Metro Brands to focus on sales, not profit this year; offer more discounts

HDFC Securities, which reitarted its ‘sell’ call Metro Brands on valuation concerns, said the footwear retailer is focused improving its market share this year, rather than protecting its margins, after interacting with the management.

The broker, which has a price target of Rs 840 on the stock against the current market price of Rs 1,293, also said the company will liquidate most of the FILA inventory it got as a part of its Cravatex acquisition during the year.

It pointed out that Metro Brands is trading at 59 times its two-year forward earnings and “the valuation seems oversized.”

Turning Around FILA

Metro Brands, which operates stores such as Crocs, FILA, Fitflop, Birkenstock, and Cheemo, acquired the India rights of the Italian brand FILA in October 2022.

This year, the company plans to focus on the liquidation of current excess inventory improving the cash conversion cycle and evaluating means to improve sales throughput at all existing sales channels.

“FY 2025 will be focused on brand repositioning wherein fresh stock is introduced and discounts wear off coupled with measured store expansion. FY 2026 is likely to be the first year of scaling,” HDFC Securities said in a note after meeting Metro Brands management.

The next financial year (FY25), the company told the analysts, would be focused on brand repositioning wherein fresh stock is introduced and discounts wear off, coupled with measured store expansion. However, FY26 is likely to be the first year of scaling, HDFC quoted the management as saying.

The company got the rights to FILA in India, 24 stores and ownership of the Proline brand when it acquired Cravatex Brands for Rs 2.02 billion in October 2022.

The company also told the analysts that it would focus the FILA brand more on the premium segment. “Unlike Cravatex (in its previous avatar) wherein the price straddled from Rs 1,500-8,000/pair..MBL intends to sharpen its price positioning (to Rs 4,000-7,000),” the broking firm said.

Focus on Market Share

The company management told the analysts that this year, it would focus more on driving sales than on improving its profit margins, and this could lead to an increase in discounted sales.

Moreover, HDFC Securities said the management was cognizant of the increase in discounted sales in the latest quarter, compared to 5% in FY23. “..in 1-2 years, it is likely to move towards pre-pandemic times (8-9%),” said the broker, quoting the management.

Meanwhile, the increasing discounts is also taking a toll on the company’s bottom line.

EBITDA margin fell sharply to 32% in the Apr-Jun quarter from 36% in the year-ago quarter.

However, on a positive note, the company’s revenue rose 15% on the year to Rs 582.52 crore during the quarter.

Apr-Jun also saw Metro Brands record its highest-ever quarterly sales of e-commerce sales (including omnichannel) of Rs 61 crore, up 63% on the year.

HDFC Securities, which already has a ‘sell’ rating on the stock, called the decline a return to normal for the company.

“We argue this is good for the business as extreme conservatism on margins could stifle business opportunities. MBL’s focus remains on delivering value to the end consumer and it will be better off normalizing margins downwards to make the offering more penetrable,” noted the broking firm.

It said it maintains its estimates and target price of Rs 840 for the stock. The stock is currently being traded at Rs 1,293 per share.