Arvind Fashions Ltd

NSE:ARVINDFASN

Earnings Call Transcript 2021-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to Arvind Fashions Limited Q2 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ankit Arora, Head of Investor Relations and Treasury at Arvind Fashions Limited. Thank you, and over to you, sir.

[Ankit Arora, Head of Investor Relations & Treasury]

Thanks, Aman. Hello. Welcome, everyone, and thank you for joining us on Arvind Fashions Limited Earnings Conference Call for the second quarter and half year ended September 30, 2020. I'm joined here today by Kulin Lalbhai, Non-Executive Director; Jay Suresh, Managing Director and CEO; Pramod Gupta, Chief Financial Officer; and we also have with us today Shailesh Chaturvedi, who is currently our MD and CEO for 3 brands. Please note that results, press release and earnings presentation have been mailed across to you earlier, and these shall also be available on our website, www.arvindfashions.com. I hope you had the opportunity to browse through the highlights of the performance. We'll commence the call with Kulin providing his key thoughts about strategy and our financial performance for the second quarter and half year ended September 30, 2020. At the end of the management discussion, we'll 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. The company does not undertake to update these forward-looking statements publicly. With that said, I would now turn the call over to Kulin to share his views. Thank you, and over to you, Kulin.

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

Thanks, Ankit. A very good evening to you all. I'm happy to be here with you to take you through our quarter 2 results. As you are aware, quarter 1 was an extremely challenging quarter as most of it coincided with the national lockdown. I'm happy to report that all channels and operations have opened up in quarter 2, leading to a consistent month-on-month recovery in the business. As we move ahead, our focus is on pushing the brands towards pre-COVID levels of sale; maintaining cost efficiency that we have achieved through the cost restructuring exercise; significantly improving our working capital levels as well as the inventory health; and getting the organization ready for a post-COVID world, where we intend to invest behind our 6 high conviction brands and scale them up over the next 5 years. Let me take each one of these topics one by one. The quarter began with the recovery of just around 40% of last year's levels with recovery being soft in certain channels like department stores and malls. As the quarter progressed, we saw consistent recovery each month. In the month of September, we were able to reach an overall recovery of 55%. Each one of our channels has improved in this period. Stand-alone stores reached a recovery close to 65%, while small stores and department stores were closer to 50%. Our online channel has been performing extremely well, with an overall growth in quarter 2 of 20% over last year. What is heartening to see is that the recovery continues to strengthen as we move into quarter 3. Our Diwali sales are tracking at 70% to 80% of last year's levels. This improving momentum is being seen across each channel. Categories like T-shirts and Polos, which were already performing well in the early part of the year continue to do so. But categories like wovens and linens, which were slower are now picking up. We are also seeing a good opportunity in winter wear this season because it's going to be a protracted -- it looks like it is going to be a protracted winter. We remain committed to our cost restructuring initiatives. Quarter 1 saw a 68% reduction in cost due to deep cuts across the board in rentals, headcount and all the other cost heads. Our cost focus remained strong in quarter 2 as well. Our overall costs were lower by 38% in quarter 2 versus last year. This has been achieved by continuing to remain tight on all operating costs and also negotiating renters in line with the market recovery. We remain confident of achieving our target of an overall 40% reduction in the annual cost for this year and a permanent cost reduction of INR 120 crores plus. I would now like to talk about our gross working capital. Compared to the beginning of the year, we were able to reduce our gross working capital by INR 360 crores. This comprised of a INR 220 crore reduction in inventory and a INR 140 crore reduction in debtor. The reduction in gross working capital adjusted for our onetime COVID provision is INR 200 crores. Inventory health provision improvement has been a focus area for us. Due to the uncertainties around COVID, we had corrected our buy for autumn/winter by rolling over our spring/summer inventory and cutting buys of the current autumn/winter by 60%. By doing so, we have ensured that we do not have a buildup of inventory. Now as the markets are recovering quickly, we want to invest behind growth, and hence, want to maximize our inventory fresh. The last 4 months have given us a clear trend on inventory movement across categories. We also have a sense of how tertiary sales will progress in our offline channels. Since sales were significantly impacted in the first half of the year, our inventory has aged more than it would have under normal circumstances. With this in