Shoppers Stop Limited (SHOPERSTOP) Q1 FY23 Earnings Concall Transcript

Shoppers Stop Limited (NSE:SHOPERSTOP) Q1 FY23 Earnings Concall dated Jul. 27, 2022

Corporate Participants:

Mamta Samat — Investor Relations

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Analysts:

Nihal Jham — Edelweiss — Analyst

Percy Panthaki — IIFL — Analyst

Ankit Kedia — Phillip Capital — Analyst

Gaurav Jogani — Access Capital — Analyst

Sabyasachi Mukherjee — Central PMS — Analyst

Chetan Sanguine — Beaumont Capital — Analyst

Aliasgar Shakir — Motilal Oswal — Analyst

Devanshu Bansal — MK Global Financial Services — Analyst

Kaustubh Pawaskar — BNP Paribas — Analyst

Abhijeet Kundu — Antique Stock Broking — Analyst

Tejas Shah — Spark Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, Good day and welcome to the Shoppers Stop Limited Q1 FY23 Earnings Conference Call. [Operator Instructions]

I now hand the conference over to Ms. Mamta. Thank you. And over to you, ma’am.

Mamta Samat — Investor Relations

Thank you, Oman[Phonetic]. Good morning, everyone and thank you for joining us on the Shoppers Stop Q1 FY23 Earnings Conference Call. Today, we have with us the senior management represented by Mr. Venugopal Nair, Customer Care Associate, Managing Director & Chief Executive Officer; Mr. Karunakaran Mohanasundaram, Customer Care Associate and Chief Financial Officer; and Mr. Jaiprakash Maheshwari, Customer Care Associate, Vice President Finance & Accounts.

We will begin the call with opening remarks from the management after which we will have the forum open for the interactive Q&A session. I must remind you that the discussion in today’s earnings calls may include certain forward looking statements and must be viewed therefore in conjunction with the risks that the company faces. Please restrict your questions to the quarter and yearly performance and to strategic questions only. Housekeeping questions can be dealt with separately with the IR team.

I will now request Mr. Venu Nair for the opening remarks. Over to you, sir.

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Thank you, Mamta. And good morning friends. Thanks for joining us today to discuss the Shoppers Stop financial results for the First Quarter of FY 23. As I mentioned along with me, I’ve got our CFO, Karuna and Jaiprakash, our [Indecipherable]. We had shared our Q1 results we invested it and first released with you. And I’m sure you’ve had a chance to go through this by now. In the next few minutes, I will talk to you on our Q1 performance progress on our strategic pillars and the way forward.

In April, while speaking– speaking to you on our Q4 performance for FY 22, I had indicated that we had a strong March month and the momentum is continuing in April. Indeed, we have had a very good quarter and I’m delighted to share that we had the highest sales and profits in the first quarter of a financial year in the history of Shoppers Stop.

More importantly, this momentum is carrying on all our financial KPIs such as sales, gross margin, EBITDA, and profit, have witness strong growth. Same with [Indecipherable], grew by 383% and on EBITDA, we made 67 Crores as against a loss of Rupees, 116 Crores in the first quarter of last year. Even against a pre-COVID sales numbers, our non-GAAP sales grew by 8% while EBITDA grew by 37% versus pre-COVID.

This is despite the end of season sales getting postponed by ten days this year. Had the end of season sales scheduled happened on the same day as that of the pre-COVID, we would have registered a growth of 13% in sales and corresponding profits would have been higher than by that much. On some of the other KPIs, our gross margins have improved by 550 basis points. This is primarily due to the lower base of last year, and the lower markdowns that we’ve had in this current year.

Our average selling price has grown the 15% further substantiating the strong consumer demand, particularly the digital luxury categories and the premium categories that we are focused on. And these are all performed during this quarter. Another indication of this is the fact that our average build value grew by 7% year on year, we’ve now had eight consecutive quarters of increasing average build values. And this just shows the sharp focus that we have had on our premium categories, is being rewarded by our customers.

Our digital channel continues to outperform with a growth of 29% on a significantly higher base. On the operational costs, we continue to save versus FY 20 on a like-for-like basis. And this is despite a large inflation. And lease rentals are operational investments in new stores and ICO was 33 Crores. And they are — they are being profitable. With the strong sales and the tight control on costs, we reported an EBITDA of 67 Crores on a non GAAP basis, or 168. Crores have GAAP financials.

On expansion, we are back on the track in terms of opening up new stores. And in the quarter, we open six new stores, which they break down as two department stores, three beauty doors and one airport store. Our capex investment in new stores was 21 Crores. Our plans to open 12 department stores and 15 beauty doors for the year is on track. As always, our capex has been funded through our internal resources, we reduced our working capital by 57 Crores and our cash from operations remain positive.

