ARVIND FASHIONS LTD (NSE: ARVINDFASN) Q1 2026 Earnings Call dated Jul. 29, 2025
Corporate Participants:
Unidentified Speaker
Kulin Lalbhai — Non-Executive Director
Girdhar Chitlangia — Chief Financial Officer
Shailesh S Chaturvedi — Managing Director and Chief Executive Officer
Ankit Arora — Head of Investor Relations and Treasury
Analysts:
Unidentified Participant
Param Bora — Analyst
Fatema Pacha — Analyst
Deep Shah — Analyst
Palash Kawale — Analyst
Niraj Mansingka — Analyst
Gaurav Jogani — Analyst
Lokesh Manik — Analyst
Rajiv Bharati — Analyst
Presentation:
operator
Ladies and gentlemen, good day and welcome to arvind Sabina Fashions Limited Q1FY26 earnings conference call. As a reminder all participants line will be in listen only mode and there will be an opportunity for you to ask question after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing Star then zero on your touchstone phone. Please note that this conference is being recorded.
I now hand over the conference to Mr. Ankit Arora, head of Investor Relations. Thank you. And over to you sir.
Ankit Arora — Head of Investor Relations and Treasury
Thanks Fareel. Hello welcome everyone and thank you for joining us on Arvind Fashions Limited earnings conference call for the first quarter ended June 30th, 2025. I am joined here today by Kulin Lalbai, Vice Chairman and non Executive Director Shalik Chaturvedi, our Managing Director and CEO and Girthal Chitlangiar, our Chief Financial Officer. Please note that results, press release and earnings presentation had been mailed across to you yesterday and these are also available on our website www.arvindfashions.com. i hope you had the opportunity to browse through the highlights of the performance. We’ll commence the call today with Kulin providing his key strategic thoughts on our first quarter performance.
Post that we will have Shailesh who will cover the details of business highlights and financial performance. At the end of the management discussion we will have a Q and A session. Before we start I would like to remind you that some of the statements made or discussed on this call today may be forward looking in nature and must be viewed in conjunction with risks and uncertainties we face. A detailed statement of these risks is. Available in this quarter’s earnings presentation. The company does not undertake to update these forward looking statements publicly. With that said, I would now turn the call over to Kulin to share his views.
Thank you. And over to you, Kulin.
Kulin Lalbhai — Non-Executive Director
Thanks, Ankit. A very good afternoon to you all. Thank you for joining us for the Q1 results. I would first like to talk about the change of leadership at Arvind Fashions which we announced a couple of weeks ago as part of the succession planning of the organization. We will have Amisha Jain join us and as the company’s new MD and CEO effective August 13, 2025. Amisha is a seasoned leader with over 25 years of experience across technology, consumer and retail sectors. She joins us from Levi’s where she led the transformation and scale up of the brand spanning multiple geographies.
He has deep digital expertise and has also worked in transformation assignments with new age business models. He has a strong understanding of the new age customer and we believe she is well positioned to lead the charge for EFL and take it to the next level. Also, I would like to take this opportunity to thank Shailesh for his immense contributions towards executing a sharp turnaround at efl. Driven by profitable growth and strengthening of the balance sheet. He has been instrumental in getting the business to this stage. In his 19 years with Arvind, he has built Tommy Hilfiger and Calvin Klein into the most respected franchise in the lifestyle space in India and has thereafter energized the entire AFL portfolio.
He leaves behind a wonderful legacy which we will now build upon. I’m extremely excited about the future of afl. We have one of the most compelling portfolios in the business. We also have strong momentum across our brands with improving growth rates and higher profitability. We will continue to strengthen our direct distribution channels both retail and online, which will also entail investing more in product differentiation and premiumization and also an increased investment in marketing. We will further sharpen our existing capabilities and add new ones as required. In doing so, we hope to accelerate our growth and at the same time drive a further improvement in profitability which in turn should drive a higher return on capital employed Let me now talk a bit about our Q1 results.
FY26 has witnessed a strong start with revenue growth clocking 16% along with improvement in profitability and a significant increase in our bottom line. It’s pleasing to note that the growth is all round led across channels, especially strong growth in our direct channels of retail and online direct to consumer. Our efforts over the last 12 to 18 months, including retail network expansion, coupled with higher investments in marketing to reenergize our brands have yielded strong Results. We invested 140 basis points higher in quarter one in advertising on a year on year basis and despite that we saw 20% growth in EBITDA resulting in a multifold increase in RPAT.
Moving forward, we hope that the demand environment should improve on account of the government’s efforts as well as the onset of the festive season and with investment across all our growth levers, we expect an uptick in growth rates for us on a comparable basis compared to last year.
With that, I would like to now hand it over to Shailesh to take us through the specifics and more details about our financial performance.
Shailesh S Chaturvedi — Managing Director and Chief Executive Officer
Dear Friends hi The story of quarter one result of ASN is growth. Impressive growth of 16% in NSV and EBITDA, growth of 20% there is all round growth across channels and across brands. NSV in quarter one is rupees 1107 crores and EBITDA is 148 crores. Our strong effort on growing direct channels of retail and online B2C has gained further pace in quarter one. This group has now reached nearly 60% of ASL revenue. Retail growth is very healthy at 15% backed by impressive like to like growth of 8.1% with addition of nearly 40,000 square foot online.