mind, the company is taking a onetime COVID provision of INR 158 crores. This includes provisioning for additional inventory aging and extra inventory provision for slow-moving categories like suits and blazers, and additional pullback of goods from certain offline channels, and some doubtful debtors in the trade channel. Over the next 6 months, we plan to pull out all of the slow-moving inventory from the offline channel and liquidate it in an accelerated manner in other channels. The cash made available through this liquidation will be used to buy fresh stocks, which will aid our recovery further in quarter 4. We expect that this will allow us to significantly improve our inventory freshness as we exit the year and thereby gain in terms of productivity and sell-through in FY '21. With the quarter-on-quarter recovery in sales, we expect a sharp improvement in the bottom line of the business as we progress through the year. Our EBITDA loss post rentals in quarter 2 is close to half of our loss in quarter 1. With the recovery strengthening in the festive period, we expect a positive EBITDA post rental in quarter 3. Looking at the overall trends, unless there is a big flare-up in COVID, we hope to exit the year at pre-COVID level. A stronger performance in the second half of the year and a reduction in gross working capital of more than INR 300 crores will allow us to reduce our debt level by more than INR 200 crores compared to the beginning of the year. I would now like to share an important organizational update. Arvind Fashions Limited has appointed Mr. Shailesh Chaturvedi as the Managing Director and Chief Executive Officer of the company with effect from the February 1, 2021. Shailesh was previously the Managing Director and CEO of PVH Arvind brand, a joint venture that houses our eminent brands, Tommy Hilfiger and Calvin Klein, and also led the Arrow brand for Arvind Fashions. Jay Suresh, the current MD and CEO, who will be retiring later this year will work closely with Shailesh to ensure a smooth transition. After stepping down from his active role, he will continue on the AFL Board, and also advise the board on key strategic issues. We would like to thank Suresh for his contribution and dedication in creating a great platform for us to build on. Under his leadership over the last 15 years, Arvind Fashions has built some of India's most aspirational brands, which are poised to grow rapidly in the years to come. We would like to wish Shailesh the best in his new role at the company. Shailesh is one of our strongest leaders who have successfully grown several of our brands over the last 15 years. He joined Arvind in 2006 to lead Tommy Hilfiger and has been instrumental in establishing it as one of the most admired and aspirational brands in the country. Over this period, he has also taken over the leadership of Calvin Klein and Arrow. He has deep expertise in working with international brands and that gives him a unique insight into global best practices and trends, which will be very valuable to AFL going forward. With his proven strength in building aspirational brands, Shailesh is well equipped to take over this mantle and help us drive value for our stakeholders. We now believe that the worst of COVID is behind us. After the reset that we have carried out over the last year with the exit of unprofitable channels and brands, we now have a focused portfolio with 6 power brands that are leaders in their respective market segments. Moving forward, all our focus and resources will be targeted towards scaling up these brands. Each one of them has a huge potential and multiple growth opportunities, including channel expansion, category expansion and rapid scale up in the online channel. As these brands scale, we will see operating leverage coming into play, which will significantly improve our bottom line and return ratios. Tight inventory control and flexibility in our supply chain will help us to drive up our working capital turns and cash generation. Our investments on the digital side, along with our strategic partnership with Flipkart will allow us to take full advantage of the omnichannel opportunity. The large equity infusion has ensured that the cash losses that we would make during the year are completely funded by capital, and it would help us deleverage the company so that we can invest behind growth. We expect to exit the year at pre-COVID levels and with a clear and focused growth strategy, we look forward to a much improved performance in the years to come. With this, let me end my opening comments and open it up for questions. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Rohit Dokania from DAM Capital.

[Rohit Dokania, Senior Vice President of Research]

I had a few questions. The first one would be, it is now becoming clear that Arvind is sort of focusing only on the core 6 brands, which would be Arrow, US Polo, Flying Machine, Tommy, Calvin, Sephora and also obviously, apart from that Unlimited. So if I'm not wrong, all these brands have been making profit in the past, right? So how do you see our business shaping up in the medium term. I think those comments would be very helpful. And also a related question to that, what will be the key few things that you think could change over the next maybe 6 to 8 quarters?

