TCNS Clothing Co’s moderate recovery outlook weighs on investor morale

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For retail businesses, the second wave of covid pushed the expected recovery further. TCNS Clothing Co. Ltd. is a victim of these difficult circumstances.

Its March quarter results announced on Monday do not inspire confidence. True, the company has seen steady improvement in every quarter of fiscal 2021. Despite this, revenue growth for the March quarter was moderated at around 1% year-on-year to reach Rs 221 crore. online momentum remained strong, with sales more than doubling in the past year. The Aurelia brand performed well with revenue growth of 11%. In contrast, premium brands, W and Wishful saw their respective revenues fall by 2% and 23%.

In addition, the gross profit margin contracted 45 basis points year-on-year to 57.5%. A basis point is one hundredth of a percentage point. This is mainly due to a higher combination of online sales channels and provisioning to account for higher dormancy on unsold inventory, analysts at Kotak Institutional Equities said in a June 22 report. Sequentially, the gross margin contraction was more pronounced at 362 basis points.

Despite the cost reduction initiatives throughout the year, TCNS reported a 4T Ebitda of Rs22.9 crore, missing estimates of 31% due to low gross margins and higher labor costs (in 24% increase quarter over quarter), “Kotak analysts noted. EBITDA is earnings before interest, taxes, depreciation and amortization.

Admittedly, TCNS did well on the cash conservation front in fiscal 2021, ending the year with higher cash reserves of Rs182 crore. This is the result of a cost reduction of over 30% on an annual basis and a reduction in working capital. The company begins its expansion, having signed 30 stores in 4QFY21 which will be operational during the semester ending in September (S1FY22).

The company said that to date, around 60% of its offline network is operational with stipulated restrictions. However, the delay in the recovery is a drag on investment sentiment. Moreover, the stock has already appreciated by as much as 35% so far this calendar year, which may well cap any significant increases.

In the short term, the pandemic is naturally expected to have a negative impact on demand and, therefore, on TCNS revenues. With this in mind, analysts have revised their earnings forecasts downwards. “We include the impact of the 2nd and 3rd waves of Covid in our estimates. As a result, we have reduced our earnings per share estimate by 14% and 2.4% in fiscal 22-23E, ”analysts at IDBI Capital Markets & Securities Ltd said in a June 22 report.

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