TCNS Clothing Co Ltd (TCNSBRANDS) Q2 FY23 Earnings Concall Transcript

TCNS Clothing Co Ltd (NSE:TCNSBRANDS) Q2 FY23 Earnings Concall dated Nov. 11, 2022

Corporate Participants:

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Amit Chand — Chief Financial Officer

Analysts:

Devanshu Bansal — Emkay Global — Analyst

Saurabh Patwa — Quest Investment Advisors — Analyst

Varun Singh — IDBI Capital. — Analyst

Jay Modi — EIML — Analyst

Rakesh Wadhwani — Monarch Ltd — Analyst

Nihal Jham — Nuvama — Analyst

Vikas — Equirus Securities. — Analyst

Unidentified Participant — — Analyst

Rajiv B — DAM Capital — Analyst

Shreyansh J — AK Investments — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the TCNS Clothing Company Limited Q2 and H1 FY23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risk and uncertainties that are difficult to predict.

As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Anant Daga, Managing Director. Thank you and over to you sir.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Thank you. Good evening, everyone and welcome to our Q2 and H1 FY23 earnings conference call to discuss operational and financial performance for the quarter. I’m joined by Amit, our CFO and SGA, our Investor Relations Advisors.

First of all, we wish you all very happy festive season. We hope you all had a joyful celebrations with your family and friends and claim back a part of life, which was being missed last couple of years. While Amit can share detailed financials, let me share key highlights of Q2 and H1 and our perspective on the emerging market situation.

As we had laid out, our focus this year is on building growth momentum. I’m happy to share that in Q2 we have achieved our highest-ever quarterly sales. Overall the company revenue grew 46% year-on-year and 27% sequentially over Q1 FY23, the clock 351 crores for the quarter. A key milestone this quarter has been the number of EBOs launched in-line with our aggressive store expansion plan. We opened a gross of 41 stores in this quarter and 32 on-net basis, which again has been the highest-ever store opening in a quarter for us.

This season also saw us investing in brand-building after a [Indecipherable] of two years, both W and Aurelia launched comprehensive 360 degree campaigns, sterling digital retail financials and partner tarrifs. We have significantly upped the marketing investment, which should reinforce our branch market leadership position.

Coming to the performance highlights of Q2, ’23, we are seeing resurgence in the overall women’s ethnic wear market, both year-on-year and sequentially over last quarter. The women’s ethnic wear category has seen strong recovery, except North were XLX. Overall for us, offline channels grew by 60% over last year, Aurelia led the growth aided by a strong product range and comprehensive marketing campaigns.

Talking about EBO channel expansion, in this quarter we opened 32 stores on a net basis to reach a total count of 648. In addition to these 32 stores, we have upgraded another 5 stores under project price initiatives. Taking the tally of project price store to 25. As we shared earlier, given the rapid evolving experience expectations of the Indian consumers. Project price initiatives helping us tap into existing demand and some of the most critical and important markets across the country.

This quarter also saw another 11 EBO stores, taking the total count to 32. As shared earlier, we would be tracking the performance of these stores and accelerate 11 store expansion thereafter. Overall all brands put together, we are well on our target to open 100 plus stores on-net basis this year. We have a strong pipeline of new stores and going-forward, all brands put together, each quarter should see 25 to 30 store additions on-net basis.

And [Technical Issues] we added 57 stores taking the total count to about 3,479. Overall Elleven numbers continue to be impacted, since one of the largest partner still not functional. Offline channel continues to grow well and scaled-up to 2.7% over Q2 last year. Overall, it has been happening to see the offline channels bouncing back after a prolonged COVID impact and we should see them build there.

Coming to online channel, one of the key objective has been to build a strong on website, [Indecipherable] business. We are happy to share that our own website has grown ahead of other channels and is now contributing to a quarter of total online sales. Our marketplaces outweighed business front our primary sales continue to lag behind the secondary and hence the reported numbers are looking lower than actual consumer sales of secondary basis.

Of late, we are also seeing discounting and acquisition costs increasing across offline channels. We are committed to building a profitable online business and will be balancing out growth opportunities and cosmetics in the near-future.

Talking about the new stories, in the monsoon festive Credito season, we have rolled-out comprehensive product range for each of the forays. Driven by healthy consumer acceptance, new forays are scaling up rapidly and we are well on-track to reach our seted stated target of 100 crore, Yara and consumer sales by the end-of-the year.

All-in all, we continue to build-on all the key initiatives and focus areas for the year.

Now I would request Amit to share key financial highlights of the quarter.

Amit Chand — Chief Financial Officer

Thanks, Anant. Good evening, everyone. I’ll be giving you an update on our financial performance in Q2 can H1 FY23. I’ll start with the Q2 performance. Our Q2 revenue was INR351 crores, which is a growth of 27% over Q1FY23 revenues of 226 crores and a growth of 46% over our Q2 FY 22 revenues of INR239 crores.

Our gross margin for the quarter was 67.3% versus 62.7% in Q2 of FY22. As we have mentioned earlier, we should see this metric in conjunction with selling and distribution expenses and other overheads as every channel has its own demand in terms of revenue recognition, gross margin percentage and costs reflecting in selling and distribution expenses on other over edge. Accordingly, based on the channel mix, the metrics could vary in a range from quarter-to-quarter.

