Ladies and gentlemen, good day and welcome to Shoppers Stop Limited Q2 FY 2022 earnings conference call hosted by Axis Capital Limited. I must remind you that the discussion on today's earnings call may include certain forward-looking statements and must be viewed therefore in conjunction with the risk that the company faces. Please restrict your questions to the quarter and yearly performance and to strategic questions only. Housekeeping questions can be dealt with separately with the IR team. As a reminder, all participant lines will be in the listen only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and zero on your touchtone phone. Please note that this conference is being recorded. Now I hand the conference over to Mr. Gaurav Jagani from Axis Capital. Thank you, over to you, Mr. Jagani. Thank you, Neeraj. Good morning, everyone. On behalf of Axis Capital, it's my pleasure to welcome you all to Shoppers Stop FY 2022 earnings conference call. On the call we have with us today, Mr. Venugopal Nair, MD & CEO, Mr. Karunakaran Mohanasundaram, CFO, and Mr. Jaiprakash Maheshwari, VP Finance and Accounts. I would now like to hand over the call to the management for their opening remarks, post which we can start the Q&A session. Thank you, over to you, sir. Thank you, Gaurav, and good morning, friends. Thanks for joining us today to discuss the Shoppers Stop financial results for the second quarter of the fiscal year 2022 that ended on the 30th of September. We have shared our Q2 results, the investor deck, and the press release with you, and I hope you've had a chance to browse through the same. Today I'll talk to you about the Q2 performance and as always give you an update on the progress on our strategic pillars and the way forward. To start off in the second quarter, we saw a strong rebound from the second wave of COVID-19, and the consumer confidence has rebounded sharply. Our GAAP sales was INR 709 crores, a growth of 117% over Q2 FY 2021, with margins growing by 490 basis points and EBITDA by 386%. The reopening of stores and the recovery from the closures in quarter one was varied through different states, and there was growth in sales in each of the three months of the quarter on a sequential basis. We've had a strong start to the festive season, and currently we are nearly at the same levels of sales as pre-COVID. This suggests that we are likely to have a strong comeback over Diwali and Christmas. Apart from the strong sales in stores, our sales through our digital channels continue to perform strongly and grew by 103% over FY 2021 same quarter. I would also like to call out at the total level as a business, now we have had six consecutive quarters where our average bill value has been increasing. This is a clear indication of a higher level of engagement with our customers, and that they are spending more with us every time they visit us in our stores or online. On the operational costs, we continue to save versus FY 2020. In the second quarter, we saved INR 62 crores. The savings have been on lease rentals, employee costs, and admin and operating expenses. We managed our inventory efficiently, adopting the lessons learned from last year when the first wave hit. Our inventory has reduced by INR 82 crores compared to the same period last year. Again, this needs to be taken in the context that this is with sales being at a much higher level than last year. With strong sales and tight control on costs, we reported an EBITDA of INR 138 crores as per GAAP financials and INR 1 crore as per the non-GAAP reporting. During the quarter, we invested INR 20 crores on OpEx in building our e-commerce and digital technology as we continue to transform ourselves into an omni-channel retailer. Apart from that, we also invested INR 35 crores across CapEx and OpEx in opening new stores and refurbishing our existing stores. In our store renovations, we have been focusing on improving productivity of the stores. A good example of this is our store in Inorbit, Hyderabad. In this store, we reduced the store area by 35%, and yet the sales have reached the same levels as pre-COVID, improving the profitability of the store significantly. We are also happy to state that during the quarter, we completed the sale of Crossword for INR 41.6 crores. That's an overview in terms of our overall performance. If I now move on to strategic pillars, I will talk to you about each of them in turn. We continue to make good progress in each of our strategic pillars, we are very happy with the way we are progressing on it. Our first strategic pillar, our First Citizen, our loyalty program, this continues to grow strongly with 75% of our sales coming from them. We are growing our First Citizen Black Card customer enrollment, which is an annual subscription program wherein our customer pays INR 4,500 for an annual membership to be a part of this program. This customer visits us three times more frequently than our average First Citizen customer, which leads to much higher annual spends. We migrated the First Citizen loyalty program to a new campaign management platform called Gravitè last year. In the second phase of this is now being linked with our data warehouse. This will give us the ability to engage with our customer in an even more targeted manner, improving our conversion and growing our overall sales through better engagement. On our second strategic pillar of omni, specifically, I'll come to omni-channel in greater detail later, just on First Citizen, our sales on omni from our First Citizen customers grew from 21% to 40%. As mentioned before, we are engaging with our First Citizen customers very closely. 33% of the customers who have shopped online have also shopped in-store. They spend 6x more than the average online customer. It just shows how much more engaged our First Citizen customers are when they are shopping both channels, and hence our endeavor to continue to increase the share of First Citizen customers spending online, even as we continue to attract new customers. Our unique service to our customers, Personal Shoppers, continues to be a strong offering for our customers, a differentiated offering that we give. Personal Shoppers and sales through the Personal Shoppers has been consistent and contributed to 14% of our sales with an average ticket size of 2.8x higher than our normal. We also do styling festivals through our Personal Shoppers, both online and offline. Our other self-services as White Glove continues to contribute to our overall sales. All of this helping to make the First Citizen customer, our loyal customer, feel special in our stores. Moving on to our second strategic pillar of private brands. Our strategy of growing our private brands in apparel and beauty is working well. Private brands contributed to 14% of our total business, with it being 18% in our online business. Bulk of our private brands are on apparel, and in apparel, private brands contributed to 19.4% of the total sales of apparel. The nine brands that we have in apparel continue to grow faster than the company. We have invested in getting the price right for these star brands, and this has led to a volume growth of 59%. In the last call, I had mentioned to you about the launch of Insense, our sleepwear brand, and this, I'm happy to report, has now jumped to being one of the top brands in our women's western wear. In women's Indian wear, our private brand sales now contributes to nearly half of the total sales of this category. In men's, we launched Bandeya. Again, this is something which I had shared with you at the last call. Bandeya is a range of