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

Sure, sure. No -- thanks for the question. See, these are, as you said, large established brands. Outside of the COVID impact, there are brands that can deliver strong bottom line, double-digit EBITDAs. What is also very clear to us that if we look at these 6 platforms, there is still a lot of growth opportunities. The channel expansion on the offline side into small town India is still at its very early years. There's a huge amount of expansion we can do there. Our expansion into adjacent categories in some of our power brands has been extremely successful. So if you look at a brand like US Polo, today we are also a leading denim brand. We expanded into that category 5, 6 years ago. Newer categories like inner wear and footwear are seeing incredible traction. So I think for our power brands, some of these adjacent category growth opportunities there are there. And then, of course, digital, we have invested ahead of the game. So we are expecting to double down on that. And in a pre-COVID world, 15% was our online share. And I think in a post-COVID world, it's not 25%, it can even move towards 30%. So I think building digital as a channel and that too more like a direct channel rather than a wholesale channel, where between our own dot com and the marketplace model, we are taking direct control and scaling up that model. I think that's also a very exciting opportunity. So I think with these 6 platforms, once COVID is behind us and now that we have done corrections in the portfolio, we can invest all our resources behind them. And we feel confident that a 15% plus growth year-on-year over many, many years is possible with this kind of portfolio. And it's -- with a focused strategy, the one strong benefit is the operating leverage that will kick in. And earlier, our challenge has been generating free cash flow. And I think with a focused strategy, generating the free cash flow and the return on capital employed, that will be the change. So I think the second part of your question is, what do you want to do differently? I think the emphasis on the strong pivot in the bottom line and return ratios that has to be the theme. So we want healthy growth that gives us strong operating leverage. And we have put in a lot of effort behind controls that need to be there to ensure we have full visibility, inventory management. We do expect our working capital turns to also go up with this strategy significantly. So I would say those would be the focus area over the -- after the reset that we have done in terms of strategy.

[Rohit Dokania, Senior Vice President of Research]

Great. I think that's very helpful. Just 2 quick ones from my side. One would be -- so it's totally appreciated that we have made a provision upfront in terms of the old inventory and we are also sort of prudently sort of disclosing it. But just wanted to understand -- I mean, is it fair to say that in the future, there would be no further provision requirement that could continue with these changes?

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

See, this year has been, in a sense, quite an unprecedented year where quarter 1 was 10% of last year and quarter 2 has been close to 50%. So what that implies is there was a radical drop in sales. And what this has ended up creating is that inventory did slow down and choked. And to an extent, it has also led to more aging. Now whilst we did cut our autumn/winter, we still have the challenge that certain categories are slow moving, like, for example, suits and blazers are really slow-moving in this environment. So the call that we feel, and we've thought about it very hard is that now that things are opening up, and we do expect a brisk sort of recovery, I think, the most critical thing for us is inventory fresh. And we want to start spring/summer '21 with a strong freshness index. So if we are able to liquidate inventory faster, it will allow us to generate more cash, and we will be able to invest that cash behind more fresh goods and stock. So we are pulling back things and liquidating them. What we would have liquidated over a year, 1.5 years, we want to do in 6 months. We've also pulled back some slower stock from offline, taken it back because there's demand for it elsewhere. So because we are taking this call, we thought it prudent to take a special provision looking at the current context, and we will use that to make the business healthier. I mean, we will free up cash and invest that behind growth.

[Rohit Dokania, Senior Vice President of Research]

Sure. Fair enough. Just a related one on that. So totally appreciate the fact that you want to improve freshness and also sort of not let the debtors sort of aging deteriorate. Just wanted to understand -- I mean, can you elaborate what kind of discipline and controls do you have in place for the future so that this thing is sort of taken care of by itself?

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

Sure. So let me take it in 2 parts. On the inventory part, I think, one is we are very clear that the world is an uncertain world. So I think you need to be disciplined on the way you buy, but more importantly, you also need to have the agility and flexibility because of higher volatility. So I think the 2 things we have done, obviously, we are taking a cautious view and not getting to carry the way anywhere. We're being very disciplined on the way we are looking at future buys. But I think the problem can only be solved if you have a supply chain that is more agile and flexible. And I think that's where we have put most efforts where we are now in a position where we keep 20% of the season buy, in fact, reasonably open, only 1 month into the season, do we need to place those orders. So that has removed a lot of uncertainty for us. And also, we are getting into flexible manufacturing technologies where turnaround times are much lower. So I think we are working very hard on making the supply chain flexible and agile. I would say that's one very strong theme. The other very strong theme for us is just more visibility, more control. So on the trade channel, for example, we have developed -- we've put in place a much more sophisticated dealer management system, we have visibility into secondaries, real time, even tertiary sales, we are getting into -- we're doing a pilot to get tertiary sales real time. So lot of visibility creation into the distribution led channels so that we have a much closer connect with customer demand. That's been one other large investment and focus area for us. And lastly, I think one big benefit of a focused portfolio is that you have larger brands, which makes it much easier to have predictability overall on inventory and how things are likely to scale. So I think that will also bring more predictability on inventory. So I think between all these initiatives, we fundamentally are expecting the ability to kind of grow in a very healthy way in the years to come.