For Q2, the company generated a positive EBITDA of INR47.9 crores versus INR38 crores in Q1 FY23 and INR45 crores in Q2 of FY22. PBT for the quarter was INR10.1 crores versus a PBT of INR2.6 crores in Q1 and INR14.1 crores in Q2 of last financial year. PAT for the quarter was INR7.6 crores versus INR2.4 crores in Q1 and INR11.1 crores in Q2 of last financial year.

We have zero rental concession in Q2 this year versus INR17 crores of rental concession that we recognized in Q2 of last financial year. During the quarter, the company added 32 exclusive brand stores, taking the store count to 648 stores. We had added 57 point-of-sales in LFS channel, taking the doors count to 2,479.

Speaking of our performance in H1, the revenues were 627 crores versus INR333 crores in H1 of last financial year, it’s a growth of 88%. EBITDA in H1 this year was INR85.8 crores versus INR24.7 crores last year. PBT in H1 was INR12.7 crores versus a loss of INR35 crores last year. We are now open to questions.

Questions and Answers:

Operator

[Operator Instructions] We take the first question from the line of Devansh Bansal from Emkay Global.

Devanshu Bansal — Emkay Global — Analyst

Thanks for the opportunity and congratulations on strong additionally media network. Sir, I just wanted to check, if you can — we have sort of invested strongly in the inventory and we have made some new launches under both W, Aurelia and Wishful. So just wanted to check, if you could share some thoughts on the festive collection that has gone by — during the Diwali as well as post that.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

So. If, you look at the festive traction, Aurelia has seen a strong recovery, so barring north because, being ahead of the pre COVID numbers. Now still its slightly behind, so that Aurelia is. Compared to Aurelia and W, we had some product challenges and they have a particular style, which he had optimized for maintaining that MRPs closer to pre COVID levels — closer to earlier season levels.

The new [Indecipherable] tried slightly slower than earlier, so this is between the two brands in terms of new — in terms of Wishful, it is in-line with earlier levels, where it was. In terms of new product categories, Elleven has shown great traction in LFS and SIS. So that we are gearing up, footwear, jewelry, cosmetics, continue to contribute strongly in the stores that [Indecipherable] launch, so that is also building out well.

Devanshu Bansal — Emkay Global — Analyst

And then this Aurelia has been in pre-COVID levels, so this is the one like-to-like basis or it is for the overall so my question is, is it on a larger store base that we have seen like-for-like performance or is it on a per store-level that Aurelia has recover to [Technical Issues].

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Sure, let me just explain it again. So on a like-to-like basis, barring north Aurelia has been ahead of pre-COVID numbers in all other regions, even on like-to-like business. In North, the recovery has been slightly lower. But if you take all digits put together Aurelia [Technical Issues]. W, we had certain product issues, because of which it has lagged the recovery. So there were certain costs which we took, because when you’re building the monsoon festive rates, the fabric prices were all-time high. In order to optimize the cost increases, we took some calls, which unfortunately didn’t work as well, so there is a lag.

Devanshu Bansal — Emkay Global — Analyst

Got it. And so we have seen a significant increase in the working capital. So, do you expect it to normalize by the year end? How is your expectation on that front?

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Yes, so if you remember last-time, we were building up inventory for the festive season. We have tried to be ahead of the curve for [Indecipherable] disruption in the supply-chain overall in the industry. So there’s lot of build-up that you see today. Inventories by year end should look better. This is for the festive.

Devanshu Bansal — Emkay Global — Analyst

Got it and on Elleven sir, store additions have increased and you have been mentioning that once we achieve a desired unit metric in this format and we will sort of ramp-up the store addition. So just wanted to check your thoughts on what extent have we been able to achieve the unit metrics we were looking for?

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

So see if, you remember, last-time also we mentioned that we opened about 20 odd stores and then we took some learnings from there, about 17, 18 stores. And most of these stores are new stores that we’ve added has been added over the last couple of months. So I think we still need to see next three-four months.

First, I saw that these stores are doing better than the first store, but let one season play-out of that. In LFS and all, we have already seen good traction and that lifting. Got it. Thanks a lot for taking my questions, I’ll get back-in the queue for more questions.

Operator

[Operator Instructions] [Foreign Speech].

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Your voice is not very clear.

Operator

We take the next question from the line of Mr. Saurav Wadhwa from Quest Investment Advisors. Please go-ahead sir.

Saurabh Patwa — Quest Investment Advisors — Analyst

[Technical Issues]

Operator

Sorry to interrupt Mr. Saurav, your line is not clear. Sir, there is a lot of background noise from your line.

Saurabh Patwa — Quest Investment Advisors — Analyst

Is it better now?

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Yes.

Saurabh Patwa — Quest Investment Advisors — Analyst

Yes. So, just wanted to understand, when you say that W had some issues with respect to product optimization. So was it related to product design or does it related to the pricing of the product? Because of which you could optimize the product?

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

No, So there was not a — no design concern. In fact, if you look at the space some of the best selling articles were items sold under cars and all that we have launched. So, there was not an issue what we did was, we used some man made fabrics and we use some value addition techniques, which was more optimization for cost. Finally, when the product came, I think the trials remained high, but somewhere the conversion dropped in these particular silos. It’s not that the entire range had not an issue. It was part of the range and clearly the issue was the fabric value addition combination and not design process. So while this has happened and it’s impacted our numbers some more than this season. The good thing is, we exactly know what the problem is and going forward. it’s getting solved for.