Overall, there is a transformation of the retail landscape. Customer Experience is a new reality. A host of global trends such as changing demographics, increased urbanization, and hybrid ways of working, are coming together to propel large stores like us to change the role they play in people’s life. Now, when customers visit our stores, they’re looking for multi-sensory experiences. Simultaneously keeping comfort and hygiene in mind. Going Omni Channel has become an integral part of our strategy. I spoke about wardrobe reboot in the last two quarters. This reboot and the steady recovery of demand post-COVID has now moved on to Omni channelization, and that will gain momentum from now on.

Customers are being provided information on offers, promotions, and unique experiences in our physical stores as also on their mobile devices. This digital transformation of retail is real. And I’m delighted to share that we have adapted and embraced it in the true sense. With our offline presence and the strong online presence, we are the true Omni Channel retailers. And that’s being rewarded by our customers.

A lot of talk to you in detail about our strategic pillars. The first one is unprofitable. And our fourth citizen has been our loyal customer, and they have been instrumental in our growth. With our increased offering on premiumization and various other initiatives, our sales from fourth edition continues to grow. We had 63% of our sales from repeat customers on first citizen and the further 16% from new first citizen customers who enroll during the quarter. That’s resulting in 79% of our total sales being from first citizen customers.

During the course — during the quarter, we enrolled six and a half times more for citizen customers. And in the premium black card program, we improved five times more customers than the corresponding quarter in the last financial year. Just to remind everyone, our black card program is the annual subscription program within our first citizen, wherein our customers pay a four and a half thousand rupee enrollment fee or an annual subscription fee. And this is the segment within our customer — within our first citizen base that is growing spectacularly.

Some of the key features on our first citizen program itself, I would like to also share with you. Firstly, the median age of our first citizen consumer, continues to reduce. And this is happening because we expand our offer to bring in young consumers into our stores and online. More than 75% of our members are shopping for them in categories, specifically on private brands. Our penetration within first citizen customers is 50%.

And our engagement continues to be very high. We have automated replacements for our beauty products, which is very critical. And we have also created a point based incentive program campaigns every month. Specifically, on our black card citizen customers, we have really revamped the onboarding communication and the experience and the basket of benefits that they get continues to grow. Further on our personal shoppers, the country’s contribution has been consistent and for the quarter, they contributed 10% of our sales. Here, the average ticket price is over three times our normal ticket size.

We have done several local events to spread the awareness of our local shopper, personal shopper. In the last quarter, I had announced the launch of the co-branded HDFC shopper stop credit card. I’m pleased to share that we have additional members through the co-branded credit card as we engage with HDFC Bank in a synchronized manner. And I’m confident that many more HDFC Bank credit customers, credit card customers will join through this program.

We do our second strategic pillar of private brands. We have had a fantastic quarter on private brands, talking the highest sales ever in a quarter. Our private brands grew by 29% and our share of private brands within apparance has now grown to 21%. Specifically, talking of some categories in kids, we have been growing over 100% for the last four quarters. And even in this quarter, we grew by 181% over pre-COVID numbers.

Our focus on women’s wear has been with good results and our women’s wear, women’s wear and Indian wear put together grew by four times. Specifically for our women’s private brands, we now have Sanya Malhotra as the brand ambassador. For the summer season, we had Sanya Hofratini and the brand grew by 120% over pre-COVID. In the coming seasons, we will have Sanya associated with our other women’s were private brands as well.

The average selling price for our private brands increased by 50% during the quarter. Our volume grew by more than doubled and our private brand contribution at a healthy 15%, and as I said before, within apparel 21%. Moving to the third strategic pillar on beauty, and our beauty grew by 321% over last year, with a mix of 16 point focus and to our total sales. Our fragrance, the top 10 brands that we have grew by over seven times.

Our growth and beauty would have been higher, but for the supply chain disruptions that we have experienced due to the disruptions in Ukraine. Our private brand sales within beauty have also been impacted because of the supply chain issues with then from China. However, despite these issues, our private brand Arcelia grew by eight times and we have seen good sales coming in from a number of the new brands that we have introduced, specifically Indian beauty brands and we are continuing to bring in more beauty brands to cater to the aspirations of this customer.

During the quarter, we launched over 30 digital first brands on shopperstop.com. We have also opened three beauty stores of SS beauty during the quarter. We now have seven SS beauty stores trading and we are very satisfied with the performance of these stores. We will continue to open more essence beauty stores, which is a key part of our beauty strategy. Further to complete the omni channel experience, we will be launching SSbeauty.in in the month of August.

