Arvind Fashions Ltd

NSE:ARVINDFASN

Earnings Call Analysis

Arvind Fashions reports strong Q1 FY '25 growth

Arvind Fashions Limited delivered robust results for Q1 FY '25 with double-digit revenue growth and a 1.5% increase in like-to-like retail sales. The company's EBITDA grew by 20%, reaching INR 123 crores from INR 103 crores last year, despite challenging market conditions. The company saw substantial growth in its online business, which expanded by over 60% year-on-year. Gross profit improved to 55.2%, up by 80 basis points, due to better price realization and efficient product costs. Key brands like Tommy Hilfiger, U.S. Polo, and Calvin Klein performed exceptionally well, driving the overall success.

Solid Start to FY '25 Amidst Challenges

Arvind Fashions Limited reported a robust performance in the first quarter of FY 2025 with a notable 10% growth in net sales value (NSV), reaching INR 955 crores. The company achieved an EBITDA of INR 123 crores, which represents a 20% increase year-over-year despite facing challenges such as a peak heatwave and reduced wedding dates that impacted customer traffic.

Healthy Margin Expansion

The gross profit margin increased by 80 basis points to 55.2%, driven by improved price realization and tighter control on discounting practices. This improvement flowed into EBITDA as the company maintained its discipline to limit discounting, delaying markdowns until the end of June. This strategy was crucial as it helped to stabilize price points and bolster sell-through rates.

Strength in Various Channels

Growth was observed across all distribution channels. Online direct-to-consumer sales surged more than 60% year-on-year, indicating strong consumer interest and effective pivoting from wholesale operations. The wholesale segment also performed well, growing over 15%, attributed to strategic timing of inventory deliveries coinciding with seasonal demand. Overall, retail channels saw a like-for-like growth of 1.5%, which is commendable given the stringent market conditions.

Operational Efficiency and Working Capital Management

Arvind Fashions has shown commendable working capital management, maintaining a steady gross working capital (GWC) days while achieving significant inventory turnover. The company effectively kept inventory levels flat while enhancing stock turns to 4. This well-controlled inventory strategy ensures fresh stock availability and efficient cash flow management.

Future Growth Outlook

Looking forward, the management remains optimistic about continuing double-digit revenue growth and maintaining a margin expansion target of 100 basis points for FY '25. They are targeting broader growth rates between 12% and 15% in the medium term, contingent on favorable market conditions. Current growth drivers include the expansion of retail space, enhanced online business strategies, and efforts to penetrate adjacent product categories.

Focus on Premium Brands and Expansion

All major brands, including Tommy Hilfiger, U.S. Polo Association, and Calvin Klein, exhibited strong performance both in sales and profitability. The company plans to continue enhancing their premium offerings and utilize the flagship store model to further showcase their product range. Particularly, the management aims to escalate the growth trajectory of brands like Arrow and Flying Machine, currently in the re-energization phase, targeting an increase in their profitability over the next fiscal periods.

Earnings Call Transcript 2025-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Q1 FY '25 Earnings Conference Call of Arvind Fashions Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ankit Arora. Thank you, and over to you, sir.

[Ankit Arora, executive]

Thanks, Ria. Hello. Welcome, everyone, and thank you for joining us on Arvind Fashions Limited Earnings Conference Call for the first quarter ended June 30, 2024. I'm joined here today by Shailesh Chaturvedi, our Managing Director and CEO; and Girdhar Chitlangia, our Chief Financial Officer. Please note that results, press release and earnings presentation had been mailed across to you yesterday. And these are also now available on our website, www.arvindfashions.com. I hope you had the opportunity to browse through the highlights of the performance.

We will start with Shailesh covering the business highlights and financial performance. And post that, at the end of management discussion, we will have a Q&A session.

Before we start, I would like to remind you that some of the statements made or discussed on this call today may be forward-looking in nature and must be viewed in conjunction with risks and uncertainties we face. A detailed statement of these risks is available in this quarter's earnings presentation and our annual report filed on our website. The company does not undertake to update these forward-looking statements publicly.

With that said, I would now turn the call over to Shailesh to share his views. Thank you, and over to you, Shailesh.

[Shailesh Chaturvedi, executive]

Thanks, Ankit. Good afternoon, everyone. There's all-round good performance at AFL in quarter 1 FY '25 with double-digit revenue growth, 1.5% like-to-like retail growth, 80 basis point increase in GP, which has flown into EBITDA, and EBITDA has grown by 100 basis points with value growth of nearly 20% in EBITDA. All in all, very satisfying results under tough market conditions. NSV in Q1 is INR 955 crores and EBITDA is INR 123 crores.

Markets have been subdued for a while and this quarter saw impact of elections, peak heat wave and fewer wedding dates, which impacted traffic across offline and online channels, but we are pleased that quarter 1 results have been in line with our guidance with growth going up from growth levels of Q4, as we had indicated, and there is a 100 basis point increase in EBITDA.

We have seen growth across brands and in every channel. There is growth in volume as well as in price realization. A key highlight was control on discounting, where we delayed the USS to end of June, while industry had seen discounting by mid-June. You may recall that we had adjusted our primary billing of spring-summer goods for wholesale channels with billings being lower to MBO and department store in quarter 4 earlier. And now we supplied goods at the right time, closer to the summer season in Q1, which led to a healthy growth of more than 15% in wholesale channels in this quarter.

After a few quarters of destocking in online channels, quarter 1 saw healthy growth in online business with both revenue and channel profitability seeing healthy uptick. There's handsome growth in online direct-to-consumer business that has grown more than 60% year-on-year and delivered higher channel profitability as well. We are making whole-hearted investment behind online business with the right hygiene to gain from its traction.

GP has moved up to 55.2%, a gain of 80 basis points with dual benefit of better price realization as well as lower, more efficient product cost with good sell-throughs and tight control on discounting, our price realization went up. It was also aided by efforts on premiumization, their realization and sell-throughs are higher. This, coupled with continued sourcing efficiency on product costs, we gained 80 basis points in GP. Most of this GP gain has flown into EBITDA. It saw nearly 20% growth to INR 123 crores versus last year value of INR 103 crores.

On working capital front, quarter 1 saw stable GWC days. We were able to hold on to sell-throughs in SS '24, amidst a very difficult market condition and ensure that there's no slippage in inventory. With tight control on the inventory, business has grown by 10% with flat inventory value overall and delivering stock turns of 4 with lowering of inventory base by 3 days.

With our asset-light approach, ROCE has also gone up. At brand level, all 3 super strong brands, including Tommy Hilfiger, U.S. Polo Association and CK has delivered fantastic results, once again, both in terms of top line and bottom line. I can clearly say that for all our brands, product overall in the last few years is paying dividends in difficult market conditions.

Product lines are looking fresher with higher quality and delivering good sell-throughs. Tight control on inventories, ensuring more fresher account and helping deliver better sell-throughs, good like-to-like growth and control discounting. The highlight of Arrow business in this quarter was a mega occurring event with actor Hrithik Roshan in Mumbai in association with GQ publication. This event promoted the super premium 1851 line, and we saw a really big impact of the event content on social media with some posts reaching more than 10 million review -- more than 10 million views.

