Go Fashion (India) Limited (GOCOLORS) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Q2NH1FI27 on a conference call of GoFashion India Limited. This conference call may contain forward-looking statements about the company which are based on their beliefs, opinion, and expectation of the company as on date of this call. These statements are not the guarantee of future performance and involved risk and uncertainties that are difficult to predict. As a reminder, all participant line will win the listen only more, and there will be an opportunity for you to ask question after the presentation conclude. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Gautam Saragi, promoter and CEO from GoFashion India Limited. Thank you and over to you, sir.

Yeah, thank you. Good evening and a warm welcome to everyone present on the call. Along with me, I have Mr. R. Mohan, our Chief Financial Officer, and SGA, our Investor Relations Advisors. I hope you all have received the investor deck by now. For those who have not, you can view them on the stock exchange and the company website. Due to an H1FI27, stores built further on the five strategic priorities we outlined at the start of the year. Even as the quarter was shaped by the late festive calendar and higher RM costs, Let me take you through where we stand on each of these priorities at the halfway mark of the year and then speak about the quarters and the way ahead. Priority 1 was turning SSG positive. Turning SSG positive remains our single most important commitment for the year. After turning positive in Q1 at 0.6%, same-store sales worth for our EVOs in Q2 was broadly slacked. This needs to be seen in the context of the late festive calendar. With the festive season starting later this year, a part of the pre-demand fesses that falls in September last year has moved to October. As we said, last quarter, one quarter does not make a trend in either direction. Our focus remains on delivering positive SSSD for FI27 as a whole, and the festive quarter will be an important one of that journey. Priority two, mitigating to larger store formats. Our transition to larger format stores continued through the quarter. During quarter 2, we have opened 9 new stores and closed 23 smaller format stores in catchment where we already have or are opening a larger store nearby. For H1F527, this takes us to 24 openings and 89 closures for the 6 months and we ended September with a grand total of 737 EGOS across 196 cities. Importantly, even with a lower store count, our total retail space increased to approximately 4.4 lakhs square feet as on 30th September 2026 compared to 4.34 lakhs as on 31st March 2026. There is an addition of roughly 14,220 square feet during half of the year as we opened larger stores and enlarged existing ones wherever additional space were available. Our average EVO size stands at about 608 square feet. Our larger format stores continue to do well and outperform the smaller stores in the network, which reinforces our conviction in this strategy. These stores hold our full range and give customers a significantly more premium shopping experience. Our store expansion strategy will continue to remain calibrated and selected with a clear focus on adding high potential locations across Tier 1, Tier 2, and Tier 3 cities. Over the next 5 years, we aim to significantly expand our footprint with the potential to nearly double our square feet in terms of size. Priority 3 is to refresh the product portfolio and the brand. We continue to refresh our product portfolio with new styles aimed at younger, friend-conscious consumers and remain on track to add new products through FY27. Our value-added non-leggings portfolio now contributes to 70% of the revenue, reflecting the steady primordialization of what GoColors offers. On the brand front, our first campaign featuring Shadda Kapoor, who came on board as a brand ambassador in July, went live during the quarter, and it has been very well executed and seen some good results. It has given the brand a fresh, younger, and connect heading into the festive season. And together with our influencer-led initiatives, we believe it will support stronger customer acquisition in the coming quarters. Priority 4 is to expand our daily wear concept. We continue to scale our daily wear concept and now have 21 operational stores compared with 15 in Q1. We remain committed to our target of 25 to 30 daily stores by the end of FY27. The unit economics continue to hold up well, and the festive quarter will give us a good read of how these stores will perform in the peak season. Priority 5 is our LFS channel recovery. LFS revenue in Q2 was impacted because of festive timing. Dispatches to our LFS partners typically take place in September 8 of the festive season, and move to October this year. This is a shift in timing rather than demand, and the supply chain with the key LFS partners remains normalized. We continue to work closely with our partners on assortment, placement, and sell-through, and LFS contributed about 23% of our sales in H1 FY27. So while the Q2 numbers were affected by the festive timing and raw material inflation, the underlying progress on our five priorities remain on track. Coming to the financial performance, revenue for Q2 FY27 grew by 3%, largely on account of the festive days that I just spoke about. Gross margins for the quarter stood at 60.8%. As I mentioned on the last call, fabric prices have gone up due to geopolitical situation, and this higher cost inventory has started flowing in in quarter two. We intend to pass on the raw material inflation through calibrated pricing actions, which will help restore gross margins in the coming quarters. During the quarter, we recognize an exceptional expense of 3.4 crores, taking the total of 4 HYFY27 to 9.9 crores. This exceptional expenditure is write-off of capital expenditure on account or store closures, which has happened through the six months. This, it is a direct consequence of our network consolidation strategy, and it is a one-off item. Full price sales ratio for H1-FY27 stood at a healthy 93%, and our average selling price for EBOs is at Rs.827. On the balance sheet side, we continue to make good progress. Working capital days stood at 134 days, with inventory days improving to 94 days from 100 days at the end of Q1, now within the 90 to 100-day range, which we had guided earlier this year. Operating cash flow on a pre-end days basis stood at a healthier 52.6 crores. Looking ahead, the festive season has started on a decent note and we will be better placed to assess the full impact once the period concludes. Our priorities for FY27 remain unchanged, sustaining SSS3 momentum, accelerating our transition to larger format stores, refreshing our product range, and scaling our daily wear and international initiatives. We remain confident that these efforts will translate into stronger performance through the year. The company continues to maintain a strong competitive strength as one of the most recognized bottomwear brands with a clear emphasis on quality, comfort, and fit. Our deep category expertise and brand recall position are well within the women's bottomwear segment. Given the still low penetration of organized players, the bottomwear category offers a meaningful long-term growth opportunity. With this, I would like to hand over the call to our CFO, Mr. R. Moan, for the update on Q2 and H1 FI27 results and financials. Thank you.