[Operator]

The next question is from the line of Nishit Rathi from Chanakya Wealth Creation.

[Nishit Rathi;Chanakya Wealth Creation;Analyst]

I would first like to take the opportunity to actually place our thanks and regards for Suresh. Thank you very, very much Suresh for bringing Arvind Fashion and brands to the level that it is today. We really, really appreciate all the hard work that you put in and hope the company goes to a different level from the platform you provided. So we feel obviously very grateful for all your efforts.

[Suresh Jayaraman, MD, CEO & Director]

Thanks, Nishit.

[Nishit Rathi;Chanakya Wealth Creation;Analyst]

And just a question to the team. See -- FY '21 outlook that has been put out, has certain numbers on the right-hand side. So I just wanted to understand, are these incremental for the second half? Or are these numbers to be viewed on a full year basis? Because it has further debt reduction of INR 200 crores and release of working capital?

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

No, Nishit, I think this is an annual view. It's not an incremental view from today.

[Nishit Rathi;Chanakya Wealth Creation;Analyst]

Okay. Okay. So this is full year?

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

Yes. Sorry for the confusion.

[Nishit Rathi;Chanakya Wealth Creation;Analyst]

Okay. That is very helpful. That is broadly -- from my side. I always like to wish Shailesh a great journey, all the best, and hope you can really build on this.

[Operator]

The next question is from the line of Nihal Jham from Edelweiss.

[Nihal Mahesh Jham, Research Analyst]

So 3 questions from my side. First, you've clearly laid out what has been the recovery in the EBO channel and the department stores. Could you give the number for the MBO channel, specifically, how the recovery has been in Q2 and possibly each of the 3 months of this quarter?

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

Sure, sure. So that's a great question. The MBO has been broadly tracking at our high street number. So as we were exiting Q2, the tertiary demand has been at 60%. And now in festive, it is actually, again, somewhere between 70% to 80%. So I think tertiary demand is strong. One call we took as a company is to not feed the MBO channel for autumn/winter other than winter wear. So unlike every year, when in quarter 2 one would be feeding the new goods in large quantities, we did not do that. So it is not showing up in our primary number, but the right metric to look at is where our tertiary sales -- and the good news there is we are recovering in line with -- broadly in line with our high street store sales. So now that we have brained down and the tertiary sales are healthy, we expect a good start to the spring/summer '21 when we will fill the channel back in. And right now, of course, in quarter 3, we have filled in winter wear, which will be a good season for winter this time around.

[Nihal Mahesh Jham, Research Analyst]

That's helpful. Kulin, just one question on the one-offs. You very well elaborated on the inventory and that was well taken. Specifically on the debtors, I would understand is this will be to the MBO channel, but in case these are MBOs that we've had a rapport, or we've dealt with them in the past. So then is it that a situation of a write-off on debtor should come in? If you could just throw some thoughts on that.

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

Yes. See, this is honestly a little bit of extraordinary black swan. And whilst relationships are strong, there are some parties which have honestly deteriorated quite a bit on their financial stability and strength. So I think it is more a capacity issue rather than a relationship issue. And it's more a black swan that would kind of lead to something like this. So I think whilst you can always keep banking on the hope that as things normalize, people can recover, et cetera. We wanted to take a prudent view that there are some genuine risks and there are some recoveries, which will not or may not happen. So it's prudent to be a little conservative and cautious on that, which is why we took the call to kind of take a provision for it.

[Nihal Mahesh Jham, Research Analyst]

Sure, Kulin. That's helpful. And third question from my side was, if I look at a cash flow situation, so the INR 600 crores that have come in have helped us in terms of taking care of the operating losses and also reduce the employees [indiscernible]. Now when you look for the second half of the year, first is by when do we expect that we'll start becoming cash flow positive, I mean, from which month? And is it that there is an incremental possibility of working capital reduction happening and further debt repayment? Or you would expect -- as you laid out in your outlook that debt reduction is done for this year?