The efforts to re-energize Flying Machine continues with new cool merchandise of spring-summer '24, which is getting encouraging response from channels and consumers clearly seeing a healthy growth of online channels in quarter 1. The key priority for FY '25 is to focus on revenue growth. Our brands remain top of considerations that are ready and prepared and they benefit whenever market improves. We also benefit from the industry trend of casualization, as most of our brands have leadership in casual segments.

We continue to put energy behind each of our key growth drivers, including retail expansion, like-to-like store growth, premiumization, buildup of online direct B2C business and growth of adjacent categories. Let me touch upon few growth drivers here, starting with retail network expansion. We've added more than 40,000 square foot net of retail space in quarter 1, with opening up nearly 30 high-quality stores. We remain committed to growing net retail space by around 15% are hopeful of further acceleration of buildup in square footage in times ahead. Another exciting aspect of store expansion has been opening up large flagship stores, especially in U.S. Polo Association brand.

We want to focus on a few selected landmark locations so that we can showcase the entire range of past developing adjacent categories in these stores, including footwear, womenswear, kidswear and innerwear. We opened such flagship stores of U.S. Polo Association in Jayanagar, Bangalore; Indiranagar, Bangalore; Banjara Hills, Hyderabad; M.G. Road, Goa; and C Road, Jodhpur. We are extremely excited by initial traction to the stores. We are tracking good numbers and are achieving targets. We are also expanding square foot through innovative formats like Stride for footwear and accessories and [indiscernible] for full price premium retailing of our brands.

Along with Club A store in Bangalore that we opened last year, we have opened two new Club A, one in Surat and another one at Lucknow Airport. Growth of adjacent category also remains a key growth priority for AFL. The share of adjacent category like footwear, womenswear, kidswear, innerwear has crossed 20% revenue share of AFL and has grown in the last 1 year at double digits. In U.S. Polo Association, share of adjacent category has been even higher at close to 30% because of higher investment at marquee brand on adjacent categories. While footwear, innerwear and kidswear have good scale, I'm happy to confirm that the initial response to the new womenswear line in U.S. Polo is also encouraging, and the business has recorded high growth on a small base.

A lot of growth is linked to external market conditions and economic realities, but we remain hopeful that the growth in FY '25 will be stronger and better than the growth we saw in previous financial year. We hope for momentum to continue in one side with expectation of slightly better market conditions. Thank you.

[Ankit Arora, executive]

Thanks, Shailesh. We can open it up now for question and answer session.

[Operator]

[Operator Instructions] The first question is from the line of Priyank Chheda from Vallum Capital.

[Priyank Chheda, analyst]

Congratulations for the decent performance in a tough time. So my question is on what explains the subdued SSG, which is a retail like-for-like growth, while our formal expansions continue at a healthy pace, what explains on the 1.5% like-to-like retail sales growth? That's my first question.

[Shailesh Chaturvedi, executive]

As far as like-to-like growth is concerned, while our normal expectation is above 5%, but in the current market condition, it would be very satisfying number because we have seen in the industry, the like-to-likes are our negative numbers. While it could be higher, but because of the way the market conditions are elections were negative, there was a peak heat in May, which probably impacted walk-ins. And also, we delayed the USS because we lost some sort of revenue or if we had gone with the industry, we delayed the USS to protect our margin and sell-through. So overall, while markets are tough, I would say we have delivered a good like-to-like growth and many reasons behind that because the renovated stores -- there's been good response to our product stories. Sell-throughs have been good and premiumization also is helping. So I would say -- I would answer the question that we have delivered, pretty satisfying like-to-like in the current market conditions. Of course, it could be better as the market improves and the walk-ins improve. But in the current environment, I think this is satisfying like-to-like growth of 1.5%.

[Priyank Chheda, analyst]

Okay. Okay. Perfect. So now again, circling back to the same strategy where we have delayed our discounting for the want of controlled discounting while we have delayed in the participation in the USS. Now, currently, our gross margins are at 55% and this has never been seen in the history of Arvind Fashions. But then what is actually leading to this is the subdued growth or a subdued sales for a customer who is used to have a discount in the history of their Arvind Fashions brand. So now, we have the gains on the gross margin, but then again, we are struggling back for the like-to-like basis. So how do we solve these two problems at the same time, sir?

[Shailesh Chaturvedi, executive]

See, I would say that early discounting, early USS is not a solution to anything frankly. It's a main problem in our industry. Now what we have done over the last few years is to upgrade the product, upgrade the storytelling, upgrade the retail experience. So today, we are giving only superior experience and significantly better experience than what we were delivering even 2, 3 years. And we are hoping that the consumer will fall in love with these efforts, and they will wait for us to buy. And that -- our portfolios are very, very strong brands. And I'm sure, they will remain top brands in their consideration, and they will wait for us to consider the right time, but if you start giving high discounting, then consumers will not buy full price.

And that's really before you see in our industry, and we are being very, very diligent on not sort of selling only at discount, and we want to grow profitability. That has been our mantra that we'll grow profitably. And that's why our GP has gone up by 80 basis points and our realization has become better. So market will realize that there will be some brands which will panic and give discount early. But the good brands will hold it. And we are ensuring that with the good brands, I don't want to take some of the competition in, but we are in line with good brand. So when the market is -- all the good brands also go on USS at the right time, we also go on USS at that time, but we don't want to panic and go early.

[Priyank Chheda, analyst]

Perfect. And just wanted to know your thought process beyond -- on the point of everyone seems to be rating downward on -- in terms of the price points, be it on marquee brands or be it a value fashion as a whole of a category, which is emerging at a large size. So consumer, of course, is sold for a lot of choices at a lower price point. So is that also kind of impacting the brand positioning where we are right now because it seems to be very -- we're not able to consume where the consumer price points where we are, while India is growing at a premiumization trend. Our retail SSGs are kind of a subdued. So your thought process on a price point, which are getting lower and the value pricing retail giving a tough competition to our kind of brands.

[Shailesh Chaturvedi, executive]

See, we are quite competitively priced for the quality we give and competitive set that we operate in. And our strategy last 3 years has been to focus on these five big brands and which are so big that consumer will make favorable purchase decision in favor of these. So we are very watchful of the value that we offer. We must give superior product in a superior shopping environment, online, offline. And hopefully, charge the right price. We also are looking at all the sourcing efficiency wherever possible. So that's why if you look at this season, all our channels have grown even in this market condition, even if we pressure what you're mentioning, but I believe our brands are rightly priced, and that's why we are able to hold on to our sell-throughs and able to increase our GP and EBITDA.

