The fashion retail segment has been experiencing a decline in demand due to inflation since the fourth quarter of fiscal 2023.
Fashion retailers are expected to record revenue growth of up to 15 percent in FY2025 on the back of network expansion, according to a report by credit rating agency Icra.
Fashion retailers’ network expansion would support revenue growth in the current fiscal despite inflationary headwinds, Icra said, while giving a “stable outlook” for the fashion retail segment.
“The operating profit margin (OPM) of the sample companies is likely to remain in the range of 13-14 percent in FY2025, despite robust YoY (Year-on-Year) revenue growth of 14-15 percent projected for the year, supported by network expansion,” the company said.
Icra expects fashion retailers to report marginal sequential sales growth in the second quarter of FY25, especially with the festive season shifting to the third quarter this year.
“Revenue growth is likely to accelerate during the festive season, which, coupled with regular network expansion, is expected to result in 14-15 percent YoY revenue growth in FY25,” the company said.
The fashion retail segment has been experiencing a decline in demand due to inflation since the fourth quarter of fiscal 2023.
However, in the first quarter of fiscal year 2025, fashion retailers in Icra’s sample reported 18 percent year-on-year revenue growth, mainly due to store network expansion and the introduction of new product categories.
However, the premium segment reported a 3 percent contraction in average sales per square meter (ASPSF) in the second quarter, although the cheaper fashion segments showed some positive development and reached their pre-pandemic levels for the first time.
However, fashion retailer margins remained flat year-on-year, reflecting lower-than-expected revenues, due to higher advertising and promotion expenses, primarily for new stores and new category launches, the company said.
“Discount levels have remained contained since Q2 FY2024 as players focus on protecting their gross margins. However, retailers continue to spend aggressively on advertising and promotions, especially with the festive season around the corner,” said Sakshi Suneja, Vice President & Sector Head – Corporate Ratings, ICRA.
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First publication: Sep 25, 2024 | 4:11 PM IST