Saurabh Patwa — Quest Investment Advisors — Analyst

Okay. So initially the impact would be more could be it is this quarters numbers when we see the margins could have been better had not been for these issues.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Yes so if, you look at brand level performance, if you even look at quarter one, W was leading the pack in terms of HSG recoveries. This season there is a gap between Aurelia and W. If W would be covered not for these issues. Obviously, you would have seen much better profitability and sales.

Saurabh Patwa — Quest Investment Advisors — Analyst

Okay. I guess the, second question would be that if we have a large number of EBOs also and since the Diwali festive season was in Q3. So a pickup in revenue would be more towards Q3 also. Will that be fair and thanks to all of you.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

You are comparing this with the season, sorry. You are talking about year-on year or you talking about year to quarter.

Saurabh Patwa — Quest Investment Advisors — Analyst

Exactly hearing me or even from Q2 to as the wholesale revenue would have already come in Q2, but the revenue from the EBO side where you own your own store where the stores are own that would come in Q3. Is that would be a fair understanding.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Yes. So secondary sales was ahead in Q3 where will the primary billing would be add in Q2. Absolutely right.

Saurabh Patwa — Quest Investment Advisors — Analyst

Okay, sir. Thanks a lot and all the best.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Thank you.

Operator

Thank you sir. We take the next question from the line of Mr. Varun Singh from IDBI Capital. Please go ahead sir.

Varun Singh — IDBI Capital. — Analyst

Yes. Thank you very much. Thanks for the opportunity. There are two questions. First, on the online business, so you mentioned that 25% is the share that we expect from online business. And 60% of the business is from B2C channel. So, just wanted to understand that do you think that this increasing revenue contribution from online, because I think the percentage of revenue in our cases over index compared to other online, other apparel retail company that we could see in India and in the listed space that we look at. So how do you kind of look at this number as more of an opportunity or more of a threat, because there is so much of intense competition in the online sale.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Mr. Varun first of all the contribution from people online business is about 16%. So it’s not 25% of total business is 16%, 25% is on our brand websites. So, see what is happening is over last couple of years lot of marketplaces is also moving away from B2B model to B2C and there has been an alignment, which we have done in the Q4 of last year, but since then also couple of players have again become the no more B2C focused than what they were. So this is that alignment with those guys in primary and secondary sales get at this. In terms of overall business this year is 15% I think what we have mentioned in the past also growing this channel by 20% and 25% and secondary sales basis should be sustainable. There could be some quarters where you can see a lower growth and all depending upon what the earlier base was, but that kind of growth should come. So overall our percentage is are about 16% and 25%. So, I think this quite a room for growth.

Varun Singh — IDBI Capital. — Analyst

Okay. Anant sir, so 15% is overall contribution. But I am sorry, I did not understand that in the PPT you mentioned that in FY23, 25% share some online business is expected. So what is this 25% number sir.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Varun, you might have referring to the presentation we are talking about the share of brand website being 25% of the online in spare parts. Second as Ananth mentioned, so there is always be lack of primary, secondary and you’ve mentioned secondary and you have mentioned secondary growth [Indecipherable].

Varun Singh — IDBI Capital. — Analyst

This is the confusion. So we apparently understood. The confusion was it’s not 25% of total businesses, if it is 25% of online business.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Lockdown like business.

Varun Singh — IDBI Capital. — Analyst

60% on D2C how should we understand this number sir B2C contributing 60% of online.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

So again if you look at it about two years back almost 100% of the business was B2B, which was business-to-business outright model and there is contiguous shift. So last year the B2C number in the total, which is you know sales from our own website or in marketplace is directly that inventories are we own the inventory. That number has now come to 60%. Over 60% of total business and that’s the ship we were talking about, as we move forward. I think there’s lot of inclination from various quarters also to more towards B2C model.

Varun Singh — IDBI Capital. — Analyst

Okay. Okay sir. And sir, my second question is on our overall revenue recovery. Sir, do you think that we have taken more than expected time to reach pre COVID levels of revenue and do we think that they will taking more time for us compared to like competition or other players.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

No. So Varun, if you look at our segment particularly I think if you look at brand wise performance or year has recovered well ahead in market. In fact in lot of partner channels you would have also gained lot of market share of their. W because of inherent problem, which was pertinent to a part of the collection definitely has recovered lower then what the overall market is. So that is where I think market is recovering volume ethnic wear front and once you have this particular issue behind us even W should come back strongly.

Varun Singh — IDBI Capital. — Analyst

Okay. Okay Sir. So, in Q3 we should expect much more strong performance in W.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

See what happens Varun is unfortunately it’s a seasonal business. So called W Q3 also what continues is slightly impacted. This entire merchandise issue gets resolved with the new season launch SS23, which we have also done a trade show we have got all the consumer feedback as a customer our channel, partner feedback which is very strong, but W problems will persist still SS23 gets long. So there could be another quarter when you see some some lower recoveries from W. Earlier on the other hand as the groundswell and I think we should continue to see that spread it to them.

Varun Singh — IDBI Capital. — Analyst

Right, Right. So maybe from Q4 onwards we should expect..

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Yes, deliveries are really on whether the new season launch. So that is when you lose this thing should get completely solved.