Thank you, Gautam, and good evening, everyone. I will now give you the financial highlights for Q2 FI27. Our revenue stood at 218 crores, a decline of 3% YOY. Gross profits stood at 132 crores, with a gross margin of 60.8%. EBITDA before exceptional expenses stood at 56 crores. EBITDA margin before exceptional expenses stood at 25.8%. FATS stood at 9 crores. Now, I will give you the financial highlights of half early H1 FI27. Revenue stood at 440 crores, a decline of 1.5% year-on-year. Gross profit at 272 crores with a gross margin of 61.8%. EBITDA before exceptional expenses stood at 123.4 crores with EBITDA margin of 28.0%. Cash flow from operations pre-INDAIS-116 stood at 52.6 crores. Our ROCE and ROE excluding INDAIS impact stood at 8.9% and 6.7% respectively for the half H1. Cache and cache equivalent stood at 211.4 crores as on 30th September 2026. With this, we will now open the floor for questions and answers.

Thank you so much, sir. Ladies and gentlemen, we will now begin with the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question to assembles. First question comes from the line of Abhash Padar with Oinears Alpha Investment Management. Please go ahead.

Yeah, hi. Thanks for taking my question. So, just wanted to understand a couple of things. One, if you could just talk a bit more about the other expenses on the cost side. I understand that you explained the one-off, but I would have thought if I look at YOY numbers, We've had a net closure of 75 odd stores, and these are the smaller format stores which are giving us less of profitability. I would have thought we would still have lower costs, but I understand you would have made certain investments as well. So, if you could just talk a bit about that in detail just to help us understand what's exactly gone on in the last year, because I would have thought the savings would have outgrown the expenses. That's question number one. And question two is, this is a smaller one, in the gross margin, are you planning to take a price hike or have you already taken a price hike to offset the cost increases that you've seen? Just these two questions.