B2C channel also grew more than 30% establishing further our pivot away from wholesale online to online B2C. The share of digital business has crossed 25% with very good improvement in profitability. I’m also very happy to share that wholesale channel growth has picked up to double digit growth impacted by better freshness of inventory, higher salience of our powerful brands and better trading environment. We saw very impressive consumer traction at premium department stores. At brand level, our intense investment into our market brand US Polo association is bearing fruit and the brand has grown more than 20% in quarter one.
Tommy Hilfiger and Calvin plant business has also grown double digit delivering exceptional margin profile. This acceleration of growth at AFL to 16% is backed by huge improvement in freshness of inventory, very sharp execution of consumer promise, very high 140 basis points increase in advertising opening of nearly 40,000 square foot. Additional retail space and strong momentum in our growth drivers like adjacent categories and digital business. Kidswear, innerwear and womenswear have all grown impressively on an average by more than 25% in quarter one. With BIS issue largely behind, inventory situation in footwear business has started to improve and we expect footwear growth to inch up further moving forward.
The growth in EBITDA at AFL in quarter one is 20% of 50 basis points improvement despite heavy 140 basis point increase in advertising. Reduction in retail discounting by 1.2% move to richer channel mix. Cost efficiencies in select supply chain and scale leverage have all led to improvement in margin. GP has gone up by 60 basis points to nearly 56%. We felt that this is the right time to invest very aggressively behind marketing. We saw opening in the market to fuel growth of marquee brands like US Polo association and Tommy Hildrigger, et cetera to gain salience, to gain market share and to grow aggressively.
A lot of this marketing investment has gone into online visibility for recruiting new consumers, including younger consumers and consumers in small towns through our wide online reach. Our brands are market leaders across channels and this market investment will further send in our leadership position. One very happy example of this marketing investment has been investment of Tommy Hilfiger into F1 movie that got released recently. You can see very strong brand visibility and brand association with Tommy Hilfiger. In this movie we saw immediate spurt in brand search and increase in walk in with this film association and the special F1 capsule of garments in Tommy Hilfiger got sold super quickly.
AFL has continued its focus on tight balance sheet control with stock terms of four and steady management of working capital. Our inventory has never been more fresh than it is currently. We are seeing the results of investment into supply chain improvement and seeing better sell through with better quality of product assortment across our brands. In this journey of profitable growth. The pack in Q1 is at 13 crores versus 1 crore in quarter one last year. The growth in PBD is nearly 65%. We also benefited from better trading conditions than what we had seen in the last year.
Quarter one where there was impact of general elections this year, April May saw more varying dates and lesser heat waves based on the business we have seen in the initial days of quarter two. The outlook remains encouraging and we are likely to see double digit growth which is higher than the growth we have seen earlier in the last one year. Of course the actual numbers will depend on market forces. There are uncertainties but with early onset of festivals we are encouraged by the demand coming from our channel partners. This is my final investor call at MD and CEO of AFL and I take this opportunity to express my sincere and wholehearted gratitude to all investors of afl, to the promoter Lalbai family who have supported me in the last 19 year journey where I have led development of Tommy Hilfiger and Calvin Klein business in addition to rapid turnaround of fortunes at AFL in the last four odd years.
It is great to leave when the business is at such strong momentum and when the roce has crossed 20% mark. I also wish all the best to the new colleagues at AFL including Amisha Jain who soon takes over as MD and CEO of AFL and Satyan who soon takes over charge as CEO of the PVH part of the business. I wish AFL even better days ahead. I will always root for this company, wishing everyone good luck. Heartfelt gratitude for support this community has provided to me in this assignment. All the best friends.
Ankit Arora — Head of Investor Relations and Treasury
Thanks Shalish Paree. We can now open it up for question and answer session.
Questions and Answers:
operator
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press and one on their touchstone telephone. If you Wish to remove yourself from the question queue. You may press star and two participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Param Bora from Trimetra Asset Manager. Please go ahead.
Param Bora
Hello, good afternoon. Thank you for taking my question and. Congratulations for great set of numbers. So my question is that with the plan to open around 150 stores in financial year 26. So what is the average breakeven timeline. For new stores and what specific regions. Or cities are being targeted for, you know, the expansion plan?
Shailesh S Chaturvedi
Hi. We are seeing traction for our brands across the country both offline and online. So we continue to expand the square foot in top tier town as well as in tier 2 town. What we’ve noticed is that very, very acceptable brand like US Polo association, we see demand from every new retailer, every new mall, every new department store across the country, be it tier 2, tier 3, tier 4, tier 3. So we’ll continue to use that demand for our Maki brand. Same thing we see for Arrow and other brands like Tommy Hilfiger and Calvin Klein.
So in terms of the geography, we are looking at expansion across. Yes, for some of our brands there’s a metro focus and we’ll continue to expand in the top 15 cities. But for most of our brands, including Flying Machine and US Polo, we’ll continue to expand across the country irrespective of the tier of the brand. As far as the breakeven is concerned.
Girdhar Chitlangia
Yeah. Hi. The usual breakeven for most of our stores is between 12 and 18 months depending on the brand and the city and the catchment. I mean it varies between 12 to 18 months.
Param Bora
Okay. Okay, thank you.
Shailesh S Chaturvedi
Thanks Param.
operator
Thank you. The next question is from the line of Fatima Pacha from Indra Manulife. Please go ahead.
Fatema Pacha
Hello, sir. Hello.
Shailesh S Chaturvedi
Hi, Fatima.