Varun Singh — IDBI Capital. — Analyst

Right, right. Anant this one last question on Aurelia kits. Any, commentary you wish to offer.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Yes, yes. Aurelia kits had shown very-very good traction and in fact the contribution also in the stores where we have put Aurelia kits. It comes from. So that’s a good cycle and we’ll continue to build that.

Varun Singh — IDBI Capital. — Analyst

Okay so some that’s it from my side and thank you very much and wish you all the best.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Thank you.

Operator

Thank you. [Operator Instructions] We take the next question from the line of Mr. Jay Modi from EIML. Please go ahead sir.

Jay Modi — EIML — Analyst

Yes. I just had one question it was on the margins front. So when we see at the revenue level, we recovered to pre-COVID levels. Yes, somehow our margins continue to be much lower than what we have done in year Q2 FY20. So is this predominantly explained by the supply chain issue that you mentioned for the W or is there more to this there’ll be store expansion is weighing down on our cost.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

This is Amit. I will take this question. So when we are looking at profitability and this is something that we had mentioned in our earlier calls that sot of revenue at store channel level have to recover to compensate for any cost increase that has happened at the channel level right. Rentals may have gone up, stores service may have gone up. So one level of sales increase have to happen at the channel level and picking at a corporate level also overall revenue has to increase to compensate for any cost increases at a corporate level. So if we look into our even rental costs, employee cost, overhead they’ve also gone over the last few years effect FY20 versus pre-Covid period.

So to answer your question, why we have done better than pre-COVID in terms of total revenue, obviously there is one channels tenants the explain about W lagging in terms of recovery, but the cost increases are higher than the increase in revenue that is happening due to our big number. Actually we needs to build up the revenue for us to go back to the earlier profitability levels.

Jay Modi — EIML — Analyst

Sir, actually internally do we expect FY24 to be the year wherein we can reach this 20% EBITDA margin level or including some more time Bank is going to climb 30% company might be delayed beyond 24.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

If we don’t give guidance on specific numbers, but our historical after when there is one-one thing PBT probably is a better number to anyway referred to. So if whatever level we have done historically. As I mentioned this sales need to go back to those levels with some upside coming in from store expansion and otherwise for us to go back to the profitability level that we’re talking about. I don’t want to persistently code whether those numbers will be achieved in FY24 which quarter of FY24, but yes, once we reach targeting revenue numbers, which get compensate for the cost increases that have happened then profitability should follow.

Jay Modi — EIML — Analyst

Okay. Understood. And just one clarification, so with respect to W you said the revenue is tracking lower or it’s the profitability which is lower than what we used to do in the previous years.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Let’s say in terms of the W is the same store sales already, which is lagging and obviously because lot of cost are fixed. It has an implication for the margins. But essentially at a product level cost are not a challenger down. It is more to do with revenue.

Jay Modi — EIML — Analyst

Understood. Got it. That’s helpful. Thank you.

Operator

Thank you. We take the next question from the line of Mr. Rakesh Wadhwani from Monarch Limited. Please go ahead sir.

Rakesh Wadhwani — Monarch Ltd — Analyst

Where do we be asking for the W brand is it into more of fashion [Indecipherable] regular woman wear or office wear. Because in case of Aurelia I can understand the demand was lesser into Q2 because it’s all type of non festive brand in Q3 because festive. So I don’t know I’m just, trying to understand why the W is lasting when we looked at all the retailers in India there we reported growth across all the segments all the product categories. Why especially because there is I accepted [Foreign Speech].

Operator

I’m sorry to interrupt sir, the management line has got disconnected. You may reconnect. Allow me a moment.

Rakesh Wadhwani — Monarch Ltd — Analyst

Sure.

Operator

We have the management line connected. Please go ahead sir.

Rakesh Wadhwani — Monarch Ltd — Analyst

Am I audible please.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Yes.

Rakesh Wadhwani — Monarch Ltd — Analyst

I repeat that question. Sir, I just, wanted to understand your thoughts, when we looked at our two key brands, one is new, one is Aurelia. Aurelia will known very custom oriented on value marriage like people wearing during marriage, and festival. So the demand will be more during Q3 and Q4 but, I’m still not able to understand why the demand further the W is lesser like before COVID because I think, have more of a regular female wear, office wear you can wear because you can all the retailers in India that has come up with results they have shown is this growth with respect to all categories. So can you just throw some light on that.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

No, no, sir. First of all even the W is very very elements of texture. So both our brands W and Aurelia have apart range, which is non festive, non occasion wear and partly which is occasion there. So even in the past W has performed equally well and better. So that’s not a question [Foreign Speech], whether one is festival and one non festive, which follows a one brand which is completely occasion there. So that is more dependent on occasions and non occasion periods. Now coming to W as I was explaining. The W recovery has been in line till about Q1.

In Q2, when we launched the new range, they have all the part of the range. Their end probably it was an error of judgment and in our pursuit to optimize cost, we probably lost some products, they didn’t resonate very well with the customers. And that’s one reason why know W has recovery at client. Having said that W continues to be the highest selling brand across all channel partners. But we have definitely lost a recovery opportunity, which could have come. Now as we move to spring -summer ’23, we have rectified most of those issues and hopefully one should see W bouncing back strongly.

