Arvind Fashions Q2 loss widens five fold year-on-year to Rs 218 cr

 Amid a severe impact of Covid-19 pandemic on apparel retail in the country, fashion denim and premium casual wear company Arvind Fashions Ltd has registered a consolidated loss after tax of Rs 217.79 crore for the quarter ended September 30, 2020 in financial year 2020-21. The company had posted a consolidated loss after tax of Rs 45.57 crore in the corresponding quarter of previous fiscal year 2019-20.

The company's consolidated total income also fell from Rs 1055.87 in Q2 of previous fiscal year 2019-20 to Rs 463.81 crore in Q2 of current FY 2020-21.

With the pandemic severely impacting the fashion business, the scenario had led to lower sales, resulting into inventory build-up and slower collection of receivables for Arvind Fashions Ltd. As a result, the company informed stock exchanges in its results filing, that the group had taken several steps including raising of equity capital by way of rights Issue of Rs 399.79 crore, strategic partnership with Flipkart India Private Limited for its youth brands Flying Machine which has resulted in cash flow of Rs 260 crore, discontinuation of certain brands, sharp reduction in overheads and closure of unviable stores.

With objectives of faster releasing cash and have fresh inventory offered to customers, the Group decided to offer higher discounts to liquidate old inventory rapidly and take back goods sold from customers where collection of funds is getting delayed and sell it through other channels for faster liquidation.

"In order to achieve these objectives, during the quarter and half year ended September 30, 2020, the group has made special provision of Rs 157.11 crore consisting of Rs 34.74 crore for margin on sales return and scheme and discounts, Rs 96.83 crore for inventory dormancy and Rs 25.54 crore for allowance for doubtful debtors which are disclosed under exceptional items," according to the company's filing with exchanges.

On a quarter-on-quarter (QoQ) basis, Arvind Fashions' Q2 FY'21 revenue grew sequentially by 363 per cent over Q1 FY'21, led by gradual opening of stores along with improving footfalls across stores and continuing progress in e-commerce channel.  Overall, the company reached 41 per cent of sales in Q2 FY21, with sales recovery in September at 50 per cent further improving to 75 per cent in October 2020, compared to same period last year.

Commenting on the performance of the company, Arvind Fashions Ltd's MD and CEO J Suresh said that while COVID related concerns persist, it has witnessed encouraging business recovery during the quarter, with improved footfalls and trend line across our channels.

"Our investments in digital and omni-channel capabilities is driving robust growth in our online sales and providing enhanced customer experience. With our cost saving measures along with sharper working capital control and sales recovery trajectory, we expect to achieve EBITDA positive in H2 FY21," said Suresh. Through a combination of non-debt fund inflows, reduction in gross working capital, omni-channel and digital solutions yielding results and cost rationalisation measures, the company reduced its net debt by over Rs 190 crore in the first half of the current fiscal year 2020-21.

Recovery has continued in October, with festive sales witnessing 75 per cent recovery as compared to last year. "With the gradual recovery from Covid, investments in digital and the steps already in place towards various restructuring initiatives, we expect H2 FY21 to be significantly stronger than H1 led by consistent sales recovery," the company stated.

Meanwhile, with current MD and CEO J Suresh retiring in February 2021, Arvind Fashions Ltd. on Thursday named Shailesh Chaturvedi as his successor. Previously the MD and CEO of PVH-Arvind brands, a joint venture that houses eminent brands Tommy Hilfiger and Calvin Klein, Chaturvedi also led the Arrow brand for Arvind Fashions. On the other hand, apart from working closely with Chaturvedi to ensure a smooth transition, Suresh will continue on the AFL board and also advise the board on key strategic issues after stepping down from his active role, the company stated.

Apparel major Arvind Fashions looks for a more diversified portfolio

Having established itself as a marquee player in the men's wear category, branded apparel and retailing major Arvind Fashions is looking for a more diversified portfolio.

From a 80:20 ratio in its men’s wear versus other segments portfolio three years ago, the newly demerged entity has already seen this shift to 65:35, on the back of 40-50 per cent growth in its children’s wear and innerwear business. Its women’s wear category has also seen decent growth.

Now, backed by strong brands like US Polo, Calvin Klein, Tommy Hilfiger and GAP, it is expecting the product portfolio to shift to 50:50 between men’s wear and other segments, says J Suresh, managing director and chief executive. Among the other segments, the Arvind Group firm is banking on strong growth in children's wear and inner wear, on the back of growing online sales and distribution expansion.

In innerwear, for instance, compared to market leaders with 60,000 channels, Arvind Fashions is currently at 12,000.

“We have a very strong brand in US Polo Association, which we are leveraging to grow even inner wear and kids’ wear. If we take inner wear, then we have very strong brands there like Calvin Klein and US Polo; in kids’ wear, brands like GAP, US Polo and Tommy Hilfiger. Nobody can match us with this portfolio of brands in these categories. Strength of the brand and promotion strategies, along with distribution expansion across channels, is helping these categories grow,” says Suresh.

It foresees at least a fivefold potential rise in distribution. In children’s wear, it says it is becoming a dominant player in department stores or multi-branded stores, with around 2,000 such.