ashish Kumar

Deepak Mehta

Opening remarks

Anant Daga

Thank you. Good evening and welcome to Q1 FY2023 Earnings Conference Call, to discuss operational and financial performance for the quarter. I am joined by Amit - our CFO and SGA our Investor Relations Advisors. While Amit can share detailed financials, let me share some key highlights for Q1, our perspective on the emerging situation and progress on key focus areas for FY2023. Starting with our outlook on the emerging market situation over the last few months it has been really encouraging to see multiple categories getting back to normalcy as consumers are indulging in fashion once again. We believe, with the onset of festive season and reopening of offices, the ethnic women’s fashion segment should also come back to full normalcy soon. Given that over the last two years there has been multiple restrictions around festivities and gatherings and hence a lower indexing of ethnic wear, we now see the consumer pressing refresh button this festive season for their wardrobes. This festive

Amit Chand

Thanks Anant. Good evening, everyone. Let me share the update on our financial performance for FY2023 Q1. Our Q1 revenues were Rs.276 Crores which is a growth of 195% over our FY2022 Q1 revenues of Rs.94 Crores and a growth of 18% over FY2022 Q4 revenues of Rs.234 Crores. Our gross margin for the quarter was 69.1% versus 55.8% last year in FY2022 Q1 and 68.9% in FY2022 Q4. As we have mentioned earlier, we should see the gross margin metrics in conjunction with selling and distribution expenses and other overheads as every channel has its own nuance in terms of revenue recognition, gross margin percentages and cost reflecting in selling and distribution expenses or other overheads. Accordingly, basis the channel mix these metrics could vary in a range from quarter-to-quarter. For Q1 the company generated a positive EBITDA of Rs.38 Crores versus last year Q1 EBITDA loss of Rs.20 Crores. PBT for the quarter was Rs.2.6 Crores versus a loss of Rs.49 Crores in last year Q1. PAT for the quart

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