men's ethnic wear, and this is now the biggest ethnic wear brand for men in our department stores. Finally, in kids wear, our private brand sales have been way ahead of all of the other categories, growing by 162%. To summarize, across all of apparel, our private brands continue to grow well, and we are pleased with the progress we are making. Moving on to our third pillar of beauty. In beauty, we continue to build on our leadership in the offline space, and we are increasing the number of brands that we retail. In parallel, we are adding a lot more brands which will be available only online, with a great opportunity to have Shoppers Stop as a strong omni-channel player. We have added 19 brands in the second quarter, and we'll be adding another 41 in the third quarter. We also continue to build our private brand, Arcelia, in beauty. Just last week, we have launched 10 new perfumes across men's and women's, and we'll be launching 20 different varieties of deodorants in the next four weeks. We've launched accessories, sheet masks, and some of these are priced extremely attractively. We will be launching over 200 variants of lipsticks and nail polishes in the Q4 of this financial year as we continue to grow Arcelia as our private brand. With makeovers now being allowed in stores, we are seeing higher customer footfalls for beauty, and they are spending more time in the store. Makeup categories grew by 133% over the same period last year. We will be launching three new SS Beauty by Shoppers Stop stores in the next 12 weeks. These are standalone beauty stores, they will be destination for beauty specifically. Our plan is to open 10 to 15 of these standalone beauty stores over the next 12 months. Finally, moving to the fourth strategic pillar of omni-channel. Here, we continue to transform ourselves into an omni-channel retailer with shoppersstop.com firmly established as a shopping destination for our customers. I must emphasize, every single store of Shoppers Stop and all of our standalone beauty stores are now linked with shoppersstop.com on a real time basis, giving customers the choice of buying every product that we have in our stores, and it's available to our customers on shoppersstop.com at all times. Apart from that, we also have additional brands which are available only on shoppersstop.com, expanding the range that is available for our customers even more. As a result of all of this, our digital sales was up 103% on FY 2021 and contributed to 8% of our total sales. We have strong unit economics on shoppersstop.com, as also through Amazon, and on the Estée Lauder online sales that we do. As mentioned before, this is an area we are continuing to invest, and we are investing to improve the customer experience on our app, on MarTech, on analytics, and on insights, which will lead to higher conversion and sales. The first phase of this will be implemented in December of this year, and the second phase in March 2022. In order to further strengthen our omni-channel play, I am pleased to share that we have now two board members joining us from pure marketplace and omni-channel background with good domestic and global exposure. Christine Kasoulis comes from John Lewis in the U.K., having extensive retail experience and a proven track record of identifying future consumer trends and delivering market leading propositions across multiple product categories, including home, fashion, beauty, nursery, and sports. I'm also pleased to welcome Arun Sirdeshmukh onto our board. Arun has been associated with the fashion business in India for over 25 years and has built some of India's largest and strongest fashion brands and retail businesses such as Reliance Trends, Amazon Fashion, to name a few. Arun is presently leading the largest electronic vehicle two-wheeler business as SVP and Global Business Head, Ola Electric, and also is CEO, Ola Cars in India. Moving on to expansion. We have opened two beauty stores of Estée Lauder in the second quarter, and we also renovated five of our department stores. Our expansion program is back on track. We plan to open six department stores and three beauty stores in the third quarter. Two of the department stores are fully ready and will be open as soon as the mall starts trading over the next few weeks. For the next two years, our target is to open 10-12 department stores and 20 beauty standalone stores every year. Last but not the least, we have most of our team in place now. We have a very strong management team with extensive international and domestic experience, with clear domain expertise in each of these areas. Having a clear plan, strong focus on our strategic pillars, and a great management team, puts us in a good place to take our business forward strongly. In summary, we've had a very strong and encouraging quarter. We are trending strongly into the festive period. Our strategy is working well, and the team that we have in place is well placed to deliver on our plans, capitalizing on the high loyalty and great trust our customers place on the Shoppers Stop brand. Thanks for listening, and we'll open to questions now. Thank you very much. We'll now begin the question and answer session. Nirav, we already received probably seven or eight questions. What we thought, Venugopal and I will read the question and answer it. That will avoid similar questions from the analysts. We will do that, then, we will open to the questions. I mean, we should not take more than five minutes to answer all these questions. Sure. Okay. I'll quickly go through them. The first one was, we are at 75% of Q2 FY 2020 sales despite 87 operational days. Do we expect to cross 100% of Q3 FY 2020 in Q3 FY 2021? What do we expect to end FY 2022 as a percentage of FY 2020 sales? On the first part, in terms of stores being open for 87% of the operational days, it is true that they were open. As you all know, in the month of July, COVID was still a fear, and the number of hours that stores were operational were quite. Add to that, in a number of cities, the stores were not open during the weekends, which do tend to be a significant part of our sales. Hence, that 87% operational base is not directly comparable to the sales recovery of 75%. On the second part, we are trending well, and as I mentioned, currently our sales are close to FY 2020 numbers for the festive period, which gives us an indication of where we are progressing. Second question: Please can you throw light on the cost saving? Are they largely from rentals or other areas? Savings, Again, I think I mentioned this in my initial talk. Savings are from across various expense sets, including employment, occupation cost, electricity, and service office costs. Third question, We have made investments in technology to help our digital presence. Are we happy with our current digital presence? Do we plan to spend more to ramp up our presence? We are progressing well, and we are continuing to invest to improve the experience that customers have on our app, on MarTech, on analytics, on insights. We believe all of this will help us to serve our customer better, engage with them at a more personal level, which should lead to higher conversion and sales. Are we happy with where we are? We are happy with the progress we are making, but we believe we will continue to improve and will continue to get better in this area. I'll move on to the next question, which is, are we now comfortable with the inventory and net debt levels? Any further reduction optimization in the second half? Yes, net debt has reduced sequentially from INR 196 crores in the Q2 of FY 2021 to INR 96 crores