Yeah, thank you, Abash, for your question. So, I'll answer your first question. On the cost side, a lot of our costs have got rationalized, but there are some expenditure, obviously, we have spent more because of our advertising increase as well. If I take in our overall expenses, employee salaries and rent are the two major line items. So because we have shut down many smaller stores, open larger stores, we have seen our employee salaries stabilizing. Like I'll give you an example in quarter two. Last year, quarter two, our employee salaries was about 45.75 crores. And in quarter two, this year, it was 46.3 crores. So it has been, and this is after increment. Usually, we give increments to our staff every April. So, even after increments, we have seen that the employee costs this year versus last year has been pretty much flat and there's no growth in that cost. Rents, we have seen a slight increase. This is on account of opening larger stores and rent escalations. And we've obviously closed many stores, so we've had savings on the rent part. But at the same time, many stores continue to escalate every year. So, the rent cost as an absolute amount has increased. The rent cost last year in Q2 was about 36 crores. This year, it is about 37 crores. So, it's more or less stayed flat what it was last year's number. So, if I take the overall other expenses of the business, the major spike has come because of marketing and advertising. So, if I take H1, last year we spent about 7.85 crores on advertising, and this year we have spent about 12.63 crores on advertising because we've got a brand ambassador on board. So, the increase in other expenses is largely because of the marketing and advertising expense. Now, coming to, in the other expenses, there's one more line item. Obviously, there is an exceptional expenditure where we've done store write-offs. Last year, for H1, it was 1.73 crores. And this year, because of the store closure, the one-off expenditure write-off is 9.87 crores. So, the two-line item which has pushed the bottom line expenses on the higher side, one is advertising and the other is the exceptional expenditure. Now, to your second question on gross margins, we have done price hike for certain articles we have just recently done, and we are in the midst of doing price hike for some other articles as well. So, I think the offset against the gross margin will take a couple of quarters, but I think it will stabilize in the next two quarters. So, we have done some increase now, and we are going to be doing the some increase post-festive.

Gautam, one more thing to add is that the other expenditure is not only store write-off, it will also have store renovation. We have done a couple of stores renovations.

Yeah, so we've also taken some store renovations this year. I don't have the exact number handy for what is the value of the store renovation, but that could have also spiked the amount a little bit.

Understood.

But if I see largely the other expenses, it's mostly on the store closures and the advertising.

Thank you so much. All the best.

Thank you.

Thank you. Our next question comes from the line of Ankit Kanodia with Zen Nivesh Advisors, Private Limited.

Thank you for taking my question. So, we have 737 EBOs, and even though total revenue from EBOs might be flat, but if I have to break it down into, say, three, four segments, like there would be some large stores which would have opened in the last few months or maybe quarters, which are still too mature. And there would be some large stores which would have come last year, which would have shown good number. And then there would be some stores which are smaller and still doing well and we continue to keep them. And then the last one would be where stores which are getting shut down. So, if you can give some color as to how each of these four, direction as in, I'm not looking for a definite number, but something more color into all these four buckets, how they are performing, how this 0% growth is coming. I think some would be doing really well and some would be doing really bad and net-net it would be zero, right?

See, yeah, thanks, Sankit, for your question. I think, look, the newer stores which have opened, the newer stores usually take time to settle down. And that is usually for any store to start performing well, it at least takes 12-15 months for it to reach some sort of maturity level. So, whatever newer stores we've opened, we've not opened only new stores, but whatever we've opened over the last 12 months, they are growing steadily and we are seeing decent SSHG also in those newer, larger stores. As far as the smaller stores are concerned, rightly you said many smaller stores continue to do well because it might not have any other larger store in that vicinity and maybe that mall and high streets are doing well. So, some smaller stores can continue to do well unlike some other smaller stores. The third bucket of stores which are even our daily concept stores which are about 21 of our stores. The 21 stores where we have kept topware and a little bit of menswear have actually picked up speed and done well over a period of time. Like I mentioned in my previous calls, we continue to deliver about 1,000 rupees of sales per square feet per month, which is a good number for us, which we think to begin with. We've reached 21 stores, we've seen good traction, we're going to be adding another 8-9 stores. So the sample set of 30 stores, it will tell us what should be our future strategy as far as expansion is concerned for this format. Now, the larger question of large store versus small store, if I look at my overall network of large store versus small store, my larger stores are SSG positive. So, if I take stores which are greater than 700-750 square feet, they are about 2-3% or higher SSG, whereas my smaller stores continue to be negative. So, when I read the different types of data, it's very clear that we need to pivot from a smaller to the larger concept. However, obviously, because we are on a very big base of 737 stores, the transition takes 9. So, we will continue the transition of smaller to larger stores in the quarters to come. But it's very difficult to give a definitive number on how many small stores I'll be shutting and how many larger stores I'll be opening. So, that's purely on the basis of what real estate we find.

