The report expects the operating profit margin (OPM) for the current fiscal to be lower than the pre-pandemic levels by 310 basis points
Even after retail space expansion over the financial year 2021 to 2024 driving revenue growth, the operating profit margins (OPM) of the fashion retailers remain under pressure due to demand slowdown, according to a report by Icra. The OPM of fashion retailers is expected to remain range-bound at 13 to 14 per cent for FY25.
As the lower-than-commensurate returns in new business segments and product categories have increased the pressure, the OPM in the first quarter of FY25 remained at 13.4 per cent and continued to trail pre-pandemic levels by remaining flat on a year-on-year (YoY) basis, as per Icra. Due to controlled discounting, Icra’s sample set of fashion retailers reported a 70 basis points (bps) YoY moderation in gross margins to 49 per cent in FY24.
Icra has expected the OPM for FY25 to remain lower than the pre-pandemic levels by 310 basis points. As the level of discounting remained under control, the companies witnessed a gross margin of 49.2 per cent and an OPM of 13.4 per cent in Q1FY25.
As far as the premium segment is concerned, it witnessed a YoY contraction of 3 per cent in average sales per square feet (ASPSF) in FY24 and Q1FY25. On the other hand, the value fashion segment witnessed a recovery after two straight years of slowdown as the ASPSF surpassed the pre-covid levels for the first time in Q1FY25.
Despite an estimated capital expenditure outlay of Rs 2,240 crore in FY25, the debt protection metrics are likely to remain stable for the current financial year. Icra has projected that the outlook for the sector is going to remain stable as the players remain optimistic and continue to add stores toward the addition of 5.7 million square feet of retail space.