As I have shared with you in the last trading call. We want to afford strategic pillar omni channel. We have been lead probably in our digital sales and for the quarter this grew by 29%. This is significant considering that we have had a large base in FY 22 largely an Ecommerce space, especially as stores were shut for a period in the last quarter or in the first quarter of last year.

As mentioned earlier, we are a true omni channel retailer and we are now serving customers across stores and online, and have had 105% more visits across the channels. It is important for us to look at the customer journey across both channels together. And that’s what we have now been doing over the last few months. Transaction sales increased by 6% in the digital channels, and 38% of our total sales in this channel came from our first present customers.

As I spoke a few minutes back, customers are looking forward for an omni channel experience. I’m glad to share that we have been investing and continue to invest in the omni channel experience, especially on analytics, on data, on content, which all of which enables us to engage with our customers in a much better way. The investments made in the data late last year has enabled us to have better cohorts of our customer, helping us to personalize and cater to the needs and aspirations of our customers in a much more focused manner.

With our omni channel, retail, marketing and service strategy in place, we are now reaching and engaging with our customers in whichever channel they choose to engage with us. As you all know, majority of the customer journey as today start online. Before being completed, either in store or online. We see the journeys, weaving across various channels, through shopperstop.com, social media channels, etc. As omni channel integrates offline and online, internally, we have decided to stop tracking our digital sales separately, as the journeys are merging, and the lines are getting very blurred.

Finally on expansion, we opened two departmental stores, three beauty stores, and one airport store during the quarter. Our pipeline of new stores continues to be strong. And as I said before, I reiterate that we expect to open the 12 to 15 department stores in FY 23. In summary, we have grown in the last five consecutive quarters. And as I speak, our July month has been continues to be very strong. Being one of the strongest months that we’ve had.

We have great plans for the festive season ahead with our omni channel firing on all friends. The strategies that we have put in place is coming together nicely and working well for us. And we intend to continue to focus on that as we go forward. Thanks for listening patiently and we now open up to questions. We have quite a few questions, which in the interest of making sure that everyone who’s dialed in, get an opportunity for us. We’ll take questions first, and then answer the questions that we’ve got.

We’ll open the call for questions.

Questions and Answers:

Operator

[Operator Instructions] We have the first question from the line of Nihal Jham from Edelweiss, please correct.

Nihal Jham — Edelweiss — Analyst

Yes, sir. Thank you so much and good morning to the management and congratulations on this strong performance. So three questions from my side. The first one was, you mentioned about demand trends for July and the fact that they’re continuing strong. Why just want some more color on the same is because obviously the April to June quarter, as you said had a lot of revenge element or a wardrobe refinish aspect, as you highlighted. So moving into July, what are the kinds of trends that we are seeing?

Is it a similar kind of trend in terms of wardrobe refresh containing or you think this is the organic portfolio that you see pre-COVID. Just wanted to understand that we’re going slightly contrary to maybe what I was picking up and you know, I was doing some other check.

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Okay. Is that, you said two to three question? Is that, is that all, or we want to cover all the questions?

Nihal Jham — Edelweiss — Analyst

I’ll just tell you the other two, if you could give me the physical results in Q1 FY23. You, you plug that in the online visits also, if that is possible. And the last one was on the EUSS comments where I think you mentioned that your sales would have been 30% higher had the EUSS started on time. I wanted to confirm that. So these are the three questions from my side.

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Okay, Thank you. So on the July 10th, there was the momentum has been continuing into July and while there was a little bit of a softening if I were to split sales in the previous quarter, April and July were extremely strong. First off of June was slightly weakened after that, it, it sort of seemed to gather momentum back. And that has continued into July. And we’re seeing very strong growth.

I mean, I don’t want to get into specific numbers for July. But all I can share, or what I can share is that it’s definitely probably better than what we had expected so far. So that’s what I would say. In terms of your second question on physical workings, if you were to look at it, compared to pre COVID numbers, it was almost flat. You’re not comparing against last year because it’s meaningless and hence, comparison to pre COVID.

And finally, your third question on yours is, it’s not 30% I wish it was, but that would have been spectacular. It was it would have been grown; it would have been higher than 5%. The quarters, the overall quarter number, because it will fail, especially in the first two weeks of industry will fail does have a fantastic, fantastic response that we do get. So again, the 8% that we reported, it could have been 13%. So higher by five, or 500 basis points…

Nihal Jham — Edelweiss — Analyst

And this is just one follow up is finding that the USS in the q1 quarter of 20 started on what data and I’m guessing we started the same in July. Is that the right understanding?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

No, we started on the 13th of June, in July 19. And this year, it started on 23rd. June. So 10 days shift.

Nihal Jham — Edelweiss — Analyst

That’s helpful. I will come back. Thank you.

Operator

Thank you. The next question isn’t the line, of Percy Panthaki from IIFL. Please go ahead.

