Beauty and fashion retailer Nykaa expects the current quarter to be better than the first quarter with consumer sentiments seen picking up, especially in the fashion segment that saw a recovery in July led by end-of-season sales.

At a recent interaction at the Jefferies Asia Forum, the management of FSN E-Commerce, which operates Nykaa, was cautious but sanguine about growth normalisation in the September quarter. In a note, Jefferies said that the management, represented by the head of beauty and personal care Anchit Nayar, chief financial officer P Ganesh and Namrata Penta of the mergers and acquisitions team “presented a positive outlook.”

Jefferies said that a higher share of own brands, and premiumisation should help in boosting the retailer’s gross margin and losses from the fashion and B2B segments should also come down and turn profitable in 3-4 years.

In the June quarter, the retailer turned in a tepid performance primarily due to subdued sales in the fashion segment. Jefferies also pointed out that in the first quarter growth in fashion was weak across the industry and part of that was due to bearish consumer sentiments and more customers preferring to shop offline than online.

The company reported a 27.4 per cent fall in net profit to ₹3.3 crore in Q1 of FY24 and though revenue was 24 per cent higher at ₹1422 crore, it lagged analyst expectations.

BPC segment

The beauty and personal care (BPC) segment was however strong with the company focused on offline sales channels since this segment relies a lot on physical presence and experience. In the June quarter, the company’s BPC segment gross merchandise value rose 24 per cent ahead of the industry growth. Compared to the per capita spend on BPC in the country at $15, Nykaa’s customers spend $80 on average. According to the company, spending on BPC products has a direct correlation with income levels. There is a strong potential for growth in this segment as income levels improve.

In the fashion segment, too Nykaa’s customers’ per capita spend is $130 compared to the industry average of $54.

While the overall e-commerce penetration in India is at 19 per cent, the share of BPC and fashion is lower, presenting significant opportunities for growth.

Jefferies said it expected Nykaa to remain in a hyper growth phase in the medium term with online penetration in BPC and fashion ramping up.

At the end of March 2023, the company had 154 stores, customer base of 2.4 crore and retailed over 6,000 brands.

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