Kulin Lalbhai
Hi, Fatima.
Fatema Pacha
Yes, sir. Great job at US Polo and Tommy and ck. If you could just throw some light on how Flying Machine and Arrow is doing and just trying to figure out how to interpret the minority. Because if CK and Tommy is done well, definitely minority should have gone up. But I’m assuming Flying Machine has had a drag photo. Is that fair?
Shailesh S Chaturvedi
Let me first start with Arrow and Flying Machine and then I’ll take on. The question on the minority interest. So as far as Arrow and Flying Machine, what we have been talking about in the investor call, the situation continues. We are in the journey of improving the profitability from low single digit to mid single digit. That journey is progressing well in this quarter. We saw very good like to like retail growth in Flying Machine. We saw very good department store growth in Flying Machine and also all the direct channels that I spoke earlier. Arrow has performed really well in that and we review the progress every season and and at the end of this season we’ll again review the progress of Arrow and Slime machines in on course and these businesses will continue to grow fast and move towards their mid single digit ebitda.
That’s the plan. As far as the minority interest is concerned. Tommy and PK have had a very good quarter. They continue to grow at double digit with very good margin profile. You are right in the sense that there is a third brand in the minority interest which is the Flying Machine. And given the channel situation of Flying Machine there is a seasonality index impact and there is a correction in quarter one for Flying Machine which will get corrected in the quarter two. It’s a normal business cycle based on the channel mix that brand has. And at the end of the season in H1 we will see good progress in Flying Machine as well.
So business across the brand has done well. Both Arrow and Flying Machine have delivered double digit retail like to like growth and we are very very encouraged by this double digit growth in the retail like to like for both the brands.
Fatema Pacha
Okay, so they are pretty much strong growth even those two brands and maybe margin improvement may yet not have come through in Q1. Is that fair?
Shailesh S Chaturvedi
It’s a seasonal thing in Flying Machine and both brands are in that journey of mid single digit EBITDA growth and they’re gaining scale. So that progress is on and it’s a reflect in our numbers. Fatima.
Fatema Pacha
And so secondly if you could just tell us how did the sales season go for us and in general if you have any insights on how the consumer has behaved this.
Shailesh S Chaturvedi
I mentioned that we had advertised aggressively, got very good walk ins, both online offline and numbers have been sort of good in our brand. We’ve delivered very good full price sell through. Our discounting has come down by nearly 1.2% which has increased our GP. So we’ve been very very happy and we delayed because of that. The end of season. Toward the last week of June we did see slightly early discounting in the industry but we registered because our sell throughs were very good. We were trading really well and we gained market share and we gained margin on that.
So we continue to do well. Market share gains have happened. Our number like to like growth at 8% is higher than what we have seen in industry Overall growth at 16% is higher than the industry. So we’ve done well. And our need for playing a very big role in season end is sale is less and we have discounted less and we’ve gained margin because of that. So our inventory health is good. We’ve never seen this fresh inventory in our business in the past. So overall the dependence on end of season is less. We are going on sale later than the industry and we’re gaining market share and we’re gaining consumer acceptance. So all in all, we’ve had a very good season.
Fatema Pacha
Okay, thank you. I have questions as well.
operator
Thank you. The next question is from the line of Chetan from Systematic Group. Please go ahead.
Unidentified Participant
Yeah. Hi. Thank you for the opportunity and congratulations on a healthy set of numbers. Just one question on channel mix. So we are aiming to increase the share of direct channels and along with it we also expect the wholesale channel to grow at say around 8 to 10%. So what is the optimal target channel mix we are aiming for say in the next two to three years?
Shailesh S Chaturvedi
See, we’ve addressed this question in the past and I reiterate that our emphasis is on growing direct channel because the whole North Star for us is roce and we see very quick conversion of inventory and cash indirect. We get to influence consumer directly. It gives us a very good opportunity to do the assortment of the product the right way. Also it helps us to use our supply chain intelligence to do the demand planning quite smartly. So currently we are reaching close to 60% of our revenue from direct channel. And this business has grown really well in quarter one with very good profitability.
Retail has grown at more than 15%. B2C has grown even higher percentage than that at more than 30%. So this strategy is working really well for us. Our inventory terms have been very good. The freshness of inventory is very good. At the same time, in our guidance for growth towards medium term growth of 12 to 15%, we believe that our direct channel will continue to grow close to 15%. At the same time, we believe that wholesale channel, which is the NBO and the department store has an inherent potential to grow at high single digit. In the previous couple of quarters, the growth was not in high single digit, but we made a lot of efforts.
We have changed the inventory. The freshness of inventory in department store MBO is very good. We increase our advertising spend very aggressively so that we are top of the mind gaining market share. Because of that, the department store and the MBO have also grown. So the wholesale channel has also grown at 10% in this thereby increasing our overall growth in quarter 1% to 16%. So we believe that direct channel strategy is the right strategy and both the channels, direct retail and B2C online will grow retail. We keep expanding square footage. We have a certain goal post on that.
We’ll continue to pitch for high single digit like to like growth. We also pushing B2C agenda through a lot of online exclusive with the intelligence analytics backing it. We have Omni, we have launched our website of US Polo. So a lot of efforts have gone to keep the growth of direct channels at around 15% above wholesale channel. With all the efforts we have done have revived also this season was good. We had weddings in April, May. All that also have impacted favorably. So we believe that inherent growth of wholesale will remain in high single digits and thereby we’ll be able to grow at 12 to 15% in the medium term.