Second in a fashion business again it’s not that this quarter will be a base for next quarter. Our next season so consumers where they it’s, not to say that consumers will take only from me the last piece. So obviously that W box should happen very strongly once official gain this. I hope that clarifies.

Rakesh Wadhwani — Monarch Ltd — Analyst

Yes that’s very well and quickly answer. Thank you. Sir, one more question. Hi, sir, all the expenses have come back to normal advertising central [Indecipherable] all the expenses and what we are seeing in the quarter to one back to normal sir.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Yes, yes. In fact in areas like marketing, we have also over investments because it is after a long time that we are doing that. So obviously our expenses are slightly higher. All the rent concessions on the salary cuts, all those things are rewards. So that’s all long [Indecipherable].

Rakesh Wadhwani — Monarch Ltd — Analyst

Okay. So there has been no sharp increase in the expenses in the coming quarters, but, am–this is my understanding correct.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

No. I don’t think there should be any sharper increase in any of the expenses. So it’s smaller lesson learned.

Rakesh Wadhwani — Monarch Ltd — Analyst

So the expenses that you’re seeing in Q2 is a good reflection of what next quarter’s. Yes that was my question. Thank you, thank you very much sir. All the best.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Thank you. Thank you. We take the next question from the line of Mr. Nihal Jham from Nuvama. Please go ahead sir.

Nihal Jham — Nuvama — Analyst

Thank you so much.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Yes, thank you.

Nihal Jham — Nuvama — Analyst

Good evening to the management. So couple of questions from my side. First was on this issue that you highlighted for W. Is it a possibility that could leave us a some stock and higher liquidation in the Q4 quarter given that as you said the spring the monsoon best would continue, I mean generally the years has happened in that period and based on initial trends with a not a single pickup would that be one thing that was would be monitor for you.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

You see Nihal, we have to see how the season based on Iran luckily know the winter setting and our winter range has nothing to do with these new stocks are coming that we are seen in the festive range, so thoughtfully overall that’s part of the business should take-off, coming to the specific inventory siloed. Obviously, there will be more leftovers because sell through of those products [Indecipherable]. So that will liquidity through online channel and other liquidation channels that we have. There, could be some discounting impact, but given the overall scheme of things. It will not be very-very– should not be a very significant number.

Nihal Jham — Nuvama — Analyst

Understood for this point.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Because it’s one silo of W unfortunately this is a silo, which was present in the peak section. And because the small gold lower-price most of the LFS and also had a bigger share of that. So, I think it was also a lot of do with the timing issue of those particular [Indecipherable]. Overall should not be a very big it, but yes there could be some increase.

Nihal Jham — Nuvama — Analyst

That is helpful. The next question was on our channel wise recovery. So while our EBO channel has done pretty well and, more or less come back to pre-COVID if I look at on a per store. I noticed that for the LFS recovery is obviously still much lower versus the pre-COVID. So any specific points to highlight.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

I don’t know how you calculated that Nihal exactly, but there are couple of things which I’ll just spell out. One, still one of the larger partner of ours it’s not operational. And those typically were higher throughput stores for us. So probably that is showing an impact on the LFS, which is exactly not a same store recovery, but it is because of part of that was being dysfunctional, so that’s one. Second, lot of new stores are also not that high throughput stores, those are typically lower sales per store kind of numbers. So that is what you would have seen. At an overall efficiency levels, we have seen W video is doing better than W, LFS, but on Aurelia side LFS are done equally well. So there’s not a material difference there.

Nihal Jham — Nuvama — Analyst

Anant it would it be possible then just to give a ballpark sense of the SSSG for the LFS format, because as I said there is this issue with central whichever it may be and the fact that a lot of the LFS are coming up in Tier 2 and Tier 3. These are the mix is not something that is fair for us to then look at it. Then is it possible just to give a ballpark sense of the SSSG versus pre-COVID for the existing LFS. So that was the kind on somebody’s [Indecipherable] business.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

I’m sorry your line was not clear to me and my apologies. What are the numbers you have said.

Nihal Jham — Nuvama — Analyst

[Technical Issues].

Operator

Sorry to interrupt management. Sir, your line is breaking up sir.

Nihal Jham — Nuvama — Analyst

Yes, [Indecipherable].

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Thanks Anant. Thanks so much. I’ll come back if you see.

Operator

Thank you very much. We take the next question from the line of, Mr. Vikas from Equirus Securities. Please go ahead sir.

Vikas — Equirus Securities. — Analyst

Thank you sir. Good evening sir. Sir, one question from my side. Can you throw some color with respect to the new stores, the new project wise store that we have added how have these stores done in 2Q in the current quarter. Still, this is with respect to what [Indecipherable] good. The new larger size stores that is under project by how have the performance of those stores happening in this quarter that is Q2.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Okay obviously there was an overall issue with some parts of that W range, but these stores wherever we open continued track about 1.5 x to 1.75x kind numbers. So that strategy is playing out really well and in those stores the newer categories are also contributing to about 15 odd percent. So that, those things are playing out well. In fact we are doing more aggressive on that front and we’ll be signing more stores open.