[Priyank Chheda, analyst]

Perfect. Just last question, I'll fall back in the queue. Arrow, if you can throw more light on what has been the profitability path over year, are we on the journey for mid-single-digit margins by FY '25? That's one. And on overall EBITDA margins, we -- while Y-o-Y, it looks to be higher. But what we have seen is because of the tough market conditions, now last 4 quarters, we're sliding down on the path of the EBITDA margin as the reported numbers for last 4 quarters versus the 500 basis point gain in the gross margins over the last 3 to 4 quarters. So your judgment on the Arrow profitability and overall EBITDA margins going ahead from here.

[Shailesh Chaturvedi, executive]

So in the last couple of quarters, I've been excluding the strategy on Arrow and frankly, I will reiterate the same again that we made lot of changes in Arrow. We created new product lines to participate in casualization. We created new line Arrow for the Gen Z customers. And we benefited a couple of years back, we see almost INR 100 crores delta and EBITDA improvement, and it became profitable brand at a low single-digit EBITDA. Now last couple of quarters have been difficult and especially for the wedding brand and a formal brand. So what we -- I said that Arrow remains in a low single-digit plan, and our first task is to take it to mid-single-digit brand. And in the current market condition and believe the wedding dates are in the second half, that the performance will improve and we are happy that it is where it is not losing money, gaining scale. It's gaining product lines.

We launched the new retail identity of Arrow. So we have done a lot of hard work for Arrow. And we are now waiting for the market to improve a little bit. Now in terms of the profitability in the medium term to go from low single digit to mid-single digit, it will need a little more scale and that scale will come and the markets are a little better, the like-to-like growth improve in our stores. So we are doing all the things right, hopefully, market improves. Currently, the wedding dates are a little low. The market conditions have been a little muted. So that impact in the short term, but we are very hopeful that a strong brand like Arrow, with all the good gains that we have done in the last 2 to 3 years, we gained further and our journey towards mid-single-digit EBITDA will happen. So we remain confident. I'm just hoping for markets to grow a little bit more.

[Operator]

Next question is from the line of Dhiraj Mistry from Antique.

[Dhiraj Mistry, analyst]

Congrats on good set of numbers. So one, my question is on online channel where you have grown by 60%. Can we say that the inventory collection, which you have taken over the last few quarters, it's -- now it's been done and we can expect normalized growth in online channel going ahead?

[Shailesh Chaturvedi, executive]

We're very pleased with where we are in online, and we have made a lot of efforts to pivot the business from wholesale business to our own direct approach where we manage the whole experience from inventory to the pricing to the cataloging. So that has really now started showing fruits and -- bearing fruits and that's the reason why the numbers have gone up. And there's a general traction in the channel. Our brands are very, very strong. So there is a good organic pickup happened there for our brand. So we are very hopeful that the gain that we've seen will stabilize and we'll hopefully go further, and we'll continue to invest behind the online direct consumer businesses, and they will continue to grow.

[Dhiraj Mistry, analyst]

Got it. And in terms of online profitability, how different it would be from our other channel business?

[Shailesh Chaturvedi, executive]

It's fairly competitive, and we've been very, very focused on profitable growth. So the online profitability, even this quarter has been very good. The channel profitability has gone up by good percentage. So we are very pleased with what we saw from both the revenue side and also from the channel profitability side from the online channel. So it also depends on the market conditions, et cetera. But our brands and our efforts are well placed to capitalize on the online business.

[Dhiraj Mistry, analyst]

Got it. But margin differential is material compared to...

[Shailesh Chaturvedi, executive]

It's quite healthy margin, and we ensure that any growth is not going to be detrimental to our percentage profitabilities. We'll ensure that growth is at similar than other channel or even higher if possible.

[Dhiraj Mistry, analyst]

Okay, okay. And second, again, on inventory in wholesale channel where we have witnessed 15% growth, which is quite encouraging. Is it -- any part of the growth is also because of the inventory build-up in this quarter and it can normalize going ahead? Or we can assume that this is the normal course of inventory and wholesale channel as well?

[Shailesh Chaturvedi, executive]

So, in fact, we are doing reverse. We actually took a call to build less inventory in the quarter 4. I had mentioned that we delayed the launch. Because see the weather pattern has shifted by almost a month. The peak winter happens in Jan-Feb and the summer sets in a little later now in April, May. So we are trying to match our supply chain to the market realities and the season reality. So we are holding back, and that's why we invoiced goods closer to the weather pattern and I'm sure because of that, our sell-throughs will be very good, and there is no buildup before the season with the channels.

[Dhiraj Mistry, analyst]

Got it. Got it. And sir, one question on this minority interest. Like in this quarter, we had a reported PAT of INR 13.8 crores, and then there is a minority interest is somewhere around INR 12 crores to INR 13 crores. Our entire profit has been gone as a minority interest. Any comment on that is or whether it's more this quarter phenomena or it should continue going ahead also?

[Shailesh Chaturvedi, executive]

So what happens is that there is a seasonality in different businesses. And the PVH part benefits from premiumization. So that's really helping. But we'll get a little more business in H2 in some other brands, festivals and the wedding calendar makes a little better difference. So the profitability in non-PVH will also be good in the future. So I think it will balance out.

[Girdhar Kumar Chitlangia, executive]

And, Dhiraj, just to add, the comfort and the confidence it is what you should draw is the fact that if you look at our last year trend line also from Q1 to Q4, as what Shailesh mentioned, we had even significantly large losses coming in from Q1 and then it really build-up on the non-PVH side of the portfolio, and we are extremely confident that it will pan out a similar way if market conditions remain favorable as to what we have seen in Q1. And you should draw confidence that our significant improvement in the non-PVH side of the portfolio in Q1 has happened from the loss margin what we had in Q1 last year, and we expect this trend line on PAT. We are extremely focused on the bottom line and the midline profitability. And if you will keep seeing this profitability improvement happening, you will see that translate into a disproportionate share coming in from non-PVH also going forward in FY '25 and in the near to medium term as well.

[Dhiraj Mistry, analyst]

Got it. That explains a lot. And sir, last question from my end that what we have been building like double-digit top line growth and also 100 bps of margin expansion going for FY '25. And despite subdued environment, we have reported 100 bps of margin expansion. Is it a possibility to increase our guidance going ahead? Or we will maintain our guidance of 100 bps expansion and double-digit growth or early double-digit growth.

[Shailesh Chaturvedi, executive]

Yes. If you would really take a step back, and we have said that we are expecting a higher revenue growth where -- compared to where we were at quarter 4 and we were at 5%, and we have now delivered 10%. And we've been optimistic that growth will be higher than what was in the past. And the markets conditions are muted, subdued difficult. But we are very confident that our growth drivers are working be it square foot expansion, where a lot of energy has gone, a lot of efforts have gone, category expansion, online B2C business, premiumization, like-to-like. We are working hard to ensure that our growth drivers remain fully ramped up and we continue to grow. Medium term, we would love the growth rates to move to 12% to 15%, but we are hoping for the market to correct. So -- and we're also very watchful on profitable growth. We are not looking at just for the sake of growth. We are very careful that growth should bring efficiency in terms of improvement in EBITDA margin.