In the short run we have visibility that double digit growth is possible based on how the market plays out, it could land in 12 to 15% growth. But we are very confident that we’ll grow at higher pace because our square foot expansion is going up. So we continue to grow in double digit and hopefully our aspiration is to land in that 12 to 15% guidelines that we have given for revenue growth.
Unidentified Participant
Okay. So yes and thank you.
operator
Thank you. The next question is from the line of Deep Shah from Aquarius Security. Please go ahead.
Deep Shah
Hi. Thanks for the opportunity and congratulations on good set of numbers. Sir. If you see this quarter around, if you see across retailers, apparel retailers, we have seen some moderation in groups. Whereas for urban fashion we have improved our like for life growth on a sequential basis. So having posted 16 odd percent sort of a top line growth for first quarter, shouldn’t we expect urban fashion doing say more than 15% at least in the near term?
Shailesh S Chaturvedi
See, we have seen quarter one has seen significantly better growth than last year and we’ve seen macro economic tailwinds. The stimuli that government has provided on the tax rate cuts and the interest rate cut. We believe those steps will help the demand environment to get better going forward. We remain aspiration, like I said for a growth of 12 to 15% trajectory. It’s still early days in the year, the very early days in the quarter two. Our efforts, the direct channel strategy and all the priming of our growth engines and all our growth engines are in very, very good health.
A lot of investment has gone. So we believe that we will hit double digit growth for sure. We have visibility for that whether it will land into our aspirational goal post of 12 to 15% will depend on the market condition, how the market behaves. But we are committed to that growth of 12 to 15% in the medium term and in the short run we see clearly a accelerated growth from what we have delivered in the past and double digit growth looks possible. And based on how the market behaves, it could be slightly higher or it could be slightly lower based on how the market forces pan out.
But we are feeling very encouraged by the quarter one result and we are very encouraged by the Reef Festival and the demand that we’re seeing from the channel partners. So let’s see how market behaves going forward.
Deep Shah
Okay, Got it sir. Secondly, sir, you indicated say around 20% sort of a growth in us both. Can you highlight which were the categories which has been driving growth in past we have talked about bottom wear womenwear. So which are the product categories which is driving growth over here?
Shailesh S Chaturvedi
See, you know we really look back in the last two years in the industry, very few brands have seen the level of investment that we have made behind our Maki brand, US Pull association, be it marketing, be it retail upgradation, be it product assortment, improvement in the quality, the supply chain online website that sort of we launched two years back and the back end, lot of improvement in the team, etc. So the brand has seen a large investment towards the growth in the last two years and we are seeing that it’s a brand which is firing across channel and across product categories.
Now if you have a single out, I’ve seen very, very good growth in all the adjacence category in this brand on one side. And we’ve also seen very large digital growth of business in US Polo. So adjacent category womenswear, which we launched more than a year is growing more than 50%. The innerwear has started to do very well, it’s growing rapidly. Kidswear saw more than 30% growth in this quarter. So all the adjacent categories are growing very rapidly at the same time. This whole growth of online business where our pivot from wholesale B2B to more like a B2C online has now seen growth in US Polo and the growth in B2C part of US Polo is extremely impressive.
So US Polo is seeing good traction and as per our AFL strategy of growing the business direct, through website, through marketplace model, through only linkages of our store, through better product assortment, through better shopping experience, through growth of adjacent category, we open large marquee stores in US Polo, we are expanding a large amount of square foot across the tiers of town so US Polo last year crossed 2000 crores and it’s growing very, very handsomely. And it is going to be a very, very large brand in India.
Deep Shah
Okay, one last thing, sir, if I miss quizzes, sir, let’s say Amnesha joining in from device background who has been a very, very strong brand and bottom wear. So how is the variation for the bottom bear brand? Because typically US Polo is mainly for top wear, casual shirts and polo T shirts. So what’s the aspiration for the bottom wear? Do we expect bottom wear being a very meaningful driver in the years to come?
Shailesh S Chaturvedi
Kulin, you would like to take that please?
Kulin Lalbhai
Yeah, yeah, I can take that. I think denim in general, if we step back is a very interesting opportunity for us as a company because we have three brands in a sense straddling very, very different price points. We’ve got Flying Machine which is youth focused at a very aspirational, I mean a very sharp price point. Then we have US Polo which has emerged as, you know, a top three bottom denim wear brand in all the department stores and multi brand outlets. So it has risen in rank extremely fast. And then we have the top luxury denim brand in the country with CK and even Tommy between USC and CK is looking to strengthen its presence in the country.
So I think we have extremely exciting denim offering as a company. And in fact even in our current plans we are leaning into that category because we see definitely a large addressable market emerging. There is only one strong brand in the space so we want to gain share and I think our top to bottom ratio, you will see bottom overall in the next three to four years. You will see an improved share of bottoms to tops in the company as we execute on these plans.
Deep Shah
Great. So thank you. Thanks for the opportunity.
operator
Thank you. The next question is from the line of Palash Kawali from Nuamavelt. Please go ahead.
Palash Kawale
Thank you for the opportunity and congratulations to the team for good set of results. My question is on marketing spends. Would you expect these trends to be higher for the whole year as well?