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

Yes, I think what we are seeing now is that there is going to be a steep scaleup in the business between Q3, Q4 and Q1. I think we are expecting this recovery. So our expectation is for debt to be broadly close to that INR 1,000 crore kind of number that we had indicated last quarter. And that whilst we might have incremental cash coming, we are investing that behind the growth. So we will grow without needing capital from outside the business is the way currently we see it.

[Nihal Mahesh Jham, Research Analyst]

Sure. I just thought of one last question, if I may. For Flying Machine now, I think it's already been 3, 4 months since the deal has been executed. I just wanted to understand, maybe it will not reflect in terms of numbers, but post the investment from Flipkart how is it to say that our visibility or our salients on both Myntra and Flipkart would have engaged? Is it possible to share a few examples?

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

Sure. I'll give a few examples. For example, during the event, we've had very less time to operationalize. It's been a few months, which is a short period of time. But even in the short period of time, one great outcome is in the event that happened this year, we doubled the volumes of Flying Machine. So that's a large 100% growth in volume for the brand in both portals. Another other good call out is womenswear, which is a growth opportunity, got a lot more visibility this year and large number, I believe, close to 60,000 pieces of women's jeans were sold. So this is the power of access and visibility. And Flying Machine has historically been very, very strong with Flipkart. And with Myntra, ranking was much lower. And this time around, our ranking has dramatically jumped in Myntra as well. So I think in a very short period of time, the 2 teams have been able to show outcomes. And now, of course, the more strategic way of looking at data and working data forward and more new categories, exciting categories to go after, that would play out over a season or so.

[Operator]

[Operator Instructions] The next question is from the line of Prerna Jhunjhunwala from B&K Securities.

[Prerna Jhunjhunwala, Research Analyst]

Just wanted to know your strategic view. You've exited the GAP children's place, where we were seeing lot of opportunities in the past and Arvind Fashions is viewed as a portfolio of brand kind of a company. I wanted to know what is your thought process over a 5 years point of view where you will be restricted to this brand or are you looking for more brands? Or how are you going to play in the brands that -- in the new categories and all that. So a little bit of strategic view over a 5- year period, would be helpful to understand the company's future going forward?

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

Sure. As I kind of mentioned, I think when I was answering the first question, I don't think it is fair to equate number of brands with growth opportunities. I think we are very clear that the next 6 years, even with -- one can easily more than double our sales with the portfolio and the focus area we have. So these 6 platforms are not monolithic. There is a lot of ways in which they will be growing and expanding, not only organic expansion of distribution, but as I have explained, a step change in the way these brands will be selling digitally and also a lot of new categories that are coming in because if you look at the lifestyle stage, most brands -- the whole sector is moving away from category specialists to lifestyle play, and we have seen that these expansions which we have done, like today US Polo is a full end-to-end lifestyle play, where not only do you have a Polo and a shirt, but you have a denim, you have a shoe, you have comfort wear. It's become a holistic lifestyle proposition. And I think there is very large kind of scaling opportunities. If we look at a market like China, single brands are $1 billion. So I think as we look into the demographic dividend-paying out in India, I think they are very clear that over the last 5, 6 years, we have been able to identify the sure shot now winners in the portfolio. And by doubling down and investing behind the winners, not only can we get a strong growing business -- I mean, this can be -- we would be kind of going through the s-curve of growth on [Technical Difficulty]. But more importantly, a lot of it will come to the bottom line as well. So I think in short, a 5-year strategy is to scale up our high conviction.

[Prerna Jhunjhunwala, Research Analyst]

Okay. And sir, my second question is on the initiative that you took last year that your primary sales would largely reflect your tertiary scale. How closer we are to that initiative on success? And how -- what back end initiatives we have taken that it will not -- it will reflect the tertiary sales going forward.