Percy Panthaki — IIFL — Analyst

Sir, just wanted to understand on a slightly longer term, let’s say three kind of Horizon, what is the total square footage that you would want to add across department stores as well as other formats.

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

So Latin was to add the department stores every year, for the next two years, and between 15 to 20 Beauty dose every year. So if I were to compare the two that would yield to about 300,000 square feet per year, or 15 to 20% increase on a yearly basis.

Percy Panthaki — IIFL — Analyst

Okay, Okay. And basically, we don’t expect any issue in terms of identifying and procuring suitable locations for these stores.

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Finding the right location, of course, is I wouldn’t say a challenge. But it’s something which is we give a lot of focus and attention to having said that, when we look at the pipeline for the next two years, we have a very robust pipeline, and fairly confident that we will be able to achieve those numbers. And obviously for the third year, the process is on so broadly, no, we will, we don’t expect that to be challenged.

Percy Panthaki — IIFL — Analyst

Understood. And when you’re giving this guidance of 10 to 12 stores per year, you are sort of building in buffers for normal builder, delays, etc. In terms of actually commencement of the stores etc.

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

We have built an it’s 12 department stores and 15 to 20 beauty stores that we have visited and we have built in buffers, but as you probably know better than me, the admin you can never build in enough of a buffer, but having said that, when we say 12 to 15, we actually have a longer pipeline or a longer list internally. So to that extent, we should be able to achieve those numbers.

Percy Panthaki — IIFL — Analyst

Understood. Secondly, wanted to understand from the digital sales, which is currently at 4.7%. Now, this quarter has been completely normal from a COVID point of view. So in a normalized quarter your digital sale is about 5% Where do you see this number going? On a three year horizon.

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

As I was sharing earlier, proceed, increasingly, the customer journey is getting blurred across online and offline and hence measuring it separately as just online is not necessarily the right indication of How much of engagement we have online, specifically for us, because I think we are in a unique position, given the physical presence that we have. And at the same time, the strong digital presence that we are now having, we are probably one of the only retailers which have got a strong online and offline presence today. And going increasingly, into omni channel being the way we look at it.

So we use online to drive engagement to drive visibility. And a lot of – specially because we have high build values. And when customers are choosing to buy high value products, many times they would prefer to physically see it, feel it touch it before they buy it, specifically in categories like beauty, watches, or even apparel. And hence, while it is 4.7. And we reckon that sales will definitely be heavily influenced by online, if not higher, even today, we reckon that 60 to 80% of all our sales would have originated online that customers have chosen to visit us on shutterstock.com see what’s there before they walk into the store.

And we expect this to get even higher as our online as our online, UI UX improves even further, which is something we’re continuing to work on. Specifically, we also see the first citizen customers and how they engage with us. And that’s something where this data, we are able to see the engagement that we get both online and offline. So absolute value will continue to grow and will be a derivative of the whole journey across online and offline.

Percy Panthaki — IIFL — Analyst

How will you report the same store sales growth from now on supposing if someone has ordered something on your app? I mean, and that has generated some sales? How will this How will this particular transaction be accounted for in your same store sales growth reporting?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

I think that’s a good question. It’s a very good question. And these are some of the I wouldn’t say challenges, but intriguing points that we do internally debate as well. Now, when it comes to same store is easier because we are understood as a store. And conversely, shutterstock.com is treated as a store or will continue to treat it as a store.

However, as I just said before, the Omni journey, does mean that they could have started the journey offline and bought online or vice versa. And hence to that extent, there will be an influence on both the channels in the machine across each other.

Percy Panthaki — IIFL — Analyst

So the reason why I’m asking this, sir is that we’re investing this 12 crores in the Omni initiatives per quarter approximately. So how do I evaluate what kind of benefit we’re getting from this 12 Crore investment in the top line?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Today, because common digital and we all know this, the factors, the experience that customers have online, is absolutely vital for you to be even in the consideration set. And that’s something both through our research and talking to our first citizen customers and looking at their journeys, we can see that where while they may have chosen to buy from us offline, the journey started online and hence, the investment that we do into online should not be measured only through the digital sales, it has to be measured through the total sales that we get because the benefit is across books.

