Shoe pinches for most large footwear companies

Footwear companies were among the weakest performers in the consumer discretionary sector during the October-December quarter (Q3) of 2024-25.

Photograph: Joseph Campbell/Reuters

The combined revenue growth of the top four listed firms was just 2.9 per cent year-on-year (Y-o-Y) — the lowest among major discretionary categories.

Relaxo Footwears was the biggest drag on overall performance.

With sluggish growth in Q3 and recent quarters, most large footwear stocks have delivered negative returns over the past month and year.

The sector struggled on both revenue and margin fronts. Analysts Soham Samanta and Ritik Bansal of Centrum Institutional Research noted, “In Q3, the footwear industry faced cautious consumer sentiment and margin pressure due to rising costs and intense competition from micro, small, and medium enterprises.”

While premium and casual footwear drove growth, the value segment lagged. Analysts at JM Financial Research, led by Gaurav Jogani, observed, “Footwear companies had a mixed quarter, with premium and casual footwear players like Campus and Metro Brands delivering 9-11 per cent revenue growth.

“In contrast, companies with high saliency in the value segment saw revenue decline despite a low base.”

Among listed players, Metro Brands led in growth, with revenue rising 10.6 per cent Y-o-Y.

This marked a rebound after a 5 per cent increase in the previous quarter.

However, gross margins slipped by 125 basis points due to a higher contribution from lower-margin ecommerce sales and efforts to clear out residual Fila inventory.

Cost controls helped offset the gross margin decline, improving operating profit margins.

Analysts at Motilal Oswal Research, led by Aditya Bansal, maintain a ‘buy’ rating on Metro Brands, citing superior store economics, industry-leading productivity, disciplined cost controls, and a long growth runway.

The company funds expansion largely through internal accruals and delivers a return on invested capital above 30 per cent.

Bata India fell short of expectations, with revenue rising just 1.7 per cent Y-o-Y.

Extended end-of-season sales and double-digit growth in Hush Puppies were offset by weak demand.

To attract new customers and simplify choices, the company is enhancing affordability and streamlining product categories.

These efforts have lifted volumes after several sluggish quarters.

Brokerages remain optimistic about Bata’s long-term prospects due to backend investments, a focus on premium and casual segments, and franchise-led expansion. However, near-term headwinds persist. Analysts Preeyam Tolia and Suhanee Shome of Axis Research highlight ongoing pressure on the mass-market portfolio, prompting the brokerage to maintain a ‘hold’ rating.

Relaxo was the biggest underperformer, missing Street expectations by a wide margin.

Revenue fell 6.4 per cent Y-o-Y, driven by a sharp 14.9 per cent drop in volumes.

Weak demand, changes in distribution, and poor operating leverage weighed on performance.

While Relaxo is working to strengthen its online and offline presence, brokerages have cut earnings estimates following its Q3 results.

Analyst Prerna Jhunjhunwala of Elara Securities said, “Considering nine months of 2024-25 performance, a relatively muted demand environment, and increased competitive intensity, we pare our earnings estimates by 13 per cent for 2024-25, 11 per cent for 2025-26, and 9 per cent for 2026-27.”

Campus Activewear also missed the mark despite a 10 per cent Y-o-Y increase in volumes.

Growth was driven by an aggressive distribution push, a new marketing campaign, and strong online sales during the festival season.

However, muted average selling prices kept revenue growth at 9 per cent.

Operational performance disappointed as gross margins took a hit due to raw material inflation, an unfavourable product mix, and clearance of non-Bureau of Indian Standards inventory.

Yes Securities has upgraded Campus to a ‘buy’ after Q3, expecting it to be the biggest beneficiary of India’s expanding sports and athleisure market.

The brokerage anticipates margin improvements with better price realisations and a growing share of sneakers.

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