So we are working hard. It all depends on the market conditions, also and the economic realities. But, we are, in the short run, confident that our job is to up the growth from 5 to high single digits, maybe double digit. And then as the market improves and as our scale becomes larger, we will hopefully grow a little faster also. But in the short run, I would say, our guidance should continue to be where we have mentioned to lease it from last year, and we're working hard to ensure that happens.

[Operator]

The next question is from the line of Shreyansh Jain from Swan Investments.

[Shreyansh Jain, analyst]

Congratulations, gentlemen, on a good set of numbers. Sir, my first question is to be able to appreciate your numbers better. Could you give us some sense on the channel? Because I think you've given wholesale retail online, but just in terms of wholesale, could you help us understand what -- how was MBO, how was departmental stores and the same for online, if you can help us understand how is B2B and B2C? So in the presentation also, if you could help us with this data going forward?

[Shailesh Chaturvedi, executive]

Sure. Let me say, the primary billing channel like MBO department store. And I mentioned that we've been trying to time it closer to the season as far as closer to season so that the stock turns don't get compromised and there's no buildup unnecessary before the season. So that's why in this quarter, both departments -- all channels have gone, Jain. I mean, wholesale or retail, every channel has grown in this quarter in terms of revenue and in terms of channel profitability. MBO grown really handsomely because of the shift and also our distribution expansion has been very aggressive, especially in the subscale brands like Flying Machine and Arrow.

We're able to open a lot more shop-in-shop and also our strong brand, U.S. Polo, remains the preferred brand for any expansion of any mall or any new channel. So MBO is doing well. Departmental stores also we supply goods in the right time and seeing good growth in our business and also margin profile has been healthy in that channel. Retail, we mentioned that we grew like-to-like under really tough market condition where a lot of other competitors have shown negative like-to-like. But we have a decent, and we have a good square foot expansion that's happening. So we're looking at CAGR of 15% in square foot addition net. So that channel is growing online.

B2C has grown more than 60%. And we are pivoting this business from wholesale, and we are -- there, the growth rates are coming down, but we are looking at the overall healthy growth in online from B2B pivoting towards B2C and the B2C is really firing and also the retail -- sorry, the channel profitability also has gone up by good percentage. So overall, this season, we've seen growth from wholesale as well as from retail channel. If you want any specific double-click, I am happy to give some color to that.

[Shreyansh Jain, analyst]

No, no, this helps. Sir, second is on now everything is a power brand, right? So if I have to understand, given your commentary, you're saying that weddings were lower so, obviously, Arrow would be weak. If you can help us in the presentation itself, how is growth across Tommy, CK, individual brand, I mean, if you're not comfortable in absolute numbers, but just some sense on what was the growth in each of the brands. It will be better for us to understand your numbers, one is that. And the second part to this is, sir, you opened about 45,000-odd square feet you've added.

So if that also you can help us brand-wise, where you have been opening stores. Are these EBOs COCO, FOFO? So a little more understanding of the store openings also brand-wide would help us. My next question is, sir, on the gross margins. So this, you said, is retail was slightly weaker versus last year. And from what I understand, a large part of our other expenses includes commission and brokerage, which is higher on the retail side, right? So if I have to look at your other expenses, in spite of retail being lower, our other expenses have gone up by about 8-odd percent. So I'm just trying to understand what is the major shift that has happened here. Is it advertisement? Is it freight? So just more sense on the other OpEx be?

[Shailesh Chaturvedi, executive]

See, our retail has also grown, and it has grown overall. And it has grown in terms of like-for-like. So it's also growing high single digit. And the other expenses are actually in line or maybe slightly lower. So there's no surprise there. There's no delta there in any way. It's in line with the growth of the business. And there's no other major expenses because it's all largely commission and commission is linked to the revenue growth largely franchisee commission. So it's in line with the growth. So it's not higher than the growth, it's in line with the growth.

As far as GP is concerned, typically, retail channel delivers higher GP because the expenses come below. But this quarter, what has happened is that retail has also grown, but the wholesale channels have grown slightly faster than retail. But overall, the GP has gone up despite sort of channel, the way it is and the channel revenue mix. And that's coming from, like I said, better control on discounting, price realization, premiumization. And also, we've had good cost efficiency from sourcing.

So we got a dual benefit on price realization that was better and the costs, which are more efficient. So we got a good 80 basis point increase in GP, despite retail being similar to the other channel, if retail has grown faster, the GP would have looked even higher than where it is today.

[Girdhar Kumar Chitlangia, executive]

And, Shreyansh, just to add a couple of points part of your question. One, just to add on what Shailesh said on the GP side. Please understand, we are again growing margins despite us growing margins by about close to 100, 120 basis points last year, so it's on that base. Of course, you need to look at in the context saying there is a general inflation on other expenses, which remains and some portion or a large portion of that also pieces around royalty and other costs are variable in nature, which is where it is. So you need to look at, we have grown the sales at 10%, and we have maintained a very, very sharp cost structure on overhead, which has only grown by 8%. That's how you are seeing the leverage coming through, so that's on that. Just to add on what Shailesh said.

On the first part of your question, on the brand wise. I mean, to be honest, it will be difficult for us to kind of give, in the presentation, any specific data points because we are also bound by certain global confidential contract norms. Having said that, we try our best and Shailesh has tried his best in his opening commentary to kind of give you a color on a brand-wise in a more qualitative way, but it will be difficult for us to kind of really quantify that and do that on a quarter-on-quarter basis. I hope you understand on that front.

[Shreyansh Jain, analyst]

I appreciate. So my last question is, sir, with the kind of improvement that we've seen in our margin and also Arrow, now you're saying single digit. So for '25, '26, what is the kind of EBITDA that we should look at? Obviously, I'm not asking for an absolute actual number, but just some sense on your direction. Can we do like 100, 200 basis points improvement going forward now? Because you're saying discounting is lower, full price is higher and obviously, retail growing faster than the other channels going forward. So what is your sense on this?

[Shailesh Chaturvedi, executive]

See, our guidance has been that we want to grow EBITDA by at least 100 basis points. Even in the current really difficult market condition, we are committed and if you look at -- this quarter also, we have -- the EBITDA has gone up by 100 basis points and is now close to 13%. So we work hard in the current market environment. It will take a lot of efforts to deliver this, and we are delivering that. We are working hard. And that said, we focus on profitable growth.

We are just not looking at growth for the sake of growth. And we're only looking at growing businesses where we get commensurate profitability also. So we are committed to answer your question on EBITDA. How will you grow? We will grow 100 basis points in our guidance. Also, it will depend on some market conditions, few basis points here and there, but that's our goal and our guidance remains to -- up the revenue growth and to grow EBITDA by 100 basis points.

[Operator]

[Operator Instructions] The next question is from the line of Palash Kawale from Nuvama Wealth.

[Palash Kawale, analyst]

Congratulations on a good set of numbers. So my question is around Arrow and FM. So when do you see these brands growing at higher rate -- higher growth than consolidated levels?