Got it. That was very helpful. So, I'm not asking for, again, a definite number, but just looking at the pattern, as in we closed around 50 stores in FY25, and we closed around 54 stores in FY26, and in H1 FY27, we have closed 89 stores, right? Right. And is it fair to assume that in terms of closing down of stores, the heavy lifting has been done in H1 and from H2 onward, the direction should be lower, as in it should be lower setting down?

Considerably lower, Ankit. Now, I mean, look, if you see Q2 versus Q1, the number of stores have reduced, the closures have reduced. In Q1, I think we had more than 58 or 59 closures. In Q2, you can see it's 23. In Q3, it will be even lower. So, directionally, now, the margins in the PNL will start going up by virtue of lower closures. And directionally, I think the ratio of closures will considerably come down. And the margins also start improving on that basis.

One last question, if I may. So, if I look at last year's second half, so I'm talking about FY26H2. So, from there onwards, our revenues have dipped a little. Prior to that, we were doing really good. Now, when we have this base effect here in terms of the festive season being shifted to Q3 rather than Q2, and how we are positioned, and also in terms of the price height which we have taken, is it fair to assume that, again, not asking for a definite guidance, but year-on-year numbers from H2 should be much better than what you have seen in H1? Year-on-year numbers.

Certainly, yes, Ankit. Q3 should deliver a good number for us.

So if Q3 and Q4 should deliver a good number for us. Yeah, so if in this tough time, if we had managed 0.2 SSSG, directionally we should be able to achieve our target of closing the year with a positive SSSG, right?

We are keeping our fingers crossed. Hopefully we should be going in that direction.

Yeah, thank you so much. That was all from my head and all the rest for the future.

Thank you, Ankit.

Thank you. Our next question comes from the line of Avinash Karumanshi with Motilal Oswal Financial Service Limited. Please go ahead.

Thank you, sir. And my question is regarding the gross margins. So, if you look at it like this quarter, actually LFS, which is a low margin channel that has declined and Evo was continuing to do well. Despite this, we are seeing the RM pressure, which is why the margins went down. So, my question is, like, how much of the inventory with the new RM prices were reflected in this current quarter sales? Like, it will be a general process, like, where the inventory will be straight over. You will be already sitting on a good amount of old inventory. I'm just trying to understand how much of the more impact will be coming in.

Yeah, how much more impact? See, it's very difficult to judge that, and I'll tell you why. As the RM prices have increased, we've also done the increase in MRP in some of our articles. So, it's very difficult to judge what is going to be the further impact on gross margins. My estimate is this quarter, we had a 200 basis points impact on our GM. I think the next Q3, we should be having a gross margin impact of anywhere between 100 and 200 bps, is my estimate. Difficult to judge this, but roughly, I feel our GM impact should be about 100 to 200 bps in quarterly.

No, okay, okay. And D, if I look at like the ASP, it is up by 6%. Is it a selection of the price hikes that you've already taken or is it just a challenge of the product that's happening?

So, it's a combination of many factors, maybe a little bit of price hikes. The price hikes wouldn't have shown now because we've just done the price hikes recently. So, it wouldn't show up in the ASP that soon. In bottom where we've come out with very value-added products, which are of that 800-900 selling price. And also, because our daily wear concept also has picked up and it's become 21 stores, the top wear in these 21 stores are obviously of a much higher ASP. So, there would be a small impact of that as well. So, I think it's a combination of new bottom wear products and some of the top wear also selling well in the 21 stores.

No, okay, okay. It's mostly product mix-length changes.

Yeah, it's not a price-length mix yet.

Okay. And finally, on the last one, more of a qualitative print. So, you are partnered with a new brand ambassador. So, I'm just trying to understand, like, not only that, and also the scale-up of the largest stores, how are the footfalls in conversions tracking? Because when you close two smaller stores and open a big store, and then you're spending on A&P, so is the footfalls generally higher than what you used to see earlier, and conversions also, or how are you looking at it qualitatively?