Percy Panthaki — IIFL — Analyst

Understood. And last question from my side, sir, you’re done approximately five and a half percent EBITDA margin non gross sales this quarter. Just wanted to understand two separate effects. One is you said this quarter had lower number of sale days. So this would have probably had positive effects on your gross margin, because sales would happen at a lower gross margin. But on the other hand, it reduces the overall top line and therefore there will be an operating leverage effect which is negative in nature. So which of these two effects is larger? Is it a net positive? Or is it a net negative on a EBITDA margin, perspective?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

I think – I wouldn’t say that It was a net negative on the EBITDA margin. Because the surge is — the surge in sales that we get during the industry isn’t sale does make up for the drop in the absolute gross margin percentage. So it makes up the absolute number or the absolute. Higher during the sale period, especially the first few days of the same —

Percy Panthaki — IIFL — Analyst

–draft quantification possible, instead of five and a half percent, this would have been 5.86%. How much could it have been if the sale days had been normal?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Let’s see, if you’re talking specifically on gross margins, it would be probably a pipeline slightly higher because you’re aware on our brand, the margin remains the same at the end of season sales starts and 10 days before 10 days after, there’ll be some drop in the revenue and margin. So probably six and a half, six point six. This will be the ideal number.

Percy Panthaki — IIFL — Analyst

Right if the sales had been normal? Yep, that’s fine. Okay, Okay. Thank you very much.

Operator

Excellent. Thank you. The next question is from the line of Ankit Kedia from PhillipCapital. Please go ahead.

Ankit Kedia — Phillip Capital — Analyst

So my first question is, you know, what is the SSG growth compared to pre-COVID? If I see, because 15% is the ASP growth, our top line is grown lower, you know, compared to pre-COVID, we also had 10 departmental stores opening in the same time. So if you can just quantify volume growth and value growth compared to pre-COVID on SSC basis, it would be helpful.

So just — could you come in, I lost you for the first 15 seconds. So we just repeat the first 15 Or the first quarter. So I wanted to know the SSC growth compared to pre-COVID. Given that we have had a 15% asp growth, we have had nearly 10 departmental stores open compared to pre-COVID. So just wanted a break-up of the volume decline, compared to pre-COVID. You know, numbers. And that is the opportunity for us to go back to in next two to three quarters, at least on the volume side.

So just wanted that Jacob. Yeah. So two, three COVID numbers, the same store sales, both sales and volume are broadly flat. And conversions were slightly lower because of, especially because of the end of season sale does drive a higher number and the ASP growth also, to some extent would be influenced by the same factor that industry will say, let’s move back. Sure. So So despite stone opening, you know, our revenues go to around 13%. So you’re saying an ASP would be also 13%. So you’re saying despite that, our SVG is flat compared to pre COVID?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Yes. And then while while we open new stores, also, I think, given that we are comparing now against three years back, in fact, not even three, four years back comparing against June 19, we’ve also had store closures. So if I were to factor in the same store, the US has been changed, then it would have been a positive 5% with the US as if the US have been the same. So I think that’s the right way to look at it is that like for like sales would have been plus five? Accordingly, the quarter would have been perfect.

Ankit Kedia — Phillip Capital — Analyst

Some a second question is, you know, on the beauty side of the business, what is the online contribution of beauty today? And you know, how are you looking at, you know, assess beauty.in. What is the investments expected? And do you think some cannibalization from shutterstock.com to access beauty would come in? How is the positioning and marketing expected for this new app?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

So it says beauty as I mentioned, essence beauty stores we now have seven and that’s something we are continuing to expand on. And this week, we are growing, our standalone beauty format, to offer our customers the experience, opportunity to physically come in as a whether it is a makeup make-overs.

The makeup artists that are in so are fantastic ambassadors to the brands that we retail, and that gives a whole beauty environment in which the customer shopping. At the same time has an omni channel retailer, it’s important that we are able to also augment that physical experience with an online experience and that’s why it is beauty.in.

So that is complete the customer journey and again today, the customer journeys are completely interwoven and moves across online and offline seamlessly. And it’s important for us to be able to offer that seamless experience for our customers. And hence, this is beauty.in. I wouldn’t separately call out the marketing investment that goes into because what we do on SSbeauty.in is literally our 360 degree marketing expense for both offline and online. And that’s the way we look at it.

In terms of cannibalization from shutterstock.com, we believe that we, the growth that is there in the retail business, and specifically in the beauty industry, would more than make up for whatever small amount of cannibalization that we would have. I think also important to call out that even today, apart from shutterstock.com, we also manage and firm with Twitter, as part of our partnership with Estee Lauder, we manage the mac.in really.in, etc, standalone sites.

So that’s also another channel through which we are serving our customers. And it’s about being present across channels for our customer wherever they choose to engage with us. I want to reiterate that beauty as a market is massive. And it’s something which we are absolutely doubling down on to your specific question 21% of our online sales is beauty.

Ankit Kedia — Phillip Capital — Analyst

So just a follow up on this, you know, if I looked at the overall contribution of beauty over the last six, seven quarters is been in that 15% — 16% kind of ballpark mark, you know, what is the inflection point, you think where this contribution would increase because it is growing in line with the company sales.