in the Q1 of FY 2022, to INR 62 crores in the Q2 of FY 2022. We expect to be debt-free by the end of Q3. Next one. Next question, do we see any cause of concern as Reliance Retail has acquired stake in Manish Malhotra and Ritu Kumar, just as ABFRL has done with Sabyasachi and Satya Paul. I wouldn't talk about competition or what their strategy is. What I can say is that if you look at the overall size of the market in India, only 29% of the total retail sales comes from the organized sector, and the rest is in the unorganized sector. Over the years, this has been expanding. We expect to continue to see this organized market grow and expand, and I think there are years and years of growth yet to come in. Hence, there's enough place for a lot of players to be in there. What's important is the ability for us to engage with our customers, to reach out with our customers, and delight them every time they engage with us. That's what we are aiming to do. That's what we are doing. The next question is a similar vein. A lot of players are getting aggressive on the beauty and personal care category. How do you plan to maintain customer share of wallet and stay relevant? What I mentioned about the markets a few minutes back holds for this category as well. The one thing which is different and plays in our favor, usually in the beauty and personal care space, is the experience that customer gets when they walk into the store. When it comes to beauty, makeovers, and the ability to actually have services that they can use in the store is extremely vital. This is something which we have been doing, and we have almost made it into a fine art over the last 15 years that we have been doing this. Our customer service associates in store are extremely well-trained, are highly trained, and they offer a very unique experience to our customers, which gives us a unique point of difference. We also have strong brand partnerships which have been there for many years now. Using that brand partnerships, working with our brand partners, we are able to offer curated ranges, which is a major play in the premium category that we work in. We also have our loyalty program, which gives us a single view of our customer, which again, is a point of difference that we have and which has been built over the last 15 years. The ability for our customers to cross-shop across beauty and personal care when they walk into our stores, when they are buying accessories, watches, sunglasses, apparel, our brands, so on and so forth. Finally, the private brand that we are growing in the beauty space, again, gives us an edge. All of this, I believe, puts us in an extremely unique and strong position in the market. Moving on to the next point, which is on performance of private brand and the steps to increase the same. Private brand continues to grow, as I mentioned in my earlier comments. We are focusing on our nine power brands. The way we are focusing on this is by firstly getting the product right. We strongly believe that product is at the heart of everything that we do, and getting the product right, offering fantastic quality, latest trends at absolutely stunning prices is the most important thing, and that's what we have been working on. Getting the product right, getting the price right. Further to that, having sharp demarcation of the brands, making sure that each brand is placed to its core, offers a clear end use, each brand is for a specific lifestyle, and having clear focus on that makes that brand come alive. Finally, to grow our private brand, apart from the existing power brands, we continue to look at white spaces, and we will grow in that. The latest of that was infants and sleepwear, which we did, Bandeya for ethnic wear, and also Intune, which is our direct-to-customer online-only brand, which we have just gotten. That's the way we want to continue to progress on private brand, focusing on product, price, brand, and white spaces. The last one that we have on the questions again to us was the progress on omni-channel initiatives. I think I have covered that already, so I won't go into that again. Suffice to say that we make good progress on omni-channel. We are continuing to grow the number of customers who are buying from us online. Our First Citizen customers are engaging with us more online, and our investments into the UI/UX, or the customer experience on the app, also on the MarTech personalization insights, all of this will help us to grow our business and be a truly omni-channel retailer, which is the transformation that we had embarked on a few quarters back, and we are continuing to go well. As I said, we are probably one of the very few retailers who have every single store of ours across department stores and the standalone beauty stores. Every store is linked on a real-time basis to our shoppersstop.com. Those are the questions that came to us. We will answer that. Gaurav, over to you, and we are happy to answer the questions from any other analysts or individual investors. Thank you very much. We'll now begin the question and answer session. The first question is from the line of Percy Panthaki from IIFL Securities. Please go ahead. Hi, sir. Congrats on a good set of numbers. My question is on the margins. Despite a fairly good recovery, we are just about breakeven EBITDA on an Ind AS-adjusted basis. This also, I think, includes INR 28 crores of rental waiver. Am I right? Yeah. Okay. My question is that if I do a simple kind of math, where, let's say, I assume that the sales, instead of being 25% down versus two years ago, supposing if it was sort of 0% versus two years ago, and on that incremental sale, I take, let's say, 40% gross margin and assume that gross profit flows through directly to the EBITDA line. Then I add back this INR 28 crore of rental, which will go away once things normalize. I get an adjusted EBITDA margin of about 4.4%. Isn't that a fairly low margin? Wouldn't we have aspirations of doing higher? If so, what will drive it from this 4.5% level to a higher level? Percy, thanks for your question. Karuna here. See, there are a number of assumptions what you have made. I'm not validating them. See, Q2 is one of the lowest quarters for us. Normally, our average margin of 67% is for the full year, considering a significantly higher margin for Q3. That's one. Second, the lease rental reduction, what you're talking about, also includes some of the rental savings due to permanent closure of stores, which we are last making in the previous year. That also includes that. Third, while I agree the operating margins are 40%. Please do understand that for this quarter, because of some liquidation of the private brand, our margins are not as probably as it ought to be. There are a number of other factors we have to consider for a particular quarter. It's not as probably as you are equating, Percy. If all goes well, and if we are to be at the same level of, say, last year with the cost savings, our EBITDA margin should be definitely higher than FY 2020. Okay. What would you be internally targeting for margins for FY 2023, assuming no third wave or anything? Percy, normally we don't give any future guidance. You are aware of that. We are targeting a very aggressive increase as compared to FY 2020, for FY 2023. Right. This quarter, apart from the rental waivers in the costs below the gross margin, are there any savings which are temporary in nature for this quarter? No, Percy. In fact, for the last six quarters, we have been saying that our savings on a like-like basis, we should be able to save INR 200 crores per annum. This