See, from an advertising perspective, because the Shadda campaign has just started post-July, we'll be able to assess and gauge the campaign only after festive period gets over, I mean, that's right now. But see, right now, whatever little bit feelers we are getting, the campaign is doing well. But on a concrete basis, we'll be able to gauge that campaign only post-festive. As far as opening one last store and consolidating two stores, we've seen that a good part of the revenue of the two stores get converted into the larger store within a few months. So I think that business moves immediately. See, like I'll give you an example. We've shut so many stores, right, over the last six months, but we've not seen a drop in turnover. So it very clearly indicates that whenever we are shutting the smaller stores, the revenue by virtue is moving to the larger ones immediately. In fact, the entire revenue will take a little more time to move, but a good part of the revenue moves immediately. And that's why you don't see a degrowth in our turnover for H1, even after closing so many stores between last year H1 and this year H1.

Got it, got it. And one last question, if I may ask. So, this is a follow-up to the earlier participant regarding the SSD only. So, this quarter, despite the festive shift, you are still on a flattish kind of SSD, which is an encouraging sign compared to the last couple of quarters. So, will you see an improvement or what is driving this improvement going forward for the next few quarters?

Fingers crossed, Avinash. The data looks good. We've been seeing 49 days to festive. So, we basically calculate 49 days to Dashera, 49 days to Diwali, and the number is looking decent. So, we would wait for the quarter to get over to do a full summary of how the quarter has gone by, but quarter three has been decent for us.

Oh, thank you, sir. That's it for my sake. Thank you.

Our next question comes from the line of Sameer Gupta with India InfoLine. Please go ahead.

Hi, everyone, and thanks for taking my question. Firstly, Gautam, today system of 737 stores, can you just give a color on what would be the proportion of 700 plus square feet stores now in the system? And also, what is the sense on the store closure pipeline, wherever you have visibility? Say, let's say for the next 12 months.

Yeah, just one minute, Samir. I'm going to take that data out of what is the breakup. I don't have it handy with me. Just give me a second. I'm not having the updated number for 737 stores breakup, but I'll give you a rough idea, Samir. So just pardon me if I'm wrong, but anyways, I will give the data through SGA, but I'll give you a rough idea. My understanding is, the small stores are anywhere between 120 to 150 stores, which are less than 300 square feet. And the 700 plus square feet stores are about, if I'm not wrong, if it's closer to 90 or 100 stores. Again, these numbers are just off my fingertips. I will send the accurate data through SGA tomorrow itself.

Got it. And the number that you cited of SSG negative, that's for the less than 300 square feet stores, Not for the less than 700 square feet stores.

No, no, see, see, what happens, you know, Samir, when we look at SST, right, sometimes even the last, many stores will also, even the last stores, some of the stores will be negative because that's a, that's a result of how the market and the mall are doing. So, I can't take those exceptions into account. If I have to list at a proper sample set, most of the negative stores are the ones which are the small ones. So, I would be wrong. It is less than 700. Yeah, less than 300, correct. So, I would say most of the negative stores would be less than 300. That would be the right way to put it.

Got it. I mean, that's helpful. So, basically, less than 20% of the stores now are where you would say that largely the problem is 80% of my network is now where I want it to be.

Of course, it will get better with time. Well, not really. See, I'll tell you, I agree with what you're saying, logically. But see, for us, the stores which are in the 400 to 500 range also, even those stores, we need to increase in size and make it 700, 800 square feet. Though the 400, 500 is not a very big issue for us, the larger issue are the very small ones. But even the 400, 500 over a period of time, we need to slightly upgrade and open a larger one.

Okay, let me put framework question in a different way. Whatever in your definition is a problem area, what would be the percentage of that cohort?

It should be 20-30% of the stores. Again, what I will do know, Samir, because this is a very definitive answer, when we share the stores by bucket through SGA, I will answer this particular question of yours with that data.

Got it. I mean, I'm not looking particularly, a particular time.

No, no, but because, because you're asking a specific, I know, but because this is a specific question on a particular number, I don't, I've given you a rough ballpark, exact numbers, I will give it through SGA.

Sure, and what would be your estimate of the pipeline of store closures, let's say, in the near term, 12 months from now?