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

So that was when I was talking -- I think I had answered it a few questions back that see the challenge in that channel was what level of visibility do you have? And there are 2 steps, right? There's a primary sale where you sell to a distributor. Then there is distributor which is selling to the retailer, which is called secondary sales. And then there's the retailer selling to the consumer, which is called tertiary sales. So what we have done is to get a complete visibility day-to-day on secondary sale, we have got a distributor management system. It got implemented last year, last quarter of last year, and it's fully operational now across all our brands. The second step is to see tertiary sales. And there, we have also launched a pilot where we get tertiary sales real time every day. So I think on one hand, we have got the technology stack, which we have made lot of progress since last year. And secondly, we have kind of looking at the overall situation of COVID, we have taken a cautious view. So for example, there was a possibility to sell into the channel even in autumn/winter in a slightly more aggressive way. But looking at the uncertainty is the fact that at that time the market had not fully come back. We've been very cautious trying to estimate secondary demand, tertiary demand carefully and kind of run this channel in a very, very controlled way. So I think both from a technology and an intent perspective, it's been a very, very, I would say, cautious and controlled way we are operating. And I believe that now we have a platform or a foundation to scale up this channel it in a healthy way in the years to come.

[Prerna Jhunjhunwala, Research Analyst]

Okay. And sir, my last question is on NNNow.com. You've invested meaningfully into…

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

Please call it NNNow.com.

[Prerna Jhunjhunwala, Research Analyst]

Yes, NNNow.com.

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

NNNow.com. Yes.

[Prerna Jhunjhunwala, Research Analyst]

So NNNow.com. And -- would like to understand how has this investment been beneficial to you or -- in this COVID times where online became a major channel of selling as compared to offline? And what were the key learnings or initiatives that would have -- will be helpful going forward to you on this channel?

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

Yes, so it's been a very exciting post-COVID world for us. We have tripled in our scale. And on a very large business, which is our digital business, this channel is now accounting for close to 15%, 20% of our sales. So it's a very, very promising scale that we have achieved. What is also very promising is that we've got strong unit economics. In fact, we have reached a level where we are covering our costs also. So in that sense also, from a bottom line perspective, now looking a lot of promising. I think strategically, it plays a very important role because it's a way for directly acquiring and engaging with customers. Possibly, there will be a time where we'll be able to acquire as many customers directly online as we can through our offline channel as we keep scaling this up. So I think owning the customer and having good traction in top line bottom line, we are achieving that. Now we are working on how do we really bring the next level of differentiation and functionality. So for example, we have launched our omnichannel loyalty. So customers shopping both online and offline now get points with us. That's a very powerful kind of differentiator for customers. We are rolling out next day or same-day delivery. Exchange in-store was always a thing from day 1. So all these omnichannel features are becoming more well defined. Finally, a metric which is very important to us is the company has close to 9 million, 10 million loyal customers. We hope that a good chunk of our hyper loyalists shop with us both on our online and offline, because we have seen that anyone who is omnichannel with us spends anywhere between 2 to 2.5x on our brand when if someone is pure offline. So that's kind of one of the main focus areas with NNNow.com that our omnichannel journeys need to keep maturing. And hopefully, someday, 30%, 40% of our customers are omnichannel customers rather than pure offline or pure online. And that will make the overall business model exciting. So that's kind of in a nutshell where we are and how we are seeing the future.

[Operator]

The next question is from the line of Saurabh Patwa from HDFC Mutual Fund.

[Saurabh Patwa]

Sir, just wanted to understand your -- what's our strategy on -- over medium term, once this lockdown -- once this COVID impact starts to normalize on Unlimited and direct retail in any other form, which we may be planning?

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

So the only 2 kind of retail-focused concepts we have is Unlimited and Sephora. So first of all, I don't think there is a big strategy beyond that. I mean, these are the 2 retail brands. Sephora is scaling very well. So let me try and answer Unlimited. So what we have been able to do in Unlimited as perhaps I had mentioned in the last call is that we have done a few things. One, we have dramatically restructured the cost. So almost on a permanent basis, INR 70 crores of cost has gone out of the format. That happened because of shutting down stores, changing our managing norms, changing the back-end supply chain costs, headcount reductions. So it's a 360, I think, part of our COVID restructuring. In Unlimited also, there's a huge cost restructuring angle that has come in. The other bit is we have changed our buying from a 6-month buying to a 2-month buying. So we are seeing consistently inventory levels come down. And by the end of the year, they will be significantly below last year's level. And we have worked on fine tuning the value proposition. So if we add up all this, the first kind of milestone we have set ourselves is to say that we want to bring this business to a level of reasonable financial performance defined by, say, a breakeven on the bottom line, even with the 70 stores, the restructured network we have created. And we have now a line of side as COVID recovery is happening. In fact, in the festive season, we have done really well there. So I think we are seeing the change in momentum. That milestone having been achieved, I think the structural question then is how do we try and create value or figure out next steps? I think that we are working on parallelly, and we do understand the need to have a more broader strategic answer on how once Unlimited is stable, can one make meaning out of it. So that, I think the management is still working on. COVID, of course, is still a little bit of -- needing to just go and fix the basics which we have done. I think we are coming out strong from COVID, but we will work on answering the overall strategic phase and question once this milestone is achieved.