[Shailesh Chaturvedi, executive]

So I've been giving commentary on our strategy on Arrow and Flying Machine in every quarter call, and I will reiterate that these are the brands they needed to be reenergized and that effort on Arrow started 2 years back with complete overall of the brand promise, the logo, the advertising, retail identity. We created a smart casual line called Arrow Score. We created a young formal workwear line called Arrow New York, and a lot of them are deadline. A premium line that we promoted now through 1851. So a lot of the merchandise bricks are ready, a lot of retail bricks have fallen in place. It's still subscale, and it needs to grow a little more and it needs to open probably many more stores in the country, and that's what we'll take it to the place where we want in the short term from low single-digit EBITDA to medium -- to mid-single-digit agenda.

The market's not been very favorable for formal-ish workwear brands and wedding dates have also been -- it's a big -- blazer suit is a large business. So that is short-term aberration, but we are very committed and markets will improve and our efforts -- our square foot expansion will continue on Arrow also. So we are saying that Arrow will reach a certain point. It will have in the near term.

As far as Flying Machine is concerned, that effort has started two seasons back, we changed the logo. We created a new consumer promise for GenZ, online, first kind of a mindset. And recently, then the logo merchandise has gone. This season spring-summer, we saw very good growth of Flying Machine and online channel. A couple of new stores with a new identity open, for example, in Delhi in the mall of India Mall. We are quite happy with what we are seeing, and you will see in Diwali a lot more intense efforts on Flying Machine to influence the consumer.

So maybe the Flying Machine journey is 1 year behind Arrow. But our 3 brands, Tommy Hilfiger, Calvin Klein and U.S. Polo are really well placed market leader, and they're doing really well financially, both in terms of top line growth and EBITDA growth and EBITDA percentage. Now the focus is on Arrow and then Flying Machine to sort of grow there, profitability and scale so that the overall portfolio delivers even better profitability.

[Palash Kawale, analyst]

Okay. And sir, what was the A&P expense for quarter 1?

[Girdhar Kumar Chitlangia, executive]

Sorry, we missed that, Palash, which expense?

[Palash Kawale, analyst]

A&P, advertisement and promotions.

[Shailesh Chaturvedi, executive]

Yes. So in quarter 1, typically, it is closer to 3%, slightly lower than 3% because the campaigns happened in the beginning of the season towards the end of season. So we are at between that 3% to 4% spend, but for this quarter was around 3%.

[Palash Kawale, analyst]

Okay, sir. And sir, really congratulations on the margins for PVH brands. So do you see like these margins growing further by like 100 or 150 basis for PVH portfolio?

[Shailesh Chaturvedi, executive]

Market leader and doing really well and also growing fast and the scale leverage, again, kicks in. So I'm sure it's doing really well, and it should continue to grow from here.

[Palash Kawale, analyst]

Sir, what was the debt level by the end of quarter 1? And do you see like how much debt are you planning to pay this year?

[Shailesh Chaturvedi, executive]

Our net debt was around INR 225 crores. There is a seasonality. Next quarter, it could sort of go up by INR 50-odd crores here because we had to build the inventory for the season and bigger scale. But I think we will remain at this level in any free cash flow associate that we generate. We will try to pay down the debt levels from that. So I think we will be reducing our debt levels and that effort will continue. Girdhar, do you want to add anything?

[Girdhar Kumar Chitlangia, executive]

No, I think, you've covered it. Current debt is at about INR 225 crores, net debt. And yes, this is impacted by seasonality as Shailesh said.

[Palash Kawale, analyst]

And sir, if I look at online channel, what would be the contribution of online B2C right now? And where do you see it stabilizing?

[Shailesh Chaturvedi, executive]

See, currently, in this quarter, the online contribution is slightly close to 25%. And typically, the B2B and B2C are more or less equal. But the way the trend is that B2C will keep growing faster and taking a higher share, and that journey has already begun.

[Operator]

The next question is from the line of Himanshu Nayyar from Systematix.

[Himanshu Nayyar, analyst]

Congratulations on a good performance in a tough environment. So firstly, if you can throw some more color on the adjacencies, adjacent categories. How are they performing, whether they are still a drag on margins? And what's the outlook going forward, especially for footwear which had got impacted recently? If you can talk about that as well as the other key adjacent categories.

[Shailesh Chaturvedi, executive]

So adjacent category development is one of the key growth drivers for our company across all the brands. And if I look at the overall share of adjacent category like footwear, womenswear, kidswear, innerwear, this is at a company level more than 20% of AFL. And in the last 12 months, that growth of this category has been double digit and it's growing faster than the company. As far as U.S. Polo is concerned, where we have even -- invested even more heavily and prioritized the adjacent category, the share is even closer to 30% there in U.S. Polo. So that category expansion is working well. It's improving our store productivity, delivering like-to-like growth for us. So it's a big, big sort of part of the way we are taking AFL forward. As far as the footwear business is concerned, there are some regulation changes and we are in touch with the policymakers. And we are making sure that our supply chain is geared for whatever the change is required. So we'll wait and watch and we'll react to the realities based on the policies.

[Himanshu Nayyar, analyst]

But given that it's a large contribution now. I just wanted to understand whether these adjacencies are a drag on your margin, basically, whether the margins currently are lower than your apparel?

[Shailesh Chaturvedi, executive]

I've said this in this call, and I reiterate that we are focusing on profitable growth. We are not really looking for growth for sake of growth. So we're very, very mindful watchful sometimes in some categories, we do invest ahead, and it's important as an investment, maybe on marketing side and then what -- what the data we have is clearly that adjacent category are not a drag on overall profitability and they will contribute to the profitability of brands and of AFL.

[Himanshu Nayyar, analyst]

Understood. And Shailesh, just like you gave the journey, your margin expectations on Arrow from lower to mid-single digits, would you have similar targets for the Flying Machine business brand as well?

[Shailesh Chaturvedi, executive]

FM is one year behind. We are just redoing the whole DNA for a long-term success of Flying Machine. So FM is 1 year behind Arrow in that journey.

[Himanshu Nayyar, analyst]

And final bit was on the retail expansion, which you said 15% area expansion is what we are looking at. So are there any specific, I mean, brands that you -- which will be -- I mean, where you will be opening more EBOs or it will generally be across all the 5? And any specific markets where you'll look to target if you can share any color on that?

[Shailesh Chaturvedi, executive]

So all our brands are growing well and 15% sort of growth in square footage across the brand. But I would say the scope of opening more cities is in the non-PVH brand. So a U.S. Polo always has a much larger scope because every new mall in every town, small town, big town, want U.S. Polo as a key partner, right, as a key brand in the -- or any MBO that opens in any Tier 2, Tier 3 city also wants to have U.S. Polo in it's shop. So U.S. Polo eventually has probably the maximum scope in the short run. But Arrow is the way it is, I think it can take many more stores. Flying Machine, once we finish this whole reengineering of the brand promise, we see a lot of opportunity to grow.