quarter, specifically, we saved INR 62 crores, I agree, probably 30%-35% is from these rentals. The other expenses, what we saved are permanent nature. I also want to reiterate, Percy, we have invested in Omni quite a significant amount, which Venugopal spoke during his speech. I didn't get you. Sorry. Say again? Sorry. Yeah, I didn't get what you were saying. You invested in what? We invested in omni-channel, plus we also invested in stores refurbishing. We have invested in those two items. That would come in the balance sheet, sir, or in the P&L? No, e-com investments are all in P&L, Panthaki. Oh, they are not recurring investments, so to say? Probably for this year, we will be investing it. Next year it will be significantly lower. Understood. How much would be that e-commerce investments hitting the EBITDA this quarter? Between INR 10 to INR 15 crores totally, and the store refurbishing would be another INR 5 to INR 6 crores. Okay. Understood. What I meant by savings which are temporary in nature, is what I meant is, let's say, right now the travel would not have sort of returned completely to a normal. Supposing COVID goes away completely, wouldn't the travel cost naturally go up? When your sort of sales goes up, wouldn't your advertisement cost also go up as a percentage of sales? It will go up in absolute terms. I'm just wondering whether these items should be increased so as to not overstate the operating leverage when I'm doing your model. Okay. Let me conclude that, Percy. Our travel expenses are very small. I mean, that doesn't constitute probably it will be 0.2% or 0.25%, not more than that. If you see our marketing expenses as a percentage to revenue, this quarter is higher than the FY 2020 quarter. We are already investing in the marketing. Okay. Very clear. Secondly, this digital assets sales that you have 8%, that is across all types of e-commerce. What I wanted to understand is, out of this 8%, how much is from your own assets, that is your own website? You mean Amazon and. Yeah, excluding the aggregator websites or the platforms, and if you look at only your own assets, how much would be the contribution of that to the total sales? I'll take that, Percy. I think overall, close to 75% of the sales in the last quarter came from our own app, and the balance would be from Amazon and Ajio. Okay. Understood. Last question, if I might. What would be the contribution of the beauty segment that is not inside your Shoppers Stop, but the other stores that you have, your Estée Lauder or M·A·C or Arcelia or whatever. What is the contribution of those beauty stores to the top line and the EBITDA in a normal year? Percy, these are all bit sensitive data. We don't like to share that. All I can say is they are reasonably healthy, and our mix has been quite better, Percy. These are all very sensitive data, and we cannot share in a public forum like this. I'm sorry about that. Sure. No problems. Would you say that. Sorry to interrupt you, sir. Request you to come back in the question queue for a follow-up. Sure. No problem. My questions are done anyway. Thank you. I request all the participants, please restrict to one question per participant. If time permits, please come back in the question queue for a follow-up question. The next question is from line of Shalini Gupta from Ashika Securities. Please go ahead. Good morning, sir. I have two questions actually. As per Ind AS, basically what we saw was that depreciation and interest expenses are going up, and we were told that they're going to be higher in the initial years. They will reduce as time goes by. Sir, my question is, when do we start seeing that reduction? Shalini, we have discussed in the past. Our depreciation and interest includes normal depreciation as well as the lease rentals, which as per Ind AS includes both depreciation and interest. Answering your question specifically, if I see even the GAAP accounts, last year we had depreciation and finance cost of close to INR 110 crores. That has already come to INR 85 crores. Okay. That reduction of INR 25 crores has already happened. If you see only the non-GAAP depreciation, which is the actual depreciation, that has also come down by INR 7 or INR 8 crores, which is last year. Overall, the depreciation is coming down, Shalini. Okay. Sir, my second question is that, I think, beginning of FY 2021, the government introduced some COVID concessions because of which you were able to take the savings on rentals as in the other income line. Till when do you expect this to continue? Shalini, please look at both our GAAP and non-GAAP accounts. In the GAAP accounts, we have considered as another income, whereas in the non-GAAP accounts, we have reduced the lease rentals from the lease rental expense. In the first two quarters, whatever reduction has come in, it has come and reflected both in GAAP and non-GAAP accounts. We are negotiating with our landlords for the possible reduction in Q3, but it looks a bit difficult because all the stores are opening and the sales are also good. Way forward, our view is the rental reductions may not be significant as it was for Q1 and Q2. Okay. Sir, my last question, If I just look at the presentation and compare the GAAP and non-GAAP financials with the EBITDA line. Basically, there's a GAAP of something like INR 137 crores, and there's a GAAP of about INR 20 crores on the revenue front. Would I be correct in assuming that the rentals per quarter are something like INR 100 odd crores now? Slightly lower than that. You're almost spot on. The lease rentals will be anywhere between INR 90 crores to INR 95 crores for Q2, Shalini. Way forward, it will be slightly higher than INR 100 crores. Okay. Yeah. The question was talking about savings of INR 20 crores on rentals. Basically, those savings are already in the profit and loss account. You are right. It's already there in Q1 and Q2. You are right, Shalini. Okay. Thank you, sir. Thanks. Thank you. A request to all the participants, please restrict to one question per participant. If time permits, please come back in the question queue for a follow-up question. The next question is from the line of Ankit Kedia from Phillip Capital. Please go ahead. Sir, my question is regarding the revenue recovery. When you say in Q3, we could be close to Q3 FY 2020 numbers. If you look from the numbers of stores or the square feet, we would be significantly lower or pretty much same because we have closed the bigger square feet stores. Is it fair to assume that once Maharashtra comes to normal, given that now in the malls you need double vaccination are only allowed and recovery is full swing, the like-to-like underlying growth could be significantly higher than the flat revenue which you are guiding? Ankit, your point is very valid that we have closed some of our non-profitable stores. Hence, the numbers that we would be looking at is not a true comparison on a total basis. However, the guidance that I was giving you or the numbers that we did say, we were talking on a like-to-like basis. Understood. Sir, can you share the recovery outside Maharashtra? Maharashtra would be still double-digit contribution, and there are still restrictions which are getting lifted in Maharashtra now. The underlying growth ex-Maharashtra, if you can share some indication of that. It varies by region quite significantly, Ankit. To that extent, rather than giving you non-Maharashtra, it still doesn't give a true picture. What I can say is that each of the regions are performing strongly, with east leading the way at over 100%. Sure. Sir, Sir, my next question is regarding the beauty. In