Vikas — Equirus Securities. — Analyst

Sir one observation from my side and when I compare the our 2Q ’23 performance of our EBOs as a channel versus 2Q of FY20 where while the store network has grown substantially almost an addition of around 80 stores. With better quality because we do a lot of [Indecipherable] into the stores where we shut-down the stores in COVID times and also we have opened up new larger format stores, which are higher in terms of throughput. But despite that our revenue per store trajectory sill I then I ask Rakesh or few percentage points lagging than our pre-COVID levels. Is it just restricted to the issue that we face in the W or is something more to do towards that.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Two things. One is obviously what we have said that W that is the bigger reason and second is for some reason north has not been foolish it’s North have not seen photoshop recovery and compared to many other brands and retailers are not proportions are slightly higher. The business that comes from this, where W big stores are in North and North somehow I think across the branch have been through. So that is it but otherwise there is no particular issue. These issues are not there, you would have seen a decent growth.

Vikas — Equirus Securities. — Analyst

Sure sir. Any reason you would like to highlight as to why what was the issue that we faced in the North side or probably as ended the industry. What was the issue that will happen.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

So see we have given spoken that many brands retailers and all our partners. I think no one has a clear understanding of why that has happened. Iit’s always a very-very good consumption market there could be some temporary blip. There could be lower NRI floors, the weather and there were lot of disruptions with the range and on an parts of UP, Haryana. So there are multiple reasons, but you know difficult to pinpoint a particular.

Vikas — Equirus Securities. — Analyst

Sure sir. Understood understood. Sir when you highlighted that our sales have not grown to a level. You know that in correlation with what our costs have grown. So probably at what–in order to achieve the previous margins that we do, that we did pre-COVID. What sales level, probably would you like to do at a quarterly level to beat those kind of margins in the back.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

See I think there is no straight answer to this. It’s it’s a combination of two things. One, obviously overall throughput increase and second the quality of those sales increase. So you will know whether it comes from media channel, which is whether it comes from SSSG or it comes from our online channel. There are a lot of those contributions. So unfortunately there is no very direct answer, but it’s all combination everything locks that and about 25% growth number should. Let us back to that trajectory. But again it’s a mix of many many things.

Vikas — Equirus Securities. — Analyst

Sure sir. And sir one last request since you have now though teams voluntary we do not disclose the revenues on the 11 brand. I mean would you like to quantify what was the revenue that are doing currently.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

So right now it’s a small business as of now we will be tracking about say 25 odd crores on consumer annual run rate, which we think by year end should at least be 45 or 50 crores on consumer sales.

Vikas — Equirus Securities. — Analyst

Okay. You mean to say secondary this right.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

That’s right. Correct.

Vikas — Equirus Securities. — Analyst

Thank you so much sir.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Tank you.

Operator

Thank you. [Operator Instructions] We take the next question is from the line of [Indecipherable], Individual Investor. Please go ahead.

Unidentified Participant — — Analyst

Hello.

Operator

Sir, you are audible. You please go ahead with your question. Sir, your line is unmuted. Please go ahead with your question.

Unidentified Participant — — Analyst

Good evening all.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Good evening.

Unidentified Participant — — Analyst

Sir, [Foreign Speech] year-on-year.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

So if you understood your question correctly.

Unidentified Participant — — Analyst

Sir, [Foreign Speech].

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

[Foreign Speech]

Operator

I’m sorry to interrupt you sir. It looks like that the line from Mr. Sangeetha has been disconnected. So we move on to the next question.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

We can connect later also. Sure sir. We move on to the next question from the line of Mr. Rajiv B DAM Capital. Please go ahead sir.

Rajiv B — DAM Capital — Analyst

Hello. Yes sir. Sir my question is on you mentioned initially that there will be increase in discounting and this is not only for W. This is for the entire pieces is it. Entire portfolio is it.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

No in fact if you look at it even Q2 USA’s have been able to manage our discounts well. So I was just answering to a very particular point, Vishal, asked about a particular part of the range. So I don’t think it was true for the entire range, entire collection and [Indecipherable].

Rajiv B — DAM Capital — Analyst

But are you, when I would likely referring to your opening remarks. So you mentioned something on the discounting, maybe I misread, but are you seeing any such trends that the discounting portion may have to increase possibly some slowdown in urban demand. Are you seeing [Indecipherable].

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Offline insights we have not seen discounting go up and that’s very-very pleasant news for the entire industry overall. Online we have seen discounting going up. So online there is some pressure on discounting, which again was around Christmas time and now. Offline, frankly, I think industry has really been able to bring down the discount levels from historic highs.

Rajiv B — DAM Capital — Analyst

Sure and sir on your various bands. Are there gross margin differential between the three. So that the incremental when you the mix changes in favor of one or the other. There is a part of the gross margin drop can be explained by that?

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

They all operate in a tight range, obviously there are some differences. But they all usually operate in a tight range, develop it with highest gross margin business for us followed by other branches. But it’s still in that tight range.

Operator

Mr. Rajesh?

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Hello.

Unidentified Participant — — Analyst

Yes, I can hear you.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Yes. So that’s what I was saying, so gross margins are in a tight range obviously WSI gross margins. But others are also close.

Unidentified Participant — — Analyst

Sure. Sir, on the inventory side, how much is raw-material out-of-the inventory which we have in the system right now?