You know, the investments on the private label side of the beauty the investments on the stores opening side is not visible at the sales level to us.

So how should we look at this number moving on, you know, the KPIs? And when do you think is the inflection point expected?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

I think we will need to give it the next three to four quarters for that impact to come through because overall, we opened three stores and at the moment we are at seven or so beauty store. So given the total size of our business, it’s still relatively small, also mentioned that, specifically in the last quarter DC was the one category which had supply chain issues, because of the disruptions in Ukraine and also the difficulty of imports from China.

And both of these places are big when it comes to international beauty brands. That’s something which we expect to stabilize by August. So that should help. But specifically to the overall beauty percentage, we will see the participation in the total business worth over the next three to four quarters.

Ankit Kedia — Phillip Capital — Analyst

And then lastly, on the beauty side, like they have had partnerships with Estee Lauder for you know, exclusive videos for more than a decade now. You know, you’ve added around 130 brands over the last four or five quarters. Do you think any of these global brands would like to partner with you for exclusive offline EBS like Estee Lauder, or you’re focusing more on accessibility currently or not on, you know, third party brands for us?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

We are doing, we’re doing three things we are, of course, our partnership with Estee Lauder is strong and we continue to grow that we are also in conversation with a number of friends and some of them where we may be are looking to have exclusive partnerships and that’s something which we will report as soon as that gets finalized. And because we will also — within SS beauty bring in brands which will be available either exclusively on SS beauty or on a limited basis.

Ankit Kedia — Phillip Capital — Analyst

Sure. we think that we are doing that helpful sigh come back in the queue for more questions. Thank you.

Operator

Thanks. Thank you. Before we take the next question, I’d like to remind the participant to limit a question to two per participant if time permits to join in the queue for any follow ups. We have the next question from the line of Coral Giovanni from Access Capital. Please, go ahead.

Gaurav Jogani — Access Capital — Analyst

Thank you for the opportunity. Congratulations on this question with regards to the handset motorists here versus not. We can hear your voice for that. Strike better now. Yes, it’s better. Yeah. So, so thank you for the opportunity.

So, my first question is with regards to, you know, the expenses line items. You know, while we do understand that, you know, the gross margin has seen a good expansion on account of the lower USS and you know, the highest private bank sales, but at the same time, we are employee cost. And you know, the other expenses on even on the non-GAAP trend has seen a sharp increase on a QQ basis.

So, you know, if you’d like to highlight, is there any one offs in these, or are these numbers sustainable now going in with the normalization sitting is?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Thanks, Gaurav. Thanks for that question. See, please understand, compared to the last couple of quarters, we open nine stores. So that largely is handled in the quarter and sequentially quarter on quarter, it’s not comparable. So that’s one of the main reasons for the increase in expenses. Other than that, like there is an inflation on employment, because– and the plus there is an inflation on lease costs. So, these are the two normal inflation and there are no one offs in the fuel costs. Its primary because of inflation plus a lot of new stores what they have opened in the last one, one and a half years.

Gaurav Jogani — Access Capital — Analyst

Sure. So, if I understand you, right, I mean, these costs now are sustainable, right? I mean, you can extrapolate this for the rest of the year as well.

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Absolutely. You’re right, probably it should settle down between 340 to 345 per quarter, that’s our expectations.

Gaurav Jogani — Access Capital — Analyst

Okay, shorter answer. In conjunction to this also, actually, you know, the depreciation cost actually has seen a decline on a QQ basis. Ideally, no, because the stores are getting added, we would have expected a depreciation to go up, but this has seen a decline. So, anything that you would like to follow?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

That’s again, a very good question Gaurav. See, we follow a straight-line method on the depreciation, lot of assets that got retired last year, and that reason there is a reduction in depreciation. Again, on annual basis, extrapolating this 30-odd crore is depreciation, we should have an annual depreciation of between 125 to 130 crores.

Gaurav Jogani — Access Capital — Analyst

Sure thanks for this. And so then last question, you know, is with regards to again, you know, like one of the previous participants is asked, so even if we look at a three year CAGR basis, in terms of the top line growth, and you know, if I adjust for the 5% incremental growth last the USS still it will be a brunette, a 5% CAGR.

And, you know, given the fact that, you know, there has been a lot of inflation in terms of the ASP, then, you know, the growth seems to be tepid. So, is there anything that you would like to, you know, highlight that, you know, that could further boost the top line growth going ahead?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Specifically, as we said, the overall volumes, I think, can’t be read on its own because of the shift in years or days, etc, the two points that I would like to call out one we had, in terms of our full price field that has been extremely strong, and that is definitely helping some overall margin as well as very little impact on the absolute volume. The second factor, which is worth looking at is the growth of our own private brands and the volume growth that we are getting on private brands, which is extremely strong.