your opening statement, you mentioned you'll be opening beauty stores by Shoppers Stop. Today we have Arcelia, we have The Estée Lauder Companies, Shop in Shop, and Ebios. With this coming in, what could be the format of this new store, if it is not Arcelia, and what kind of brands would we have in this store? Ankit, thank you for that question, and I will elaborate on it. These would be 2,000-2,500 sq ft stores, standalone beauty stores. SS Beauty by Shoppers Stop is the working name that we have given to it. We expect to have three of them open by December this year. The mix of brands here should vary, of course, depending on the catchment and the mall or the city that it is opening in. Based on that, effectively it will be in the premium when coming to the top end of mass-prestige, that's the market that we would play in, and working with the brand partners that we have, and probably some new ones with whom also we are talking to. Our existing brand partners, the strong ones that we have, will definitely be a part of it, and a few new ones that we would continue to bring in, as I mentioned in my notes. As I said, we have taken a plan to have 60 new brands over a three-month period, and we are well on track on that. We've launched 19 of them. We're launching another 40 brands. All of this to make sure that we are bringing in more and more brands for our customers to choose from, and equally bringing in strong brands that work with us. These independent beauty stores are an important part of our omni journey, because what it does do is gives us the opportunity to go into a lot more markets. It gives us the opportunity to bring the best of our customer service and the styling that our associates are able to offer, and reach a far higher number of customers through these independent beauty stores. It gives us the legs to move much faster within the beauty space and expand and continue the lead that we have in physical stores on beauty. Sure, sir. Just a couple of questions for Karunakaran, sir. I'll request to come back in the question queue for a follow-up question. Ankit, if you have any questions later, either Venugopal or I will take that question back in. Thanks a lot. I am not sure. Sure, sir. Thank you. The next question is from the line of Nihal Jham from Edelweiss Financial Services. Please go ahead. Yes, sir. Thank you so much, and good morning to everyone. Sir, a couple of clarifications from my side. First, when you say that the festive period is already at recovering 100%, I'm guessing we are comparing it to the festive two years back. That is how we are coming to this number. Just wanted to be sure about it. Sorry, Nihal, your voice is not clear. Hi. Are you asking, are we comparing the festive period pre-COVID? You said something like that. Yes. Am I audible now? I'm so sorry about that. We are comparing the festive period, the pre-COVID, and when Venugopal said it is 100%, it was pre-COVID, the festive period. That is helpful. The second part I just wanted to clarify is, I think you mentioned that the share of private labels through the online sales was around 18%. Would it be right to assume that all the sales of private labels or majority of them would be driven via own app or website? It could be through our own app and also through Amazon, which is the only marketplace that we are presented. Okay. Just one last bit, if I may. On the cost part of it. As I noticed, you mentioned about the example of the Hyderabad store where we optimized the store size. Is that mainly the main way in which the savings both on the employee and also on the OpEx side, as you mentioned, ex the rental part is coming in? That the optimization of the square feet is mainly the one that is driving this kind of saving? If there are any other initiatives specifically on the other expense side that you want to highlight for better clarity? Thanks, Nihal. That's a very good question. Let me clarify. We have five line items. One is the employee cost, lease costs, electricity, advertisement and marketing, and other operating expenses, which includes both stores and service office where we are. Yes. Apart from lease rentals and marketing, all the other savings are permanent. That has nothing to do with reduction of space. Some savings will be there, but we largely optimize the cost when we did the exercise in FY 2020. Our marketing cost, largely we follow the curve, and we also investing in omni-channel. Our lease rentals, I just clarified, there are one-time reductions, but there are also reductions due to the closure of stores. Understood. Just on the other three items, any kind of examples about how these are being achieved, just for better clarity, in case you want to share anything around it? Of course, yes. See, in case of, say, store employees, we have optimized the staff. In case of, say, the space in a service office, we have surrendered some of the spaces. Like what Venugopal said, one of the other reason is we closed some of the loss-making stores. These are some of the permanent savings I'm talking about, Nihal. Understood. Some of the examples. I mean, there are quite a few. Understood. I'll take that off then. Thank you so much, and wish you all the best. Thanks, Nihal. Thank you. Thank you. The next question is from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas. Please go ahead. Yes. Good morning, sir. Thanks for giving that opportunity, sir. Kaustubh, sorry to interrupt you. Your sound is very feeble. Can you please speak clearly? Yeah, just a bit. Now it is better? Yes. Relatively better now. My question is on the average ticket size, which you mentioned in your initial comments, that you have seen a sixth consecutive quarter of improvement in the average ticket size. What is the current average ticket size, if you can give us a number, and what it was during the pre-COVID level? My second question related to this is, this improvement in the average ticket size is because of the increase in the number of items in the per person ticket, or is it because of the improvement in the mix? The average ticket size currently is circa INR 4,000. It's just under INR 4,000. The increase is because, it's again a combination of two factors. The significant one is that the fact that our customers are buying more items in every basket, and that has gone up and has been consistently going up. There is also an increase in the average selling price in some cases. Combination of the two. Okay, sir. Perfect. Sir, one more question I have about the customer engagement you were speaking about, maybe for your First Citizen customers or customers who are already tied up to add. Can you just throw some more light at how it is helping you to generate higher conversions? I think there are a number of different things that we do on that, and probably it would not be the right forum to go into a lot into each and every one of them. If I were to give you some simple ways of engaging better, what we do, and the fact that we have the ability to see what our customers are buying from us, both online and offline, and also comparing that to what customers of a similar persona. Our First Citizen customer base is split into customer personas, and based on those customer personas, we then create specific targeting that we do. At a broad level, we have eight personas that we work with, but then we go further and segment them into almost 40 different segments. Each of these segments then is based on what else customers like that do. We are able to offer them products or reach out to them, whether it is through a basket of brands or through price or