See, again, start to, because this number changes based on what real estate we find, the closure for Q3 from what visibility I am getting will be anywhere between 15 and 20 stores as of now.

Got it. Fair. Second question is on the input cost inflation for your category that you are looking at in fabric costs. And, yeah, I have a follow-up, but let me take that answer from you first.

Yeah, see, I mean, look, obviously the RM prices have gone up. We thought it was cool down in July, August. It cooled off a little, but still the prices were high. So look, we had to take hike in some products of ours where we feel the impact has been larger. So like I had mentioned to even Ankit also, some products we have taken the hike, some we will take post-pestive. So, I think over a period of time, this GM impact, what has happened of 200 basis points, what you can see in our P&L, this should get, you know, this should improve and go back to the older number.

Got it. But I was actually asking about the quantum of inflation that you're facing. So, is it 15%? Is it 10%?

It's around, it's between 8% and 10% is what I understand. Because see, the yarn prices and fabric prices have changed every month. But if I have to just take a blended, I think it's about 8% to 10% is what these days.

Got it. Now, follow up to this. Basically, if I look at your end-year inventory, which is largely a finished goods inventory, it's around 267 crores. And if I look at the first half cogs plus subcontracting, it's around 168 crores.

No, no, no. Sorry, the 267 crores is which inventory you said? Can you just repeat it?

March ending. March ending.

Your March ending was 268 crores, correct.

Right, 268, sorry. And if I look at the first half COGS, the one that you report in the P&L, plus even the subcontracting charges, that's around 168 crores. So, logically then, most of the inventory gets used up in the first half, unless the March ending inventory was itself sitting on a higher fabric cost. Why should there be any GM pressure right now in the P&L? I understand fabric costs have gone up, but that would be sitting in your inventory, right? Because you will still be using the older inventory to produce the current sales.

No, but see, that difference from product to product. Some fast-moving product, the inventory days would be much lower. Some would be slower. So, it's very difficult to bridge the gap, what you're saying. See, it would be, if all my products sold at the same rate of sale, Maybe what you're saying would be true, but it's very difficult to bridge what you're saying from March's number to this number.

Okay, got it. So probably then you are actually sitting on a higher-aged inventory as well, and you don't see that as a problem.

Yes, we would have older inventory at the older price, what you're saying is right. But from an impact to GM perspective, my hunch is that the impact would be anywhere between 100 bps to 200 bps in quarter three.

Got it. Got it. Great. That's all from me. Thanks and all the best.

Thank you, Samit. Thank you for the wishes.

Thank you so much. Our next question comes from the line of Madhur Rati with counter-cyclical investments. Please go ahead.

Sir, thank you for the opportunity. I wanted to understand regarding the receivable number, it has moved from 106 crores to 125 crores. And our LFS revenue has declined. So I'm not able to understand why has this increased?

Yeah, see, it has also happened on the line of our online receivables have gone up a little bit. We've also started doing a little bit of quick commerce. So, on that basis, some of our online receivables have gone up. Even our export receivables for the Dubai store, we have some receivables pertaining to that. So, the spike is largely because of non-LFS business. I think it's more relating to online. We have started doing quick commerce and we have also started doing online. We have also started doing on an SOR basis with Amazon. So, quick commerce and Amazon put together has caused some spike in our online decisions from March.

So, Gautam, I wanted to understand that our small stores seem to be doing all right till FY25. So, then suddenly what happened that the smaller stores basically, they basically, the SSG deteriorated?

See, I think, look, the deterioration and the SSSG obviously happens over a longer period of time. It is just that it was more visible maybe from FI24 or FI25 onwards. That is when we also started noticing the trend. See, for anything to show up, it gradually takes place. It is just that it became more evident from that point of time.

Understood. So, now, Gautam, are we totally exiting the 300 square feet stores or we'll keep some of them which are anyway doing good business?