Shailesh S Chaturvedi
You know Palash, we have taken a stance to very aggressively invest beyond advertising. We see scope of market share gain and higher growth. And we have increased in this quarter, 140 basis point increase. We are committed to this strategy. It’s not a one off. And you see the last year also we are steadily increasing our advertising spend. Our brands are becoming big, brands are becoming bigger. So it’s a conscious strategy to increase the advertising, remain top of the mind and gain market share. And strategy will continue in FY26.
Kulin Lalbhai
Thank you. Thank you sir for that. And yeah, that’s all from my side. All the best to you sir. It’s been pleasure interacting with you over the conference. Thank you. Thank you.
Shailesh S Chaturvedi
Pleasure.
operator
Thank you. The next question is from the line of Varun Singh from aapms. Please go ahead.
Unidentified Participant
Am I audible?
Shailesh S Chaturvedi
Yes, Varun.
Unidentified Participant
So thank you for taking my question. And sir, congratulations on the whole set of numbers. The first question is, you know, try to understand the channel performance and expectation of the channel performance in FY26. As you pointed out 12 to 15% kind of an overall growth. So I mean in the retail channel I think 8% like to like and 16% revenue growth is a is an outstanding performance. But looking back in history in the wholesale channel and online and others, how should we look at these two channels with regards to expected growth? Please throw some light on on these two channels. That’s my first question.
Shailesh S Chaturvedi
Arun, I just mentioned in the previous question that our strategy is clearly to push growth through direct channel and there are a lot of strategic advantage of that pivot. And we believe that both these channels will grow at around 15%. Retail will grow through healthy like to like growth. If you look at our track record last three, four quarters and even this quarter we’ve been delivering better than the industry like to like growth. If you look at quarter three last year we had 11% like to like growth. And then if I look at this year 8% in the last three quarters.
Our like to like growth is in the high single digit Also square foot expansion. We have done a lot of hard work on the ground. We see huge opportunity to grow the square footage 8 to 12, 13% nearly 150 stores expansion possibility. We open nearly 40,000 square foot net in this quarter and the growth will continue. Likewise new retail identity, renovation of stores, better and scientific layouting, better shopping experience. Retail lot of all these things are helping us to deliver very good numbers and the growth in retail. And we believe that retail channel can grow at 15%.
Obviously there will be ups and downs. Like to like will depend on how the market conditions. But if the market remains more or less steady without any terrible news, then we believe that retail will grow at 15%. B2C pivot is happening. We have consciously moved pivoted the business from wholesale to retail kind of mindset. B2C online we created inventory online exclusive. There’s analytics that is helping. There are omni linkages. We have websites for us Polo. So that business is growing very fast. More than 25% growing and it will also combine with retail will ensure that our direct channels, 60% of our business grow at around 15%.
So we have growth drivers which are prime adjacent categories don’t take that much of space in the stores and they are growing. And in online also categories like footwear, innerwear showing very good momentum. So both B2C and retail likely to deliver together a 15% CAGR and drive our growth towards 12 to 15% at a company level in the medium term.
Unidentified Participant
Sure. So that’s very clear, sir. Lastly, I wanted to understand the B2B part. Given that 40% of our exposure, I mean 61% is B2C and retail, we have I think done exceptionally well since past several quarters and we would have, you know, outperformed the number one player in that category. I mean from the retail channel point of view. So largely I wanted to understand from the wholesale channel and the online B2B part, like what’s. Is it fair to assume 10 to. 12% kind of a growth in the in these two channels or we think that we can do 12 to 15% kind of a growth in even in these two parts.
Shailesh S Chaturvedi
Reiterate the direct channel, our aspiration for 15% growth. We are by far the largest online player in the industry. Be it any portal overall size of business. The company had invested in online ahead of time. So that engine is working really well and it should grow based on how the market conditions pan out around 50. The question on wholesale, we believe the inherent potential of the wholesale channel, which is NBA channel, which is department store, which is the online B2B all these put together, we believe this channel set can grow at high single digit. That’s the inherent potential of ran in these channels.
Sometimes based on the market is less. This time we have favorable growth, double digit growth in these channels channel put together these channels will our aspirations to see them grow very profitably at high single digit. And we will always be conscious of the quality of our growth. We will in embryo channel will always be very worried and conscious about the hygiene. We make sure that our talk levels, our data levels are very strong in online b2b also we will be very conscious of hygiene in terms of discounting and other things. So we will make sure that quality of growth is very, very top quality, high standard. And we want to deliver high single digit in the wholesale channel.
Unidentified Participant
That’s very, very clear, sir. And my second question is on the margin front, given the change in the leadership. So I mean should we. Is it safe to assume that the margin guidance and everything that is 100% intact and we can expect maybe 1500, which kind of EBITDA margin expansion in FY26. That’s my last question.
Kulin Lalbhai
Yeah, I can come in here. I think our focus, as we have very clearly said, is to build very exciting brand franchises. And everything that has been carried out in the last three to four years has been along the lines of how to make our brand stronger so bolder retail, better products and impactful storytelling. These have been the themes that the company has invested in. And this is leading to organic growth where each of our brands becomes larger and that is when the operating leverage flows in. So as we move forward, we are very, very clear that that is the strategy of the company.
We want to over time build larger and larger brands. I think there will be a time in India where even 2,3000 crore is not the largest that a leading brand could be. So we will make our brands bigger and bolder and ensure that as they scale, there is a commensurate operating leverage which kicks in and a stronger OCF profile which emerges in the years to come.
Unidentified Participant
Thank you very much sir and wish. You all very best.