Tommy, CK also adding square footage. Just that where the standards are such that we'll be more mindful and we'll be cautious on which town we'll go to. It can go to a Tier 3 city that easily has a U.S. Polo and Arrow can go. So it will be across, but doesn't matter. I mean even the big cities in the top cities, there are enough opportunities for growth in Tommy, CK also. Bangalore, for example, saw 3 new malls in the last 12 months. And all the 3 good malls have very nice stores of Tommy, CK also. And of course, the non-PVH brands, not just in the big term, but in smaller tier town also, we can expand.

[Himanshu Nayyar, analyst]

Got it. So should we take away given this aggressive 15% number? I mean, if you open 15%, I mean store -- I mean 15% expansion plus we get to a targeted number of LTL. So should we be -- are we in a way preparing ourselves for, say, a 15% to 20% growth in the retail part of the business at least?

[Shailesh Chaturvedi, executive]

So our retail, if you look at last 3 years, has grown quite well in double digits. But what happens is that when you open 15%, it doesn't actually impact the same year numbers, it impacts the next year number, right? So that's what -- in the short run, the impact is less and the stores settled down and then grow. So yes, it will fuel our growth, but not necessarily, incrementally, the way you are looking at in the current market conditions, things are not easy. But if the market conditions improve and the stores started settling down so and so, it will only fuel growth. And we are committed to the medium-term growth going to maybe 12% and maybe a little higher, but it will all depend on the external environment.

[Himanshu Nayyar, analyst]

No. Of course, I meant that in the medium term, maybe once the environment improves, at least, we are preparing ourselves for a 20% growth as well on the retail part.

[Shailesh Chaturvedi, executive]

I want -- I would say 12% to 15% is the mantra. And like I said earlier, we are very, very watchful on profitable growth. So we are very careful on kind of stores we signed, the quality of the stores, the need for making money soon. So I think 20% would be on a high side and hope that, that number also happens. But in the current market environment and our whole focus on profitable growth, I think 12% to 15% in the medium term is a good guidance from our side.

[Operator]

Next question is from the line of Gautam Rathi from CWC.

[Nishit Rathi, analyst]

This is Nishit from CWC. Congrats on a great set of numbers. I think kudos to the team, great execution. I just wanted to understand, I just wanted to run a thought process by you and just wanted to know if my thought is right, right? It is very visible given the scale that Tommy and CK are and the profitability of Tommy and CK is very visible. And is my understanding is right, U.S. Polo should be a bigger brand than Tommy CK, but we are seeing multiple things in U.S. Polo itself. Is it fair for us to assume that in the next year or couple of years, whenever? At some point of time, U.S. Polo will start delivering EBITDA and PAT closer to Tommy and CK. And how far are we from that? And firstly, is that right to expect? And then how far are we from that kind of performance?

[Shailesh Chaturvedi, executive]

No, Nishit, I mean, I couldn't agree more with you. U.S. Polo is a total powerhouse in our portfolio and a brand, we're very, very proud of. And we have really refreshed this brand in the last 2 years in terms of product, fashion flare, quality, retailing, marketing. So you have seen closely, Nishit, i know that how the brand is so strong brand and a market leader, coming closer to INR 2,000 crores scale. So Tommy, CK are delivering very good financial metrics, the results on that. And U.S. Polo is very close and it's also double-digit pre-IND-AS brand of scale that we are talking about. So in medium term, it should very -- I mean confidently, I can say, will be a similar profitability brand, whether it's EBITDA or PBT or PAT, whatever level that you see, it is work in progress and very -- I would say, short term to medium term will definitely deliver similar percentage on financial metrics at Tommy, CK. I don't have doubt on that. Of course, the market conditions can impact...

[Nishit Rathi, analyst]

I fully understand and I fully appreciate that you just started the journey of reinventing and reinvesting in the brand also last year. So -- but that's very heartening to say that it's not very far away, and you expect it to get there. And the second big distraction which we are unable to because it's very apparent. You're work in Tommy, CK showing us very, very apparently, right? What is kind of not fully getting appreciated is because of the non-PVH part of it is not really showing up. And that's where one is this U.S. Polo you are saying it will come back. And second is the drag, which is there in both Arrow and Flying Machine. You called them out and you said there is a journey and path to it. But now the final destination is at some point of time. Again, if you could give some kind of a guideline, is it 1 year, 2 years, 3 years? Is it -- let's say, on 3 years is it fair to assume that both these brands will also be at least at a PAT level will achieve -- will be PAT positive? Because again, then what will happen is you will have all the brands delivering positively to the PAT.

[Shailesh Chaturvedi, executive]

No, I couldn't agree more to you, Nishit, because U.S. Polo is a powerhouse. And what we are doing the way consumers are responding to that, the way channel is responding to that. It's a powerhouse, both in terms of scale, profitability, the free cash flow that it has the potential to generate in the short run itself. So I mean, if I look at two buckets, Tommy, CK and the second bucket of U.S. Polo, I couldn't agree more to what you are saying. That comes to the third point on Arrow and FM, yes, in the medium term, in next 2 years, 3 years depends on the market condition. We will be in mid-single-digit EBITDA, for sure. And at that level, they will not be drain at a PAT level, et cetera. So it's a fair assumption to believe given on, we have our market condition that we should look at that scenario that we will have no major drain from at a PAT level or a PBT level from Arrow and FM. And the Tommy, CK and U.S. Polo should continue to deliver good financial results.

[Nishit Rathi, analyst]

Now that is very, very heartening and that is makes life very -- that is very, very good to hear, Shailesh. And the last point, we understand it's a tough market scenario. Have you seen anything for you to believe that the market condition has worsened from what we were in Q1? Or are we broad -- or is it getting slightly better? Can you give us some kind of qualitative -- from whatever you've seen from the last 30 days, you've seen in the first half? I know it's very, very early, but just qualitatively, are you seeing things get better, it's getting worse? Or are we -- is it kind of what we were?

[Shailesh Chaturvedi, executive]

Markets have been difficult for a couple of quarters. Summer, there was some specific issue linked to elections, for example. The global warming or warming in India is the reality. May saw that. The markets are sort of challenging and subdued currently. And I'm believing that in the short run, they remain subdued, but maybe slightly better than they have been in the last year. And also the way we are geared up because once you know the -- once you access the market correctly and know that markets are tough, then you react. And that's why a lot of our growth engines are delivering better and we are very confident that whatever happens to the market condition, our growth will be higher than what they were in the quarter 4 financial FY '24.

And this quarter, we delivered and whereas a high single digit or if market improves 1% or 2% is more in green, but markets are challenging, but we're hopeful that they could get a little better. Because, for example, last year, there was a Cricket World Cup in peak of Diwali. We had 5 weekends with India cricket. They are not going to happen in this Diwali, right? I mean that World Cup is over. So maybe we'll get some better benefits from that in the remaining months of this year. So we'll wait and watch and see it's tough to predict, but more than the market condition, I would say, we are very committed to improve on the revenue good growth from what it was at quarter 4 FY '24, and we are working hard for high single digit and in good time, maybe 10% revenue growth.

