Metro Brands Ltd’s results for the quarter ending December (Q3FY25) showed a decent improvement on some counts. For instance, while revenue per square foot continued to drop year-on-year, the 1% decline was the slowest in the past seven quarters. The footwear retailer’s consolidated revenue of ₹703 crore meant growth stood at 10.6%, much better than the 2% growth seen in H1FY25. That’s because Q3 was marked by a recovery in sales due to the festive and wedding season after a dull H1FY25.
Also read | Kotak Bank: Lower cost of funds prevents margin slide
Q3 growth could have been better if it wasn’t for the early onset of discounts at several retailers. Metro’s gross margin fell 125 basis points to 58.6% in Q3 because of higher e-commerce sales and the impact of FILA inventory liquidation. Still, Ebitda margin was up 70 bps to 32% as operating costs were under control.
Upbeat on Q4 demand
Management expects demand conditions to be upbeat in Q4, helped by a good wedding season. Metro opened 56 net new stores during the nine months to December (9MFY25). The total number of stores at the end of December stood at 895. The company reckons net new store openings for FY25 will drop below its guidance of 100 stores. Even so, it is committed to achieving its overall target of 225 store openings on a combined basis over FY25 and FY26.
Also read: Wipro fights its way back into the game
This implies store addition guidance for FY26 is around 145, which according to Nuvama Institutional Equities “is an encouraging sign, given their history of meeting store expansion targets”. Factoring in the 9MFY25 performance and elevated ask rate for Q4, the brokerage has trimmed FY25 and FY26 estimates for revenue by 2.5% and 3.9%, and Ebitda by 4.9% and 3.9%, respectively.
Amid an uncertain demand environment, Metro’s shares are trading about 15% below their 52-week high of ₹1,430 on 9 August. Motilal Oswal Financial Services has valued Metro Brands at a 70x price-to-earnings multiple based on FY27 estimates to arrive at a valuation of ₹1,550 a share.
“We have not factored in any significant contributions from FILA and Foot Locker in our estimates till FY27, and a faster ramp-up could provide a further upside potential,” they added in a report on 18 January. However, persistent demand weakness along with store expansion could pose a risk to growth, hurting investor sentiment.
Also read: Infosys investors blow hot and cold on Q3 revenue beat, guidance revision