through a volume-based engagement. A number of things that we could do on that, and which we keep doing constantly. Specifically with our Black Card customers, so First Citizen Black Card, which is our annual subscription program. For our Black Card customers, this is the Crème de la Crème of our First Citizen customers, the top end, and it's 2% of our total member base contributing 7% of our sales. For these First Citizen Black customers, we do a very high level of engagement. For example, the store manager is the Personal Shopper for this customer. For this customer, we do a monthly engagement activity, which are exclusive events open only to the First Citizen Black customers. They have an accelerated points earning capability, they are able to also have a cut in the queue or jump the queue in our stores while they are shopping with us. We also have special offers for them on a monthly basis, what we ensure is that the value that they get out of this membership far outweighs the annual subscription that they pay. The most important thing is that it is a customer who is engaged with us, who comes back to us and shops three times more than our average customer, our average First Citizen customer. Our average First Citizen customer itself is coming back more than a non-First Citizen customer, the First Citizen Black customer comes three times more, that's just an example. This three times is during the COVID period. Pre-COVID, it was even higher. Just one example of how we engage with our customers. Right, sir. Thanks for the detailed understanding. I will come back on this. Thank you. Thank you. The next question is from the line of Tejas Shah from Spark Capital Advisors. Please go ahead. Hi. Thanks for the opportunity. Sir, you spoke about beauty space, and beauty space is relatively understood or underappreciated, at least from our perspective. Just wanted to understand what is the size of opportunity that we're targeting here, and which all categories are really relevant to be part of this bucket and which are on the borderline of personal care counted as beauty? That's first, and second, if you can comment on competitive landscape because in last six months alone we have seen now Tata Beauty and then even Reliance is also launching a dedicated line there. Somebody like Myntra is also having a dedicated plan on beauty and personal care. If you can comment on competitive landscape as well. Thanks. Let me first start with the market and then get down to specifics. The total market size of beauty and personal care is estimated to be INR 1,073,000 crore, of which online is 13%. The rest of it is offline, INR 1,073,000 crore. Specialty retail, the market that we play in, is around INR 12,000 crore, with online share being around 20%, 80% being offline. Our positioning is in the premium and prestige space, as I mentioned earlier. The categories that we work on or the categories that we focus on is skincare, makeup, cosmetics-Fragrances and accessories. Those are the ones that we are in, and the ones that are growing is clean and natural and men's grooming. Specifically, these are the two new categories that have come in, and these are the ones we are also getting into. Specifically, our private brand, Arcelia, I already mentioned about, and through our private brand of Arcelia, we will be growing and completing the entire offer. we launched bath and body in three quarters back, actually. already within our stores, bath and body Arcelia is now the third largest brand. We're launching fragrances. Perfumes were launched last week, launching deodorant in the next four weeks. We also launched a whole range of accessories, a number of them being absolutely unique to us and not many players offering something like that. into Q4, we will be launching eyes, lips, and completing the entire offer on makeup over the next three quarters. that's on Arcelia and how we are dealing with that. We are also assisting product discovery for our customers through that again fuels repeat purchases, and that's something which gives us an advantage compared to a number of the other players because of the strong history and experience that we have in the beauty space. Sure. Sir, any comments on competitive landscape? I'm not an expert on competition. I wouldn't be able to add any more than what you already know on competition. What I can answer and what I can tell you is about my business. Sure. Sir, last bit on private label. Sorry, may I request you to come back in the queue, please? Sure, thanks. Gaurav, we can see number of participants in the queue. Can we extend the call by another 15 minutes if you don't mind? Yeah, sure, sir. Thank you. The next question is from the line of Prateek for the Nippon India. Please go ahead. Yeah, hi. When I look at your online journey and journey for customers, the reviews on Play Store or app in general or even on Twitter or social media are not that encouraging. How should we think about this journey? I know it's a journey, but how do we see these small issues where the experience is not similar to marketplace apps in terms of buying, selling, refunds, et cetera? When do we expect a streamlining of this? That's question number one. Second is, you talked about refurbishing stores, and the moment you refurbish, the sales are same as what they were pre this refurbishment, right? What is your refurbishment target? What all do you have in mind? Because clearly that improves the payback period. Lastly, you've made a comment on doubling your sales over five years. I just wanted to know when does those five years start? Is it FY 2021 or FY 2020? Yeah. Okay. Let me take the three questions one at a time. The first one, I would actually contradict what you said. Our ratings on both the Play Store as well as on the iOS app has consistently been up, and this is something we track on a fortnightly basis, and we have seen consistent improvement. On iOS we always used to be high, but on the Play Store, we used to be low. If I remember right, about a year back our ratings were around 2.7 which has now jumped to almost 4.4 and is comparable with some of the others. Having said that, we are also conscious and appreciate that this is a journey and the experience on our app needs to improve, which is why we did significant investments, which we talked about for automatic growth that we incurred in Q2 and will continue to incur over the next two quarters to improve that. The investment going into improving, the biggest investment and the biggest shift you will see is in the UI/UX, first of which comes through in December and the later part, the second phase in March. Also on MarTech, on customer insights, on analytics, all of which will help us to get a far better understanding of our customers which will help us to improve the conversion and grow our sales. This is something which we have done. The first phase was to get a whole data warehouse where we've got all of our customer data, product data, and the store data all assembled together in the one data warehouse that we have. That data lake project has now been completed, and we are building on that on the analytics insight. One side is the back end, the other side is the front end and the customer experience through the app. That's something which we'll continue to improve. The second question was on store refurbishment. Store refurbishment is a, I would say, business as usual in some ways. The difference is that we are being far more efficient with the way that we do it, and the fact that in Hyderabad which I gave you as an example, we reduced almost 30% of the space. Now, that's