Shailesh S Chaturvedi
Thank you.
operator
Thank you. The next question is from the line of Neeraj Mansingha from White Pine Investment Management. Please go ahead.
Niraj Mansingka
Thank you for the opportunity. I have a question on the adjacency, especially the footwear side. Can you give some thoughts on how do you see that growing considering there is a BIS issue which is overhang on the foot applies and an opportunity where you know you can take advantage of the brand, especially like sneaker market or other markets where the footwear is growing much, much faster in that side.
Shailesh S Chaturvedi
Hi, Neeraj. Neeraj. I want to just step back and look at how we as a company build footwear business. There was a large investment ahead of the time in the footwear vertical. We put a dedicated team, we put dedicated footwear experts in the brands which were otherwise largely apparel brands. And that early investment has paid off for us. And you know, very soon US Polo Sneaker became the top brand on the portal like Myntra, etc. And the business has grown at 30% plus in the past and it’s crossing touching close to 300 crore mark. And our aspiration is to take the footwear portfolio to 500 crore, very profitability with double digit EBITDA pre indice.
Very soon we had one sort of aberration when the government policy on BIS came and they sort of put restriction on import of footwear and some additional conditionality and that impacted the entire industry two years back and it’s taken some time to live life in this new regime and condition. And we have moved very far. We have adjusted our supply chain very, very rapidly. And today we have now started getting inventory in our stores. In the new situation under BIS and a brand like US Polo continue to be leading brand. We do very large footwear in brand like Tommy Hilfiger, Calvin Klein.
So that business is now close to I think close to 300 crore business. We did see depletion of inventory like the industry saw. That impacted our growth and that impacted our like to like in our retail format called Stride where we sell a lot of footwear. Very exciting retail format called Stride. Now the BIS is behind us more or less and the inventory position has started to improve. We expect that next one year time footwear business will grow at very aggressively on a sort of a corrected base and will again move back to the growth phase of around 20 to 25% based on the market conditions.
So this is a very exciting piece, very profitable double digit build, pre indice EBITDA and a scale which could be 500 crore very soon as the inventory builds up. So it’s an area of immense strength for afl.
Niraj Mansingka
Just a related question, how large as a percentage of revenue share can a footwear be for you? Just a thought from your side.
Shailesh S Chaturvedi
See overall if you look at a brand like US Polo, this business can be a 300 odd crores business for US Polo. Today the adjacent categories in US Polo are more than 25% and a very large part of that business can be from footwear. So it’s a very, very, it’s a what you call first among equal adjacence category. It’s likely to deliver more revenue been within the other adjacent category including innerwear and you know, small leather, good, etc. So it’s a very very important category for us polo.
Niraj Mansingka
Okay, great. Thank you.
operator
Thank you. The next question is from the line of Gaurav Jogani from JM Financial. Please go ahead.
Gaurav Jogani
Thank you for taking my question chat and also congratulations on a good set of numbers. So one question from my end is, you know now you have certain scale brands like us now near 2000 crores revenue and also I’m believing the Tommy CK is another together would be around 1500, 1600 crore brands. So what is your outlook on the other brands like Aero and Flying Machine? How are you looking to scale up these brands and where are they on the path of the profitability?
Shailesh S Chaturvedi
So you know in regular investor calls we have said that both Arrow and Slime Machine are below US Polo and Tommy CK in terms of profitability and strength of the brand. And a lot of efforts we made to reenergize these two brands. Arrow is little ahead in that journey compared to the Slime Machine because the effort started earlier there. Both these brands, we had said that they should double their business in next three to four years and that journey is on. And we are seeing good growth in both these brands and we regularly see the progress from.
The key thing here is to reach a point where from low single digit EBITDA we have to reach mid single digit ebitda. The whole portfolio of these two brands has to become a certain PBT level. And that is the start strategy to take these brands, grow them faster than the growth of the AFL grow the when they were talking about close to 100 basis point EBITDA increase. And with higher advertising spend this year it could be, you know, 50, 60 basis points that growth. The Arrow and Flying Machine have to grow faster in their EBITDA profile than the average of afl.
And also if you’re going to grow the company at double digit, the Arrow and Flying Machine have to grow slightly faster than that. So that’s the plan. There’s no change, there’s no change of strategy. We are committed to what we’ve been seeing in the investor calls in the last one year and the journey is on. We are encouraged by the response we are getting on Arrow and in Flying Machine. We have also done premiumization, we have done renovations, we are building digital assets in these brands. So the journey is on. Of course they are behind where US Polo, Tommy, Calvin Klein are. But that’s also the source of further growth and further profitability for afl.
Gaurav Jogani
Sure. So related question to basis. I mean as you have seen how adjacencies have been a greater part of scale up in the US Polo and even in Tommy figure to that extent what kind of adjacencies you think you can play out in both of these brands and at what journey of scale up are these adjacencies right now.
Shailesh S Chaturvedi
See there are. See we look at the theory behind adjacencies when the mother brands are very strong and then consumer buy the adjacent category. So let’s say if Tommy Hilfiger is a very aspirational brand then consumer beside the apparel core category they want to buy a watch from Tommy Hilfiger for example. Same way in Arrow and Climb Machine. Our first priority is to make the core categories thrive. The formal shirt of Arrow or the sportswear shirt of Arrow or the premium 1851 line of arrow, the blazer where the brand is marketed. We want to make sure those businesses are in really prime hand or growing rapidly.
