Metro Brands drags its feet in December-quarter; recovery awaited

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₹5,200 in Q3—its third continuous quarterly drop. Add to that, losses in its acquired portfolio, Cravatex Brands Ltd, weighed on Metro’s consolidated Ebitda margin, which has contracted by 296 basis points year-on-year to 31.3%. Overall, this meant Ebitda, excluding other income, fell by 3% to ₹199 crore.

(Cravatex owns the sportswear brand Proline and holds an exclusive licence for Fila.) Analysts have trimmed their earnings estimates for Metro. Factoring the weak Q3 results and higher losses in Cravatex (Fila), Nuvama Research’s analysts have lowered their estimate for Metro Brands's profit after-tax in FY24 by 16% (Nuvama projects standalone profit after-tax at 11%). Nevertheless, there are bright spots.

Metro continues to expand and is on track to add 100 stores in FY24. Till December, it has added 87 stores, taking its total count to 826 as on 31 December. Driven by store additions and same-store sales growth, Metro expects revenue growth to be about 18% in the medium-term.

It helps that the company's revenue share from premium products is on the rise. In the nine months ended December, products priced above ₹3,000 accounted for 49% of its revenue, compared with 44% in the same period last year. Further, Metro intends to liquidate Fila’s high-cost inventory by March or latest by June.

Given this, Q4 would continue to see an impact. But Metro aims to reposition the brand and targets accelerated store expansion in FY25. Metro's recent partnership with Foot Locker, which is focused on the sneaker segment, is another positive.

But Metro plans to open four-six of these stores only in Q3FY25. The productivity is expected to be similar or higher when compared to that of Metro's. Analysts at Motilal Oswal Financial Services