[Operator]

The next question is from the line of Jatin Sangwan from Burman Capital.

[Jatin Sangwan, analyst]

Just a data keeping question, our interest expenses has increased from INR 35 crores to INR 38 crores. So what caused this?

[Ankit Arora, executive]

Jatin, it's largely on account of non-IND-AS entry, because on the Tommy, CK side of the business as to what we have been maintaining in the previous calls, they have been opening on the Tommy side the COCO store. So it's only causing that. Our real interest cost has actually moved down both on a quarter-on-quarter and on a Y-o-Y basis.

[Jatin Sangwan, analyst]

But this change is not much reflected in depreciation. It's like INR 59 crores to INR 61 crores.

[Ankit Arora, executive]

So it's a mix of both on the interest and depreciation because as to what you would understand that when you open a new store, there is a component of interest, which is what largely goes up, and then that's how it gets adjusted during the course of half year of the tenure. So that's how you would look at first. It's coming in the interest and then it's getting normalized as part of when it comes down over the rest of the tenure.

[Shailesh Chaturvedi, executive]

Actually, I can just say that both interest and depreciation, the operating numbers pre-IND-AS are similar, maybe like Ankit said, slightly lesser than before some entries are in that entry, and we've taken over stores in Tamil figure as COCO store. So that impact the depreciation a little bit, but there's no major change. It's only on a downward trajectory.

[Jatin Sangwan, analyst]

And what will be our pre-IND-AS margin in this quarter?

[Ankit Arora, executive]

So it's -- we have always said it's in the range of around 400 basis points from post-IND-AS to pre-IND-AS are from our reported margin. So you can do that math. We've reported about 12.9% post-IND-AS margin.

[Jatin Sangwan, analyst]

And just a last question on this part. How much of our Tommy, CK stores have been converted from, let's say, FOFO to COCO?

[Shailesh Chaturvedi, executive]

We have 60 stores in Tommy Hilfiger, which are now COCO stores, 6-0.

[Jatin Sangwan, analyst]

Okay. And in CK?

[Shailesh Chaturvedi, executive]

Nothing. It's in Tommy alone, single.

[Operator]

The next question will be from the line of Sagar Parekh from One Up Financial Consultants.

[Sagar Parekh, analyst]

Congratulations on good performance. Just 2 questions. One is you mentioned that this Flying Machine is one time behind in terms of profitability versus Arrow, but did you give any number of what is the EBITDA currently of Flying Machine, can you give us, please?

[Ankit Arora, executive]

Sorry, we don't disclose and unfortunately, can't disclose the brand level margins and revenue on account of our global contract.

[Sagar Parekh, analyst]

But is it profitable or it's loss thing at EBITDA?

[Ankit Arora, executive]

So we have said we are on that journey. It's a very, very low single digit close to about breakeven kind of a number. So that's something which is where the book is on to turn that brand around and to make that journey as to what we have seen the turnaround in Arrow over the last couple of years.

[Sagar Parekh, analyst]

Okay. So this Arrow is a mid-single -- low single digit, you said, and this is broadly breakeven to slight positive?

[Shailesh Chaturvedi, executive]

Yes. And both the brands, we have a journey to improve profitability, Arrow 1 year ahead than Flying Machine.

[Sagar Parekh, analyst]

Yes, I get that. And just last question was on the CapEx. So what would be the CapEx for FY '25?

[Shailesh Chaturvedi, executive]

See -- yes.

[Girdhar Kumar Chitlangia, executive]

So our CapEx is likely to be in the range of INR 100 crores, largely to be spent on some COCO stores on the previous size, some IT CapEx and some renovation of stores.

[Sagar Parekh, analyst]

How much was the CapEx last year, so INR 100 crores seems to be on a higher side. So just...

[Ankit Arora, executive]

About INR 85 crores. Largely, it's on the Tommy side of the business, I would probably -- I mean, I don't have the breakup, but close to about half of it or maybe more than that, Sagar, and that's how you should look at it for the FY '25 also.

[Shailesh Chaturvedi, executive]

Some of the new Tommy stores we are doing directly at COCO stores. So some CapEx will go there. But our CapEx is flat in that sense. And this quarter was around INR 24 crores and largely like Girdhar said, it's for renovation of our shop-in-shops or some maintenance of IT. There's no major projects that will require CapEx other than couple of Tommy Hilfiger stores that we are doing on a COCO basis.

[Sagar Parekh, analyst]

Got it. And just -- so this CapEx will be funded internally, right? Or will we...

[Shailesh Chaturvedi, executive]

Yes. In Tommy, there are strong cash flows to deploy.

[Operator]

The next question is from the line of [Rajeev Bharti ] from Nuvama.

[Unknown Analyst]

Sir, with regard to this margin expansion, which we are seeing, is it possible to quantify how much of it is because of this FOFO to COCO we are doing in Tommy Hilfiger?

[Shailesh Chaturvedi, executive]

When we convert from franchisee to COCO, definitely, the GP goes up, margin goes up, clearly, I don't want to give a specific number, but yes, it's a ROCE accretive and we benefit from that investment of CapEx into the stores. Overall, if I look at -- that's a very small piece of the overall GP increase at AFL level. Largely the GP increase has been because of the better price realization and better cost efficiency and sourcing. So that's because we had -- and even these difficult conditions are discounting in full-price channel growth, slightly lower than last year, so we benefited from that. Premiumization gives a better realization. So cost efficiency in sourcing and better premiumization, is that we dual benefit giving you that 80 basis point improvement in GP.

[Unknown Analyst]

Sure. Secondly, one of the marquee running players was -- has been done in steep discounts earlier in the last season as well and probably this season. Do you think that cleanup is done or do you have -- I mean, we may see that again in terms of competitive intensity?

[Shailesh Chaturvedi, executive]

I didn't get question. Which of our brand are you talking about?

[Unknown Analyst]

I'm talking about the competition. So one of the marquee running players have been entering the season early, right?

[Shailesh Chaturvedi, executive]

Comment on the moves of competition, I won't have that, I guess.

[Unknown Analyst]

Sure. And thirdly, your PBT margins from the online side, is it comparable to the retail side?

[Shailesh Chaturvedi, executive]

I'm again repeating that online is a very healthy business for us. It's margins are quite good. And like I said, we are growing businesses, which are with that mantra of profitable growth. So at a channel level profitability, online has very good channel profitability.

[Unknown Analyst]

Sure. Lastly, if we were to combine your channel level, for example, the wholesale for Q4 and Q1 and then compare against the last year, Q4, Q1? I think the wholesale is still at 8% deficit, right? And I mean, we have seen substantial growth in Q1, but it is not enough to cover the last minus 18% of the previous quarter rate?

[Shailesh Chaturvedi, executive]

Between the department store and the India channel, we are growing. And in fact, India channel is growing faster because we are going to add distribution for all our brands. So I'm trying to check where because our margins -- our wholesale tenant grown just that in quarter 4, we took an inventory call on building it closer to the season and not just adding inventory in the channel before the season starts. So our channels are doing well. I mean just that in quarter 4, we took a decision to delay the inventory build-up closer to the season and that benefit has come in quarter 1.

