As of early 2024, shares of Metro Brands Ltd are trading at approximately ₹1,275 each, reflecting stability in a market where the Nifty 500 index has seen a significant increase of 25%. However, the footwear retailer is facing challenges due to subdued demand trends. The June quarter was particularly tough as fewer auspicious wedding dates and disruptions related to elections negatively impacted retail performance. Consequently, Metro Brands reported a marginal revenue decline of 1% year-on-year in Q1FY25.
Recent months have revealed that the company’s growth trajectory is hindered by a high comparison base. In FY24, Metro Brands experienced a revenue growth of nearly 11%, a sharp decline compared to the outstanding growth rates of approximately 58% and 68% in FY23 and FY22, respectively. Nevertheless, analysts posit that conditions may improve moving forward. “Metro Brands has suffered a performance deterioration over the past six quarters, primarily due to a strong base effect. However, we believe this trend is nearing its end,” stated a recent report from Nuvama Institutional Equities.
Future Outlook and Expectations
Analysts at Prabhudas Lilladher have indicated signs of recovery for Metro Brands. Notably, Q2FY25 has begun to show positive indicators across various brands, even amidst challenges such as heavy rainfall in certain areas. Looking towards the latter half of FY25, demand is anticipated to improve, driven by the festive and wedding season. Additionally, the upcoming relaunch of the Fila and Foot Locker brands is expected to further bolster growth.
Revenue Growth Projections
Metro Brands has set an optimistic revenue growth target of 12-15% for FY25, believing that demand will bounce back in the latter half of the fiscal year. Their long-term revenue ambition remains capped at 15-18%. By the end of June, Metro maintained an active footprint with 851 stores and plans to expand by opening an additional 225 stores across various brands over the next two years, prioritizing tier-1 and tier-2 cities to cater to emerging market demand. “We expect Metro to return to double-digit profit before tax growth in FY25 and an 18.6% CAGR over FY25-27,” noted the Prabhudas report dated September 25.
Strategic Initiatives and Brand Development
Metro Brands intends to launch its first Foot Locker store in Q3FY25 while the Fila brand undergoes a crucial reset phase. The company’s strategic focus for FY25 will be to reinvigorate the Fila brand by utilizing Foot Locker and Metro/Mochi multi-brand outlets for a broader distribution reach. Plans are also in place to resume opening Fila-exclusive brand stores in FY26.
Market Challenges and Opportunities
Amidst these advancements, the Bureau of Indian Standards (BIS) implementation for footwear is likely to result in a slight increase in costs. However, Metro Brands continues to focus on premiumization, with an impressive 54% of Q1FY25 sales originating from products priced over ₹3,000.
Valuation and Risks
Despite the positivity surrounding future prospects, Metro Brands’ current valuations appear concerning, trading at 66 times FY26 estimated earnings, as reported by Bloomberg data. The potential delay in the recovery of demand poses a significant risk in the near term, necessitating close monitoring as the market evolves.
Conclusion
In summary, while Metro Brands has faced challenges stemming from reduced consumer demand and market dynamics, the company is strategically positioning itself for future growth through expansion and brand reinvigoration. Stakeholders should remain attentive to the evolving context of consumer behavior and market trends as Metro navigates through these opportunities and risks.