It's going to depend on the availability of real estate. I'll give you one small example. Now, there is Inorbit Mall in Halberabad where we have a 200 square feet store. In that mall, that store does extremely well for us. It's an exceptional store. But there, we don't see ourselves getting a 600-700 square feet store over the next 15 months because renewals are yet to come in. So, in such cases where there is no real estate in that particular area, we might have to continue a smaller store till that period. Okay, but ultimately, we'll exit all the 300 square feet. Yes, eventually. See, also, one more thing. When I've selected the 700 plus square feet, I don't want to be in a situation after three years where, again, I'm in a situation where 700 is turning out to be tight. In a 700 plus square feet store, I have enough room from a long-term perspective to manage in that format. So, eventually, our bottom pair is going to be in the range of 700 to 800 square feet or maybe a little more, maybe 700 to 900 square feet. And eventually, over a longer time horizon, we will exit all our smaller stores. That is the plan.

Understood. Now, Gartam, is it that the only issue is the store size or is it that all the B2C brands and fast fashion brands like Zudio, etc., that have come up in the, let's say, last few years, have they basically eaten a pie and maybe that impact is also there? Or is there some issue with the merchandise that maybe ultimately the merchandise has to be attractive enough? Or is it really confined to the 300 square feet stores? I mean, are we clear that what is the ailment and whether the diagnosis is correct?

See, I'll tell you what is it. In my management view, if you look at it, it is purely related only with the store. Now, why that store makes such a big difference? See, for any business to continue growing, you need to have existing customers coming back to the store. You need to have new customer acquisitions, etc. When your store is very small, it carries an inherent perception that the range of what you're carrying in terms of products will be less, will be confined. So what a larger store does, it increases the frontage of the store. See, a smaller store frontage will be anywhere between 10 and 12 feet. When you take a larger store of, say, 700 square feet, it will have a minimum frontage of at least 19-20 feet. When you get a frontage of a 19-20 feet or plus store, the visual merchandising of the number of products what you're having increases dramatically. See, the customer first experiences the store, then experiences your product. So, the store is, if you ask me, the store is the real reason for our slowness, and I think the larger store is what is going to fix it. From a merchandise perspective, I can tell you, sorry, go ahead, please go ahead.

No, no, no, please go ahead, Gautam, on merchandise.

See, from the merchandise perspective, see, from a merchandise perspective, no brand can be perfect. Yes, there will be always gaps in every brand's product portfolio, right? But when I look at our portfolio of products, we are well diversified in today's product of bottom wear, what the younger consumer and the millennial consumer is asking for. So I think it's not a merchandise problem. As far as competition is concerned, like you mentioned competition, competition was always there, right? I mean, Westside, Zudio, you just mentioned these big names, right? They've always had bottom wear. So, I think even prior to COVID also, if you take all the larger format stores keeping topware also kept bottomware. So, I don't think it is something which has dramatically increased only in the last two years. So, I think our problem of growth, our headwinds of growth is because of our store format rather than anything else. It's mind and management view.

So, Gatham, why have we got into men's wear? Because anywhere the small store has no room to display all the merchandise of our core women wear. So, and then we have gone on into men's wear.

So, basically… So, I'll clarify it. Yeah, I'll clarify it. So, see, the men's wear and the top wear, what we are keeping for women, and the format we are keeping in, that is different from our bottom wear stores. See, this pilot, what we had planned, we had planned this, we had working on this pilot for last two years. Now, what happens in this pilot, Namadun? We take store sizes of anywhere between 1,500 to 2,000 square feet. And in that, we accommodated bottom wear, we accommodated women's top wear, and we had given a very, very small space for women for men's wear. That pilot and that concept is completely independent of the bottom wear story, what I'm talking about. Out of the 737 stores what we have today, 736 stores are in India. In that 736 stores, 21 stores are stores which are greater than 1,500 square feet per store, closer to 2,000, where we are accommodating all the other merchandise. And that is merely a pilot, which I also mentioned in the earlier calls that we will open another 8-9 stores and see how that business is doing. If that business does well, and it clicks for us, the software becomes a new growth engine for us, along with our bottom desk.

So, but still, Gautam, I mean, it sounds like a knee-jerk reaction, especially getting into men's wear. Okay, we can try, since women are our customer, so we can try to sell more things to women. But to get into menswear, which is altogether a different segment, somehow it doesn't sound, I mean, it just sounds kind of desperate. But in any case, since you mentioned it's a pilot, so I think we got to try many things and something will click and we'll push that. So that's totally understandable, Gautam. Now, Gautam, when we are doubling our...