[Unknown Analyst]

I got the point. My only point is because Q4 by quantum wholesale is a much bigger quantum, right, put together Q4, Q1...

[Shailesh Chaturvedi, executive]

There, we launched the season in a bigger part of the season in Feb, March, which we are now doing end of Feb and March. So yes, quarter 4 is a bigger wholesale than quarter 1, you're right. But this quarter 1 is a bigger wholesale quarter than what it was last year quarter 1.

[Unknown Analyst]

No, I got that. I'm saying that combined put together, for example, Q4, Q1 last year was INR 664 crores. And versus this year, we have -- we are at, I think, close to INR 612 crores. So there is still a deficit in the wholesale side.

[Shailesh Chaturvedi, executive]

In the current market condition, we're careful looking at whatever the inventory buildup. They continue to grow. We keep an eye on the inventory in the channel and based on that, we believe to the market.

[Ankit Arora, executive]

And Rajeev, if I can just add. See, there will be, of course, seasonalities, and we will play by that depending on which channel is firing and when. We want to just ensure that we stay very, very healthy on our inventory level and stock terms. So yes, you may be right, you may be having a right observation on Q4 and Q1 combined, you are looking at it. But at the same time, if you really step back and look our retail, like very, very good in Q4 as well. So retail may have made up for that. Same thing could have happened for online as well. I don't have a ready data for that. But -- so there will be vagaries around on a -- if you add the 2 seasons together or 2 quarters together, there may be vagaries, but there will be -- the good part is all the channels if Q1 has seen an all-round channel performance across all the channels, all the channels have grown. And that's what is heartening for us. Yes, it could be plus and minus on various channels depending on Q4 and Q1.

[Shailesh Chaturvedi, executive]

Yes, I'll just add one color to that. In wholesale channel, we have very good visibility on the consumer sales. And we built this hygiene in the last 2 years where we are getting regular daily update on how the wholesale channels are able to liquid debt inventory to the consumers. And based on that, we create the pull of what more we can sell. So if the market improves, we'll be able to increase the growth and if the market slowed down, we also automatically the whole systems slows it down.

[Unknown Analyst]

Sure, sir. Just one small bit. Your last time you indicated that you are looking for a high-teen area addition, right? With the current Q1 environment, do you like to revisit that? Or are you holding on to that target?

[Shailesh Chaturvedi, executive]

So as far as square foot, you're talking about square foot addition, right?

[Unknown Analyst]

Yes. Yes, yes.

[Shailesh Chaturvedi, executive]

So we committed to 15% net addition this year on the current base. And first quarter was a good quarter, and we built more muscles in the market to ensure that. So we are geared towards that 15% net square foot addition.

[Operator]

The last question for today is from the line of Ankit Kedia from PhillipCapital.

[Ankit Kedia, analyst]

Sir, if I just look at your annual report, if I ex Tommy, CK numbers, other 3 brands have actually posted a decline last year. So just wanted to know how was the U.S. Polo number. Because even if I remove Flying Machine numbers, still, there is a decline, which makes me believe that Arrow would have also declined last year. Is that understanding right?

[Shailesh Chaturvedi, executive]

I mean, I don't have ready data last year, but I can tell you the trend is that last year in difficult market conditions, U.S. Polo did well. And if I look at this quarter, U.S. Polo has grown really well in double digits in sales and in EBITDA value also is much higher than that percentage. So U.S. Polo is a point now as it's really ramped up and the growth and the EBITDA growth is very, very high, that should. So that's what will keep growing. As far as the Arrow is concerned, that I know that the formal category and the wedding dates in the previous quarter and now also been a little slow. So Arrow has seen a little bit of slowdown, but U.S. Polo is really doing well.

[Ankit Kedia, analyst]

Also, sir, in U.S. Polo, if I just see the annual report, you have cut down 50 stores last year, and you have exited around 20 cities, which is lower than FY '19, the city count also. So is this rationalization of store, cities across brand behind now for us and 150 cities for a brand like U.S. Polo is pretty much a low number given the TAM and the acceptance of the brand, which we have and where peers are today also. So do you think in the next 3 to 5 years, where do you see the city count for U.S. Polo coming and the store expansion over U.S. Polo as well?

[Ankit Arora, executive]

So Ankit, I tried -- I don't think your reading is right. There is the disclaimer, which is what we have given when we are in the store data. If you look at -- there is a strict mark there. We have only taken our mono-brand stores based on certain feedbacks coming from you and other industry players as well. So we have not added the point of sale where the U.S. Polo is still sold, but we classify that as multiple brand outlet, but it's still an EBO likes of Stride or a Megamart or a Aeropostale. That is not there. Your observation is not right when you look at the number of stores going down rather than that, the number of store and square foot addition is incrementally going up. And that's what you can see in the last year, full year, net square foot addition was close to about 56,000 square foot. This quarter alone, it's at about 45,000 square foot. So there is absolutely full whole hearted intent in terms of putting energy behind U.S. Polo to kind of growth and brand and rev up as to what Shailesh said, both from a square foot area and from the number of stores and penetration in terms of cities and towns as well.

[Shailesh Chaturvedi, executive]

Also, I would just add to what Ankit said, it's such a strong and dominating brand that every retailer in any type of city wants to start the store with U.S. Polo where every department store when they go to smaller town or a regional department store, wants to have U.S. Polo. So brand appeal is very strong. And we are very -- it's less -- it's key to go to a smaller town U.S. Polo than, let's say, some other brands. So USPA will continue to go to more and more number of towns. It continues to increase the square footage through stores, through -- in your channel through department stores. So I assure you that this brand is really reved up and will continue to expand square footage.

[Ankit Kedia, analyst]

And my last question is on inventory. Our subsidiary company like inventory, they have come down, which is really happening. Do you see there is some more juice left or this inventory is now stable and it should be maintained from here on?

[Shailesh Chaturvedi, executive]

It's been -- we are committed to stock turn off over. We improved from 3 ton to now 4 ton. This quarter also see our inventory days have come down by 3 days. We are using every possible means to see how we can improve the stock turn. Also, the advantage of lower inventory is that then we can sell more fresh goods and the margins become better, the EBITDA becomes better, consumer gets a better experience. So we are really working hard, and that's one reason why we open a chain called factory outlet of our own brand called Megamart, where we are liquidating a lot of our old inventory faster with better cash realization. So these -- we are sure that there'll be no stone left downturn to sort of liquidate inventory at good margin as fast as possible.

[Operator]

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Ankit Arora for closing comments.

[Ankit Arora, executive]

Thank you, everybody, for joining us on the call today. If any of your questions have remained unanswered, please feel free to reach out to me separately, and I would be happy to answer them offline. Thank you, and look forward to your participation again next quarter.

[Operator]

On behalf of Arvind Fashions Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.