not something which we would do in every store. This was one particular example where we did that, and the productivity went up. Even where we don't reduce the space, what we do find is that when we refurbish a store, the sales and the like-for-like numbers do grow, and that's something which we continue to do. We renovated five stores in the first half, and we plan to renovate another four stores in the second half. What we are also doing is doing the renovation in a far more efficient manner. One of the other stores that we just did in Bangalore, it is a [Foreign language] 30,000-35,000 sq ft store in Garuda Mall, and we did the entire refurbishment in 15 days, which again means that the downtime is much lower, and this is something which we want to continue doing. Our teams have done a fabulous job, the project team, in terms of being able to do that. That's the second part, and obviously, as we do that, we are able to, A, grow the top line and also be efficient in terms of the investment that we make for the refurb. Your third question was on. Just remind me what was your third question. Aspiration to double our sales. Aspiration. Was it by FY 2025 or FY 2026? See, it's four to five years. What we had taken in is that in the next four to five years, we will get there. That's what we would put in there. from FY 2021 end or FY 2022 end? That's what my small question was. When should I consider four to five years from? Which year do you start? What is T- zero for you? See, when we had taken this target for ourselves, it was based on the FY 2020 numbers. Now, it has got delayed by a year and slightly more because of COVID, and that's the way I would look at it. Okay. Thank you, sir. All the best. Thanks. Thanks. The next question is from the line of Deepak Poddar from Sapphire Capital. Please go ahead. Yeah. Thank you very much, sir, for the opportunity. Sir, just a clarification. You said in the last participant question that it's based on FY 2020 as the base. That's right, yes. Okay. Doubling the sales. Yes. Right. Yeah, that's right. Okay. Because FY 2021 was COVID impacted. Mm-hmm. Fair enough. What's the margin level we are looking at when we are looking at doubling the sales at that kind of level? Because the operating leverage advantage is also clear. That's a too long a period, Deepak. We prefer not to give a guidance. I think Venugopal has already said that we should be even close to high single digits or low double digits EBITDA margins at that time. That's the overall guidance we prefer to give it. I'm sure you understand, five years is a long period. Yeah. Understood. My last question is on your other income. We have seen a lot of volatility in the other income. Maybe it might be because of the rental waiver. Just wanted to understand what kind of sustainable level we are looking at once things normalize in other income. You are absolutely spot on. I think you are referring to other income in GAAP income statement. Am I right? Right. It's primarily the lease rental reduction. If you see Ind AS 116 and read with The Institute of Chartered Accountants of India's latest guideline last year due to COVID restrictions, what they have suggested is any lease rental reduction, we should take it as an other income. That's the reason we have taken as an other income. Otherwise, our other income would be very nominal amount. Like INR 7 crores or INR 8 crores or INR 10 crores a quarter, right? Right. Anywhere between, yeah. What we also expect is fees on hire and other card income should go up once the business normalizes. That income should start coming in. The rental income reduction, which is largely what is being included in Q2, will go away. From third quarter onwards, right? That's what you mentioned, because the waiver will go away from third quarter. You are right. By and large, it will not be there. Still, we should be getting a small part of waiver for Q3 also. I understand. Fair enough. That's all from my side. All the very best. Thank you. Thank you, Deepak. Thanks a lot. Thank you. The next question is from the line of Aliasgar Shakir from Motilal Oswal. Please go ahead. Yeah. Thanks for the opportunity. I see we have mentioned that the 20 stores we are looking to add until FY 2023 are kind of around 30,000 sq ft store against an average of about 50,000 store. This is something that we have spoken before as well that basically the smaller store will drive higher productivity. Just wanted to understand here, what is the experience we have seen in some of the stores we may have added under smaller size. Where are we adding this? Are we going deep into the existing cities or is the smaller store set up allowing us to grow much wider in our space in terms of covering more cities? Yeah. Just if you could give a little flavor about how the economics are. Is the smaller store helping you drive better economics? I'm just coming from the point of view that we were seeing footfalls in the existing stores kind of flattening or declining. Is the smaller store giving you a little better economics when you go into smaller cities as well? Thank you so much. Thank you, Ali. In terms of the smaller footprint, and it's smaller relative to where we were, but they are still between 25,000-30,000 sq ft stores that we open, which is one of the larger formats within the country. Where we have gone with these is twofold. One, in some of the existing cities where we already have a large number of stores, and when we go into some of the more secondary catchments within that city, it helps us to add to our portfolio, reach to customers better, but in a more efficient way. Secondly, and where the smaller stores are used more is in the tier two and tier three cities. And the stores that we have opened, we have in Varanasi, we have more recently in Calicut and so on. There are a number of stores that we have opened, and we are very pleased with the productivity that we are getting from these stores, and the results that we get from them gives us encouragement to go much deeper. If I look at the next 10 stores that we are planning to open, I think eight of the 10 or seven of the 10 are in the tier two cities and these are new cities where we do not have these. Equally also, in some places, it gives us the opportunity to open a second store. Again, an example I can give you is Seawoods in Vashi where we already have a store in Inorbit Vashi, and we opened a second store in Seawoods, which is a tighter store and the productivity numbers there from there was extremely encouraging. What we do see is, of course, needless to say, as you would know, the newer stores, the smaller stores have lesser CapEx and hence a much faster payback and a far better productivity. Last but not the least, increasingly we are also adopting a model where we have capital contribution to these stores from the landlords themselves. That again helps our payback. Got it. This is very helpful. basically, I can now think that maybe because we are at a smaller store size, hopefully the kind of store addition pace will pick up quite significantly because that will allow you to probably go much more deeper into new cities that we had not seen in the last five years probably. Absolutely. You are very right. Okay. To put that in perspective, if you look at our trajectory from 2015 to 2020, it was very muted in the first four years. It was in the financial year 2019, 2020 that we did add 12 stores, and that is the momentum that we now want to continue with. We had to hit the pause button because of COVID and because of the fact that a number of projects which we were