Nykaa, the beauty and fashion retailer, anticipates a stronger performance in the current quarter compared to the first quarter. This optimism is driven by an improved consumer outlook, particularly in the fashion sector, which exhibited signs of recovery in July, primarily due to robust end-of-season sales.
During a recent discussion at the Jefferies Asia Forum, the leadership team of FSN E-Commerce, the company behind Nykaa, approached the subject of growth stabilization in the September quarter with a blend of caution and optimism. In a report, Jefferies remarked that the management, including Anchit Nayar, the head of beauty and personal care, P Ganesh, the chief financial officer, and Namrata Penta from the mergers and acquisitions team, conveyed an upbeat perspective.
Jefferies expressed the view that an increased proportion of in-house brands and a focus on premiumization would contribute to enhancing the retailer’s gross margin. Furthermore, the losses incurred from the fashion and B2B segments are expected to decrease and transition into profitability within a span of 3-4 years.
During the June quarter, the retailer delivered a lackluster performance, largely attributed to sluggish sales within the fashion segment. Jefferies also noted that in the initial quarter, the fashion industry as a whole experienced feeble growth, partly influenced by cautious consumer sentiments and a preference for offline shopping over online channels.
In the first quarter of FY24, the company’s net profit declined by 27.4 percent to INR 3.3 crore, while its revenue, although 24 percent higher at INR 1422 crore, fell short of analyst projections.
Nonetheless, the beauty and personal care (BPC) segment displayed notable strength, as the company emphasized offline sales channels, recognizing the significance of physical presence and experiential factors in this sector. During the June quarter, the company’s BPC segment witnessed a 24 percent increase in gross merchandise value, surpassing industry growth rates. In contrast to the country’s per capita spending on BPC products, which stands at $15, Nykaa’s customers, on average, allocate $80. The company attributes this higher spending to income levels, as there is a direct correlation between income and expenditure on BPC items. With the potential for income levels to rise, this segment holds promising opportunities for future growth.
In the fashion segment as well, Nykaa’s customers have a per capita spending rate of $130, which significantly surpasses the industry average of $54.
While e-commerce penetration in India stands at 19 percent on a broad scale, the share of BPC and fashion within this market is comparatively lower, signifying substantial growth prospects.
Jefferies anticipates that Nykaa will continue to experience hyper-growth in the medium term, driven by an increasing online presence in the beauty and personal care (BPC) and fashion sectors.
As of March 2023, the company boasted 154 stores, a customer base of 2.4 crore, and offered products from more than 6,000 brands.