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

See, we don’t give exact numbers, but typically it’s around 20%, 25% — 20% level should be the current situation. That is irrespective whether it’s March ending on September ending or the [Indecipherable] goes to…

Amit Chand — Chief Financial Officer

No. We keep changing so see when you are looking at inventory two things to understand, please. We source all our raw-material most of it. So it’s RM, its WIP and [Indecipherable]. So depending upon the we’re in the — which part of the season we are in, it keeps changing. So typically the range for fabric could be 20% to 30% and the balance are achieved.

Unidentified Participant — — Analyst

Okay. And if you could specify what is the rent go for let’s say Q2 and H1?

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Sorry, can you repeat that question please?

Amit Chand — Chief Financial Officer

I mean the rent, the cumulative rent you have indicated the variable part of it in the P&L. But what is the cumulative rent outgo for the quarter and first-half?

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Currently, we are running having a rental run-rate of, about 140 odd crores and we –Q1, Q2 mostly beginning that.

Operator

We take the next question from the line of Mr. Devanshu Bansal from Emkay Global. Please go-ahead, sir.

Devanshu Bansal — Emkay Global — Analyst

Yes, thanks for the follow-up opportunity. Sir, I have two questions, one is around W. So over the past few years, we have made investments in the quick replenishment cycle. So just wanted to understand the reason why we could not follow this process in this particular style, leading do well for us. And going ahead what are the takeaways that the sort of take from this particular event?

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

So see, I think — let me just clarify that these are two different processes altogether. So what we do is, when we create a new range, we obviously do a trade show, we take all our partners’ feedback, we take the multi-brand outlet, LFS and even this time, when we launch the [Indecipherable] did all this. And frankly speaking, we got a much stronger response for W than Aurelia.

Then it came to the market, again I’m reiterating, it was not a design issue, it was more a final outcome of [Indecipherable] value addition, they didn’t do well. And we took even our partners by surprise. So it’s very rare that something like this happens, but it happened unfortunately. For our part of the range. The other parts of the range is more quarters, which have more rounds, they have done well and there a clear difference.

So going-forward we’ll be following this process, again we have corrected this issues of man made fiber with certain particular value addition, obviously some part would still but this, but mostly it will get resolved, so that is one part. Second coming to express replenishment, see express replenishment is about the size which have done well and how quickly can we resell [Indecipherable] then restores. So while this can solve for higher care through for good selling products, but anyway whatever limited that we’ve taken upfront and the product didn’t do well, you’ll still have no request to that. [Technical Issues] this is the issue that we have faced.

Devanshu Bansal — Emkay Global — Analyst

Okay, so just to put it this way, if we wouldn’t have this quick replenishment process setting, we would have faced higher losses than what we are seeing as of now.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Yes, if we would have bought even higher, so loss of sales has happened because also the timing issue that these products are there in the peak festive. So that is one. I think it was — it has saved us and if you would have bought in even bigger quantities, then obviously the leftover stocks would have been even bigger. So to that extent it gets sold.

Second, also we have to understand one thing clearly that, while express replenishment works very well across the year in festive period, because the window is so small. We don’t really overplay this, because in festive whatever is selling in pooja, you have to have it in-stores in Diwali. And luckily our cycles are about four weeks, 35 days kind of cycles. So inn festive, there is a limited utility for that. [Speech Overlap] Balance of the year, you can work well with it.

Devanshu Bansal — Emkay Global — Analyst

Anant, if you can — I’m just trying my luck, if you can call-out the quantum of inventory that’s there for this particular style, then it would be helpful and sort of help us understand as in what actually will be the impact?

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Now see, it’s not a particular style, its some kind of product and season is not over, so obviously we’ll be selling it in [Indecipherable] here also, there is the wedding season also. So we’ll take a better view once the season gets over. I’m just talking about the relative recovery in W. So it’s not like something is completely bombed out of this.

Devanshu Bansal — Emkay Global — Analyst

Okay. And last question from my end. From online perspective, so we have moved to this D2C sort of model, where we are taking the inventory and initiating was that since we are sort of handling all the things, we would have better sort of control on discounting that’s available on marketplaces. but as you indicated that for online, particularly, the discounts have sort of increased. That’s why I understand that, that is not completely in your hands, but what exactly are you sort of seeing in terms of trends and going ahead in future for the online sort of sales?

Operator

We take the next question from the line of Mr. Saurabh Patwa, Quest Investments.

Saurabh Patwa — Quest Investment Advisors — Analyst

Sir, my question has been answered.

Operator

We take the next question from the line of Mr. Rakesh Wadhwani, Monark Limited.

Rakesh Wadhwani — Monarch Ltd — Analyst

[Technical Issues] My question is answered.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Sorry, I can’t follow.

Rakesh Wadhwani — Monarch Ltd — Analyst

I said my questions are answered.

Operator

We take the next question from the line of Mr. Shreyansh J from AK Investments.

Shreyansh J — AK Investments — Analyst

Thank you for the opportunity, sir. Can you hear me?

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Yes.

Shreyansh J — AK Investments — Analyst

Sir, just wanted to understand, new to your company. So when you talk about the various channel. So EBO, MBO and LFS, how does the inventory model work? So once we sell, do we take it back like SOR basis or it’s once sold doesn’t return to us?