involved in, the work had got stalled or stopped. They have now all restarted, and we are quite confident that we would open around eight to 10 stores this financial year and continue at least 10 per year for the next coming years and accelerate that depending on availability of property. This is just the department large format stores I'm talking of, excluding the smaller format beauty stores which would be in addition to this. Understood. Do we think there is any more rigid left in the existing portfolio of stores? When you say rigid, you mean closures? Correct. Any kind of closures? See, I think again, closures is a norm that happens and that's something which we review every six months. We review the performance of the stores and based on performance of the stores, if the market has shifted, the catchment has shifted and it's not worthwhile, and we try and renovate stores after a certain period. the new investment into that store, if we believe will not be worthwhile, then we would take a call to either resize or shut the store as it may be. I would just call it as ongoing business activity. I agree. I mean, generally, the pace we have seen probably slightly higher in the last couple of years, probably 5%, 10%, so that should come down, right? Fair point. I think largely most of the corrections have happened so it's very unlikely that you would see a similar rate to what you saw in the last two years. I wouldn't rule out a few couple of them depending on where required. Understood. This is very helpful. Thank you so much. Thank you. Participants, you may press star and one to ask a question. The next question is from the line of Shivaji Mehta from Nippon Life India Asset Management. Please go ahead. Shivaji, may I request you to unmute your line from your side and go ahead with the question? Sir, thank you very much. All my questions have been answered. Thanks, Shivaji. Thanks a lot. Thank you. A reminder to all the participants, you may press star and one to ask a question. The next question is from the line of Binoy Jariwala from Sunidhi Securities. Please go ahead. Hi, thank you for the opportunity. Venugopal, a couple of questions on the guidance that we've given of doubling sales over the next four to five years taking FY 2020 as a base. In order to achieve this, we would need to grow at roughly about 15% CAGR on FY 2020 base. Right. We are adding stores at the pace of roughly about three lakh square feet, which is 78% of the retail area. Which means that on a like-to-like basis, our stores would need to grow at least closer to double-digit range, right? At an SSG level. Can you just help me with your thoughts on this? The growth, Binoy Jariwala, would come from more than just the opening of new stores, as you rightly pointed out. New stores are part of it. Second is the improvement in the productivity of our existing stores. What we have found in both private brands and beauty, the productivity tends to be very strong. The third factor is omni-channel and digital sales. The digital sales would be in addition to what we get out of stores, and that's the way we would look at it, and that's the way we have planned for it. Fourth is also the growth in beauty that we look to do. The space increase is about 8%. The like-for-like improvement would be quite a single digit to close to double digits online and digital sales including that finally, the additional beauty stores, the new beauty stores that we are talking about. Thank you. Thank you. Yeah. Okay, thank you. Thank you. I think we have still Ankit on the line. Can we have his question? I think we can. This will be the last one, yeah. Close it with Ankit. Yeah. Ladies and gentlemen, we'll take the last question from the line of Ankit Kedia from Phillip Capital. Please go ahead. Sir, in the initial remarks, you gave an example of the Hyderabad store where you had cut the size and the productivity was same. Do you think that is possible in some of the existing stores as well to increase throughput and increase productivity? There are a few stores where that is possible. I wouldn't want to get into the detail of how many, where, et cetera, but that is definitely a possibility, and that's something which we will explore every time we look at it. I mean, every time we look at refurbishing an existing store. Right. Sir, second question is on retention rate of our First Citizen customers. While the revenue contribution is between the 70% and the 80% band on quarterly basis, but what is the retention rate? If you can highlight what percentage of customers actually shop in our customer base. That would be more interesting, actually. How do you look at that? I think it's a very good question, and it is firstly, our overall First Citizen base is close to 8 million customers. At any point in time, we roughly have between 40%-45% of them who are active with us, and active being defined as people who have shopped with us in the last one year. Now, that number dropped in the last one year purely because of COVID, as you would appreciate, but that tends to be the number. Also what we do find is of the people who haven't shopped with us in the last 12 months do come back to us. Some of them will come back after 18 months, and so on and so forth. That level of retention, I mean, the overall retention numbers tend to be very high. The second factor is while the 75% does include a certain number of customers who come in and who have shopped with us during the quarter itself, who enrolled and shopped during the quarter. That's also part of the 75%, and that's quite healthy because the fact that we get new customers to enroll is very important. I mean, if I just take last quarter as an example, it was 63% was the absolutely new and repeat customers. The balance 12 out of the 75 were new enrollments who shopped during the quarter. That tends to be broadly the sort of numbers that we see on a regular basis. Sure. My last question is to Karunakaran, sir. Karunakaran, the gross margins, if I look at 2019 and 2020, have been in the 42% band. Last six quarters, while due to COVID and provisioning, has been around 38%. With increasing share of private label, when do you think we can go back to this 42% kind of a gross margin number? Ankit, you are referring the GAAP numbers, Ankit. Yes. I must not go by the GAAP numbers because GAAP numbers tend to fluctuate with the OR and SOR. If you see the non-GAAP numbers, what we have given, compared to last year, it was around about 36.8. That has come to 35%. Two reasons. One, our e-com share has gone up, because of which our mix is completely. There is an adverse mix. second thing, there is a one time, we have some, what do you call, fix internally. We are working on the title. These are the two reasons. Otherwise, our margin for Q2 is by and large after what we are in Q2 FY 2020. Understood. That's helpful. Thank you so much, and all the best. Thank you. Thank you so much. Thanks, Ankit, and thanks, Gaurav. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments. Thank you, Gaurav, and I just want to once again thank everyone for taking time out and joining us for the call. I mean, I've already summarized the way forward and where we are looking, and given that we are well past our time, I don't want to take any more of everyone's time. All I would like to say before we log off is to wish each and every one of you a very happy Diwali, and look forward to continue to see yourself and your friends and your family in our stores, both offline and online. Thank you very much. Thank you very much. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.