Just one question, I'll just clarify before we go to the next question. I understand that menswear sounds very bizarre, but for the kind of dailywear concept we wanted to create, keeping menswear becomes important. We also understand that we are a womenswear brand. That is why in all these stores, wherever we have done the dailywear concept, the menswear space allotted is only 10 to 12%. 80 to 85% space or maybe more has been allotted for women. And right now, that menswear, which I'm giving 10-12% space, is generating that kind of sale from that area. So, the men who are coming with the women in these stores, they are buying. So, in the pilot, we've been very careful that we don't do it as far as menswear is concerned because we know our strength is only see women's wear. So, I just want to add this word to that question. Yeah.

Sure. So now, Ghatam, that we are planning to double our square footage over the next five years, so have we evaluated a FOCO strategy and why do we want to, like, put the rent and everything on the company's balance sheet? Aren't we getting enough people who are interested in our franchising?

See, so, Madhura, I'll tell you, your question is very right. See, franchising, non-franchising, there's no one right way to go about it. What I've seen from my past experience for a format and supply chain business like us, we feel a company-owned, company-operated model is a better model where we would like to have full control of the inventory at a store level. So, I wouldn't say Coco is better than Foco or Foco is better than Coco. The strategy works differently for different brands. For our kind of supply chain, for our kind of template, we feel Coco is better. And because our payback periods have been attractive, even if we are going to be investing and doubling our square feet, from a cash flow perspective, our operating cash flow will be far higher than what we are going to be investing on store openings. So, we feel that a COFO model kind of a system is a better-suited model for us.

Understood. Now, lastly, Gautam, last year, we did around 182 crore LFS revenue, F426 I'm talking about, and on that, we gave a discount of 61 crores. So, is this 61 crore discount, is it only attributable to the LFS? Yeah.

No, no, see, I'll tell you. So I'm not very sure of the 61 crores number. I have to see the P&L to exactly know. But any discount given in LFS, LFS is largely margin to the LFS. See, what happens is most large format stores, what they will do, they will take a big part of the margin when we build the product to the large format store. About 5-6% of margin is something which is debited on us later through the year based on a mutual understanding on promo participation, which is not really discount. It is the promos what large format stores run at a store level for their overall marketing. So any discounts which hits the top line for LFS is largely additional margin what we give through the year, which usually the reconciliation happens in quarter four. So, if you notice, from one of our larger, large format store partners, we usually get the credit note only in the last quarter of the year as a reconciliation rate. So, to answer your question straight, it's more margin than discount.

So, Fatam, if we compare, so F526 LFS sales were 182 crore versus 202 crore in F525. So, LFS revenues fell by around 20 crore last year, whereas the discounts increased from 44.5 crore to 61 crore. So, there is a significant data.

So, Madhul, I'll check up, what I mean, Mohan, my CFO will do, we'll check up where the 61 CR number came from, and we'll send a clarification note on that. But the one thing I definitely know that the reason why we had a fall in LFS revenue from FY25 to FY26 was because in Q3, with one of our larger LFS partners, we had supply chain, major supply chain disruptions in last year's Q3. By virtue of that, we lost out on a lot of billing and sales in Q3 last year, which impacted the overall revenues of F526. Now, as far as discounts is concerned, it cannot be a number of 60 crore. Anyways, I will go back, check and send a clarification note. The margins which will be where we've been passing a credit note to the LFS partner will be to the tune of 5% to 6% of LFS sales and not any more.

Mr. Ratti, have you done with the question? Yes, Mr. Ratti, can you hear us? All right, it seems Mr. Ratti has disconnected. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for the closing remarks. And over to you, team.

I would like to thank everyone for being part of this call. We hope we've answered your questions. We are undertaking a comprehensive transformation in our store format strategy, our product portfolio, our brand investments, and our new business initiative. The transformation will take time to fully manifest into our financial numbers, but the early signals are very encouraging. If you need any more information, please feel free to contact Mr. Devan Dhruva from SGA, our investor relations advisor. Thank you.

Thank you so much, sir. Ladies and gentlemen, on behalf of GoFashionIndiaLtd, that concludes today's call. Thank you for joining us and you will now disconnect your lines.