Amit Chand — Chief Financial Officer

This is Amit. Let me answer this question. So we’ll have to see this set of channel level, so let me explain it to you. So when we talk about EBO. Again, our EBO channel has multiple parts to it, a larger part of EBO channel is where the stores are operated directly by the company, we call it focus stores. So obviously in these cases, when I supply the inventory to these stores and eventually we recognize revenue when the end sale happens to be end consumer. So we have to take the stock back and we keep doing it within the season, but finally the stock return typically happens after a particular season is over. That is what happens in case of own stores.

Another part of EBO channel is [Indecipherable] network. Again, we have multiple different types of understanding. But given that we don’t want any of the exclusive stores to be choked with any inventory which may not get sold. So a larger part of the inventory which is not sold at the end of the season is obviously taken back.

If I move to the second channel, which is LFS second largest channel. For us is LFS, Large Format Stores, where we classify all the — even national change whether it is Lifestyle, Shoppers Stop, Pantaloon, other guys. There the arrangement is sale or return, so we keep stocking them during the season and any product which is unsold at the end of this season is returned back. That’s the full understanding of sale of return.

The third offline channel that we have is MBO, where we work through distributors and eventually supply merchandise to mom-and-pop retailers, where we can take returns and we — at a quarter level we would keep making return commissioning as well. There we provide a limited return opportunity, again the intent is to not let the happy channel choked, because of leftover inventory. So that the returns that we take is limited to a certain percentage that we agree with the distributors whenever we enter into commercial arrangement.

The fourth channel is online. Again, they have to pass through online. One is the direct to consumer, where we do the billing directly to the consumer. In that case, whatever returns happened, happens. In case of the second part of online, which is what we call B2B, where we supply the inventory to any partner that we have, there again it was on a model, where we allow a certain percentage of our initial billing to be returned. I hope that answers your question.

Shreyansh J — AK Investments — Analyst

Yes, that helps. And second is sir, when we are talking about expansion, so our major focus area is EBO expansion. Am I right?

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Yes. Our expansion is primarily focused on EBO.

Shreyansh J — AK Investments — Analyst

And that would be Coco or [Indecipherable]?

Amit Chand — Chief Financial Officer

We want to maintain the mix, so as on date about 65%, 70% of our EBO network is Coco, which is managed directly by the balance of franchisee. We find it as healthy mix and going forward when we look at expansion, we want to continue same issue. I’m not talking about specifically one quarter or two, because it will depend on which store we are opening then. But from a long-term perspective, the current ratio of 65, 70 Copo, the balance being franchisee operated is what we intend to continue.

Shreyansh J — AK Investments — Analyst

So when we do Coco EBO expansion sir, it entails a lot of CapEx, right. So I think, we’ve mentioned somewhere in the presentation that we are focusing on an asset-like business model. So in fact, it — when you go for an EBO Coco, you are incurring significant CapEx in terms of store inventory or manpower. So doesn’t that actually make your balance sheet a little bloated than you would want?

Amit Chand — Chief Financial Officer

Yes, if you look at the overall business, we are a brand business. So the Coco stores that we are talking about or the expansion that are doing through Coco, small part of the overall business. If you compare it with the retailer, if I can make an example, where most of the investment is done by the retailer itself. In our case, when we look at INR100 of revenue, EBO is only about 40%. And again, Coco is 2/3 and that, so from an overall business perspective, 26% of our business is where we make investment in the stores. The balance is where we operate two parts. So that’s one point.

Second in our business, these are the our payback period is relatively less, particularly when we open up stores and the CapEx reduction that we do, we are able to recover it within a period of around 15 months. So that makes sense for us to invest our own CapEx.

Shreyansh J — AK Investments — Analyst

And what would our normal EBO Coco CapEx be for one store?

Amit Chand — Chief Financial Officer

Typically, if you look into what W store, it will be around — let’s say, 1,000 or 1,100 square feet, it take an investment of about INR30-odd lakhs.

Shreyansh J — AK Investments — Analyst

30-odd lakhs. Okay. And just in terms of the three brands or maybe, if I include even Elleven. Just wanted to understand, what is the capital employed in each of them? If you could just give us a fair idea, where is most of your working capital or maybe capital employed blocked in terms of the brand, if I were to understand that?

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

I think we have never shared any [Indecipherable] details in the past, but for almost all our businesses, the bulk of the investment goes into working capital.

Shreyansh J — AK Investments — Analyst

Okay. But sir, I think you mentioned somewhere on the call that, W is the highest gross margin. If I am not wrong, a few years back I think, I was understanding that Wishful was the largest ASP in terms of the brand. But am I getting something wrong here? Because from what I understood, Wishful was the highest in terms of ASP and then you had Aurelia and then you had W, which was a mass brand that you were trying to create?

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

No, sir. Actually, Wishful has highest ASP followed by W, followed by Aurelia. So this is how the pecking order is. But the margins that we make on W is higher than others.

Shreyansh J — AK Investments — Analyst

So is this because the volumes — is it?

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

No. Yes, volume, distribution, network, all this [Indecipherable], the cost is also lower in W compared to Wishful.

Operator

As there are no further questions, I would now like to hand the conference over to Mr. Anant Daga, Managing Director for closing comments.

Anant Kumar Daga — Chief Executive Officer, Managing Director, Executive Director

Thank you, everyone. We take this opportunity to thank you for joining the call. We hope we have been able to address all your queries. For any further information, please do get in touch with us or SGA, our Investor Relations advisers. Wish you all a very happy festive season. [Operator Closing Remarks]