And I have shared, some of the volumes rose that we are seeing in private brands, like in kids wear it was at over– they’ve been doubling, and we’ve seen that over the last four years, or sorry, four quarters. Similarly, in menswear, we’ve seen some very strong improvements, and that is helping the overall volume to grow up. And as we are dialed down on our private brands, and as the growth there continues, we would expect our total volumes to rise ahead of the business volume.

Gaurav Jogani — Access Capital — Analyst

Sure, sure sir, just one last question, if I may, I mean, in terms of the gross margin again, you know, the gross margin in senior market expansion, uh, you know, this quarter, I do understand that, you know, the absence of the USS as marginally who’s traded, but what could be a sustainable gross margin going ahead, given you know, there was a lot of noise in the base due to the COVID now, so if you can help us like what kind of a sustainable gross margins can we expect? Going ahead?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Thanks for that question again Gaurav. See, they mean, like, are you comparing on a GAAP basis or a non-GAAP basis so it’s easy for us to explain.

Gaurav Jogani — Access Capital — Analyst

The reported basis, the ones you report the non-GAAP or sorry, the GAAP basis.

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Okay, so on non-GAAP basis, we have reported 38.6 percentage 60 basis point increase over FY 20. This should go up to as I think we just spoke about our increase in private brands, the private brands have grown almost 30 percentage, this is the pre-COVID level. So, this gross margin as we grow the private brand should sit anywhere between 39 to 40 by the end of this year, almost 200 basis points increase FY 20. So, that’s the number we are looking for.

Gaurav Jogani — Access Capital — Analyst

Oh, so 200 basis versus fy 20. Right, I did that right?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

You’re absolutely right.

Gaurav Jogani — Access Capital — Analyst

Okay, so that helps. Thank you for this. That’s all

Operator

Thank you. The next question is from the line of Sabyasachi Mukherjee from Central PMS please go ahead.

Sabyasachi Mukherjee — Central PMS — Analyst

Yeah, hi. Thanks for the opportunity. Very basic question. So, if I look at the numbers of you know, q1 fy 23 and q3 fy 22 That is the December quarter last year, we have clocked almost, you know same number of similar number of the revenue in terms of non-GAAP almost 1200 crores the gross margins gross profits have improved 392 to 401. But then non-GAAP EBITDA number has sharply come down. Can you just explain why this has happened? What is different in this quarter? Vis a vis the q3 last year?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Two or three reasons, the one on the least cost? We had some competition in q3 That did not obviously, we are we open the stores in all days, and the customer footfall is as good as pre COVID level. So we did not get any lease condition. That’s one, again, on the lease rentals. We are open more than 10 stores, which was last year, what we are comparing nine to 10 stores, so that the new store cost is also there on the lease center.

Similarly, there is an inflation on the employment cost plus the new stores. So it’s a combination of both I mean inflation, some of the conditions what we got not only on the lease rentals on the other service providers last year because of the COVID. And the inflation. So these are the three reasons where you will see an increase of almost I understand that I mean [Indecipherable] close on the cost.

Sabyasachi Mukherjee — Central PMS — Analyst

Can we just, if possible, can you break up among the three things that you’ve said these 40 45 crores of additional incremental costs?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Almost 50% comes in from because of lease rental, and the balance equally shared on our employee costs as well as the other administrative expenses pertaining to the stores.

Sabyasachi Mukherjee — Central PMS — Analyst

These rentals You mean the departmental stores that were opened? We are incurring rental costs for those right?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Yes, we also got concessions last year because of a COVID impacting q3.

Sabyasachi Mukherjee — Central PMS — Analyst

Okay. And going ahead, you said that the quarterly run rate to be somewhere around this 43 45 odd-crores? Am I correct?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

You are right, that that’s that should be the average cost per quarter from now.

Sabyasachi Mukherjee — Central PMS — Analyst

Okay, Okay. And just one more question. You mentioned, you know, 10 12 store additions on the departmental front. And I think 15 20 store additions on the beauty side. So, let’s say two to three-year kind of a horizon. You know, where do you see the margins, gross margins, and EBITDA margins, no settling down, keeping in mind that we also have in store additions to do in the next two, three years?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Again, we don’t give any guidance either on gross margins on EBITDA margins. However, increased store additions, our grasp modules will either be sustained or at marginally improved because of our private brand. Our EBITDA should also improve. Like three years from now, we should be close to double digit EBITDA mark.

Sabyasachi Mukherjee — Central PMS — Analyst

Okay, thank you. Thanks a lot.

Operator

Thank you. Our next question is from the line of Chetan Sanguine from Beaumont Capital. Please go ahead.