And same thing in Flying Machine. A business of jeans for example, has to be in the pink of health. And that’s what our efforts have been to build the growth of the core categories in both these brands, Arrow and Flying Machine. Once this happens, we will expand the adjacence category aggressively as a step two. But having said what I just said, we have not lost on the adjacence category. We built in Arrow, for example line of small leather goods, belt and wallet. We experimented with some other new categories that you see in Flying Machine. We already have a footwear line which we sell successfully online and we are piloting that category and we will expand that as we go along. So the step is first is to make the core cut categories really energized and then we will look at adjacent categories.
Gaurav Jogani
Sure. So that helps. So my second and last question, you know is with regards to the strong OCF now you have generating and even you know, you have also repaid the debt and paid some dividends. Given that the business will only improve from year on and the profitability will also improve, what is your plan of action of using this cash? Would you be completely repaying that debt or would you be looking to certain allied acquisitions? Maybe not the bigger ones, maybe some smaller ones. Any outlook that you can give it here?
Kulin Lalbhai
Yeah, I can come in I think here. Currently, as we have said, our focus is scaling up our existing five brands and there isn’t any imminent kind of area where we would want to deploy additional capital. So what we have been seeing is whatever is the OCF we are generating is going into kind of repaying the debt. And of course we have been growing the business aggressively and we have been wanting to increase the freshness in the business. So we have also been bold as we move in this year into buying fresh inventory. And you are seeing the impact of that freshness even on the growth of the company. So I think the funds would be used to reinvest it back into growth and retiring debt.
Gaurav Jogani
Sure sir, if you can help me out. You know, I mean I like to this only last year also we did generate, you know, a good handsome security cash flow of around 200 crore. So what would be the capex plans for the at least the next two years that you’re looking for?
Shailesh S Chaturvedi
See our strategy is very asset like and for growing our business at 12 to 15% in the medium term we don’t need too much of capital, etc. Most of our expansion has been through the franchisee model and we do some stores in some brand like Kamil figure we do our own cocoa stores because that build business generates a lot of surplus cash and it’s a very smart way of deploying because the roce on the store of that brand is very very high. So we, other than that we typically have a very asset like mindset. If you look at last year our capex was around 100 odd crores.
We have a run rate today of around 25 crores of capex per quarter. And I don’t see there is a material shift or change in the strategy of asset light monetization. So our capex at an annual level will be in that zone of around 100 crores.
Gaurav Jogani
Sure. So, so in that context when he was asking, you know, given the fact that you know maybe you will be able to generate very conservatively a 5000 crore kind of a revenue by FY27 and assuming a 10 kind of a 3 index EBITDA margin also I mean still you will be generating a 500 crores cash. And you know if even if I did use some interest and some the taxation also still ballpark, you will be generating 350 crores kind of an OCF. And given that I’m assuming it’s 100 crores keeping goals still you will be left with 250 crores. And now given that we have only 225 crores of debt left so would it be fair to assume that you’ll be net cash company by by early FY27 In that case.
Kulin Lalbhai
I think you know now the debt levels in general is so low that we are not kind of looking at debt as the thing that we have to worry about. But I think whatever is the operating cash flows, I mean we want the engine to get stronger. And as you are rightly saying with this increase in profitability the business should give significant amounts of cash. And in the absence of any target which we feel is very very compelling, it would be used to reduce death.
Gaurav Jogani
Sure. Thanks. Thank you sir. That’s all for me.
operator
Thank you. The next question is from the line of Rajiv Bharti from Nuama. Please go ahead.
Rajiv Bharati
Hello. Thanks. Thanks for the opportunity sir. Especially on the departmental and wholesale business, was there any player who was not ordering earlier and they have made a comeback and that is helping our cause?
Shailesh S Chaturvedi
No Rajiv, we’ve been, hey, we are leading brands and we are available in all the department store be it the premium department store or the value department store. So there is no kind of a new example expansion into new chain if that’s your question. But we’ve been expanding given our better performance and the fact that we are gaining market share and the ranks of our brand be it US Polo narrow is increasing and they’re getting market share. We are getting more spaces with the existing partners and as they expand into new territory we’re also getting new spaces when they open new boxes and in the existing boxes we’re getting some more spaces.
So the consumer growth in department store in this quarter been extremely encouraging. Very very good. And our like to like growth also per door has been very very healthy in high single digits. So it’s largely existing peer relationship. But we are gaining spaces and gaining new spaces based on our performance in terms of our market share.
Rajiv Bharati
Sure. So an extension of that is ES standalone which is which has a big portion of wholesale revenue on the on the arrow side. Right. And there is a growth there. Can you explain what I mean why the numbers like that.
Ankit Arora
Rajiv? It could be largely on account of we’ll have to look into it. I can probably take that offline with you. I’ll have to deep dive. It could be be only on account of maybe an intercompany but otherwise wholesale channel across all the brands wherever it is lot more relevant has grown in line with the overall channel mix which is what you have discussed.
Rajiv Bharati
Thirdly, on the ad expense side I see that you already address it but you are increasing your ad spend by close to 55% if my math is right. Can you just split that by brand? How does it look? Because earlier PVH used to get a lower proportion as compared to Flying Machine. So are you trying to push again this time around Flying Machine and Arrow more on the ad side also .