[Saurabh Patwa]

That was really helpful, sir. That was, I think, the second part, which I was about to ask, you already answered it.

[Operator]

The next question is from the line of Maulik Patel from Equirus Securities.

[Maulik Patel, Research Analyst]

I have just 2 questions. Now we have the 6 brands and -- can you just help me with what kind of -- from a revenue potential and revenue, these 6 brands did at the peak? And if you have any approximate number?

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

Sorry. These 6 brands did as -- at a?

[Maulik Patel, Research Analyst]

At a probably pre-COVID. What was the revenue of these 6 brands combined what we have now in Tommy, Arrow, US Polo, CK, Sephora and I think Flying Machine and Unlimited?

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

Right. Maulik, we don't give brand specific…

[Maulik Patel, Research Analyst]

No, I'm just looking at aggregate number.

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

See, I think we have brand like a US Polo, which is closer to that INR 1,000 crore plus level of scale. And then we have quite a few of our formats close to the INR 500 crores be it Unlimited, Arrow, Flying Machine, even Tommy is reaching there. And the rest are at the INR 250-ish crores scale, INR 200 crores to INR 250-ish crores scale. So that's how to look at it. And as I had answered another question, I think, of course, each would have a slightly different scaling based on the strategy and current size, but with an aggregate we believe that the revenue potential is definitely 15% or more of the portfolio.

[Maulik Patel, Research Analyst]

Okay. So I was in contextual looking at that. One, I think, let's say, the combined revenue of all these brands that are probably pre-COVID was in the territory of close to around INR 2,500 CR or so approximately, or probably more than that, INR 3,000 CR. Yes, around INR 3,000 CR, approximately?

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

Should be north of that.

[Maulik Patel, Research Analyst]

Okay, north of that. Okay. And then correspondingly, the fixed cost reduction, what you have or probably what we have achieved 15% to 20% fixed cost reduction on the base side, right?

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

Yes.

[Maulik Patel, Research Analyst]

Okay. So that's one thing. Second is given that you mentioned about out online, what percentage of the online currently is approximate?

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

See, last year, it was 15%, but Maulik, this year it would be misleading to take it or not…

[Maulik Patel, Research Analyst]

Sure. I understand that completely.

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

So if I answer that question, it will be a very high 40%, 50% of our sales, say, in quarter 2. But that's not, I mean, a very logical way to look at it. I think the number to look at is versus last year, we grew 20% in quarter 2 with online, whilst all other channels were only 50% of last year broadly, give or take.

[Maulik Patel, Research Analyst]

And the last question is that we have taken some write-down. I mean, this is the last -- I mean, are there any more things which spans -- pending related to the inventory or the receivables, because this…

[Kulin Sanjaybhai Lalbhai, Non Executive Director]

No, no. See, Maulik, we have taken a cautious and conservative view looking at COVID, and we don't see any further kind of one-offs coming. Of course, if there is a dramatic COVID deterioration -- I mean, that nobody can guarantee. But otherwise, we do not see any further provision.

[Operator]

Ladies and gentlemen, that would be the last question for today. I now hand the conference over to Mr. Ankit Arora for closing comments. Thank you, and over to you, sir.

[Ankit Arora, Head of Investor Relations & Treasury]

Thank you, everybody, for joining us on the call today. If any of you have any more questions, please feel free to reach out to me and I'll be happy to answer them offline. Thank you, everyone, and wish everyone a great festive season and happy Diwali.

[Operator]

Thank you very much. Ladies and gentlemen, on behalf of Arvind Fashions Limited, that concludes today's call. Thank you all for joining us, and you may now disconnect your lines.