Shailesh S Chaturvedi
I think it’s a conscious aggressive investment across the brand in this quarter. For example in Tommy Hilfiger I mentioned about the F1 movie and we invested heavily behind that association because one off time brand has benefited a lot from that. Also in U.S. polo and arrow and Flying Machine also we have invested heavily in online visibility because online B2C is a very focused priority channel for us and be it the buff marketing or the top of the funnel, we have gone ahead and spend money across that. Even the scale and size size of the brand US Polo, a lot of that dollar value or the rupee value goes into US Polo to support that growth.
And you know the business in B2C has grown more than 30% and the advertising spend also is higher basis points. So you can assume that the growth in value terms will be quite high. But that’s a conscious decision we have taken to gain market share and to keep the brand salient and grow the brands aggressively.
Rajiv Bharati
Lastly on foreclosure. So although your area has increased, but I thought, you know in Q4 you didn’t have any closure. So that was the end of your closure cycle. How much more cleanup is still left in the.
Shailesh S Chaturvedi
Rajiv, you write that most of the closure is behind us and that was done. But. But a small regular closure is part of our life. We will always close some 2 odd percent of our distribution as a new mall opens in our area and the old mall becomes less effective or some market forces happen. But that will never become zero. Rajiv, in that sense it’s healthy to look for some closure to keep your inventory fresh, to keep your full price sell through high, to keep your like to like growth high. And when you look at profitable growth, you know some channel because of market forces, some retail does get impacted and we should always be aggressive in shutting that down.
So around 2% of network typically in the industry is done. I don’t see major large scale closure going forward this quarter. Also, also the closure typically of small size stores which have lost relevance and we are opening bigger and better stores. So it’s a net square foot addition and we’ve added close to 30,000 square foot. We are gunning for close to 1.5 lakh net addition this year. So I don’t think there is a big news or story there on closure. It’s a regular closure and we continue to expand square foot very aggressively. We’ve done a lot of groundwork. We have a bigger team now. We have identified lot of areas. So you will see that our square foot expansion will only accelerate as we go forward.
Rajiv Bharati
Thanks a lot sir and thanks for all the inputs over the age and hope to stay in touch.
Shailesh S Chaturvedi
Thank you.
operator
Thank you. The next question is from the line of Lokesh Manik from Valium Capitan. Please go ahead.
Lokesh Manik
Yeah. Hi, good afternoon. Congratulations for the achievements over the last 19 years, especially the last four years. You seem to have set a very high bar for the new CEO at least on the ROC level. So congratulations on that. Thank you.
Shailesh S Chaturvedi
Thanks a lot for your kind words.
Lokesh Manik
Thanks to finish my question and I’m playing devil’s advocate here. So Flying Machine and Arrow have done fantastically well over the last two years and you know, progressing as you Guided now going forward, if, you know, God forbid, you see some roadblock on that and it doesn’t progress to the way you have thought in the next two to five years or that management has taught in the next three to five years, are we ready to then pull the plug on it? You know, keeping in mind that to an extent over the last few years it has masked the performance of uspa. Tommy Nck so do we, do we take that harsh call? Do we, you know, still go through with it?
Kulin Lalbhai
Maybe I can take the I think there is never any sentimentality about anything in business. I think you have to be setting very, very clear milestones for any business. And we have been very, very clinical. If you see we have exited very large franchises the day we realized, you know, that they’re not going to have a path to the roce. And Roce is the North Star of the company. So we’ve done it in the last five and we will do the same in the next five. That everything has to achie the roce threshold, that is the hygiene roce threshold that the company has set for itself.
The good part in at least the current portfolio is that every brand is moving or showing the momentum and velocity as we speak. If that reality fundamentally changes, then as a board we would be looking at it very objectively.
Lokesh Manik
Great, great. And Kulinji, do you have any timeline in terms of where you want to review Arrow and flying machine by FY26 or 27 where, you know, you need to decide we continue with the scaling or we need to scale it down. Any timeline on that?
Kulin Lalbhai
You know, we, we have, yeah, we have two kind of rhythms that as a company we go through. One is our annual operating plan and then it is a three year plan. In fact, we are now getting into our next three year planning cycle. We just completed the previous three year plan. So as a part of the next three year plan there is a movement as a part of the earlier three year plan, at least the good part is many of the milestones which we had set for ourselves with these two brands have broadly been aligned and achieved.
So as we look at the next three year timeline, we have also told the market that both of these brands have to have a higher lift in EBITDA bips compared to the overall portfolio because they are moving from a lower base. So that is the kind of milestoning that we have done, which Shailesh refers to as that mid single digit EBITDA and that’s kind of the north star for these two brands.
Lokesh Manik
Fantastic. My last question was just the India’s impact. If you can quantify for depreciation impact because of right of these assets and interest expense because of these liabilities combined for this quarter it’s to get a better.
Ankit Arora
Yes. So you’ll have to arrive at pre index. You’ll have to deduct from a reported EBITDA minus 4%.
Lokesh Manik
Minus 4%. That’s great. That’s. Thank you so much.
Ankit Arora
Thank you.
operator
Thank you. Ladies and gentlemen. Due to paucity of time that was the last question for today. I now hand over the conference to management for closing comments.
Ankit Arora
Thank you everybody for joining us on the call today. If any of you have any further questions please feel free to reach out to us and we would be happy to answer them offline. Thank you and have a good day.
operator
Thank you. On behalf of Urban Fashion Limited concludes this conference. Thank you for joining us. And now you may disconnect your lines.