Chetan Sanguine — Beaumont Capital — Analyst

Good morning, Sir. Congrats for the amazing set of numbers, I have two questions. The first one is on, could you please give some color on growth by category in the apparel segment? And what do you think which categories will drive the growth going forward in the medium term in the apparel segment?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Sorry, what, what on apparel category?

Chetan Sanguine — Beaumont Capital — Analyst

Yeah, I am asked, could you please give some color on growth by category in the apparel segment, so which categories are growing fastest, and also going forward, which category will be driving the growth in the medium term?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

So, within the apparel category, the growth, the two categories, which had disproportionately higher growth compared to the overall business was Western women’s wear and men’s wear for us. And I think this was driven by one is the whole mobility and getting back to work happening. And I think, especially in Western women’s wear, that’s something which becomes quite obvious.

And that is also a reflection of the fact that we are a destination when it comes to Western women’s wear, where we offer a complete portfolio of brands for the customer to choose from. The other men’s wear also I talked about has been very strong. And then specifically for us, Mitchell watches as a category which grew very well.

And within again, I think because of weddings and weddings which have been postponed, which happened during the, especially during the months of April and May, I think drove that demand. And finally, luggage, and travel and luggage as a category also saw some very strong growth, for obvious reasons, because travel is back, people are going out on holidays. And I think that’s a logical extension as to why that category would grow.

Chetan Sanguine — Beaumont Capital — Analyst

Got it. Just a follow up question. How is women’s ethnic wear as a category doing? Is it back to pre-COVID levels or is it still struggling?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Women’s ethnic wear has made good progress, and is now at the average of the business system. So while women’s wear sometimes were the strongest, women’s ethnic wear has also caught up and is doing reasonably well now. So during the COVID period, it has seen a definite drip, dip, but over post COVID, that has come back to the average numbers. Specifically within that what I would like to call out is our own private brands and ethnic wear has done spectacularly well.

Chetan Sanguine — Beaumont Capital — Analyst

Got it. My last question is around the share of the private labels. Currently, it is around 20% in the apparel’s category. So how do you think the share of private label will move across in the next three to five years in the apparel segment?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Currently, it is between 20 to 21%. In fact, it’s to be specific, it’s 21%. While I wouldn’t like to give a guidance in terms of how it would pan out in the coming, in the coming years. What I can tell you is that this is an area where we would continue to invest in and we do expect this to grow strongly. If I could give you an indicator, in some of the new stores that we have opened, the overall private brand mix within a pattern is upward the 30%. So that just gives you an indication of the direction we are doing.

Chetan Sanguine — Beaumont Capital — Analyst

Got it. Just a follow up. I mean, if you could give some guidance, we’ll add some color what the share of private labels in men’s casual wear and women’s ethnic wear.

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

I think the men’s wear is getting that, getting into a lot more detail than what we would like to, so I would not want to go there.

Chetan Sanguine — Beaumont Capital — Analyst

Okay. No worries, sir. Thank you. That was the last question from my side.

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Thank you very much.

Operator

[Operator Instructions] Thank you. We have the next question from the line of Aliasgar Shakir from Motilal Oswal. Please go ahead.

Aliasgar Shakir — Motilal Oswal — Analyst

Yeah, thanks for the… I had a question on your news, smaller format, departmental stores. If you could just share you know, what is the kind of revenue productivity or revenue per store that we are able to, you know, do there compared to our, you know, older, larger stores. I mean, if you could talk about stores which you would have opened probably about a year back, you would have seen some kind of, you know, reasonable revenue stability?

And related question there is, you know, how is your shelf space of private label in those stores? I mean, is that significantly increased? And should that probably, you know, increase our share of private label significantly? I mean, does it had an ability to go upwards of, you know, probably for 35-40 odd percent in the next three, four years?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

So, firstly, in terms of your first question on smaller stores, and what you told us, smaller stores, and I would like to highlight that these are small relatively, but from a market perspective, these are still large, been 25,000-30,000 square feet stores. So it’s worth as our own quantify to 50,000, it’s a smaller footprint. On these, our sales per square foot from these newer stores that we open is upwards of 13,000 rupees per square foot. In some of our oldest stores to put that into comparison, it was around 11,000 square feet, 11,000 rupees. In terms of the apparel mix, overall private brand mix tends to be around 25%. And specifically within apparel, it is around 30%.

Aliasgar Shakir — Motilal Oswal — Analyst

Next in, you know, smaller size stores, right, that when you were doing on this campaign shows?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

That’s right. Yeah. The newest stores.

Aliasgar Shakir — Motilal Oswal — Analyst

Okay, so it’s a about 30% compared to what would be in the largest stores?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Twenty one is the company average.

Aliasgar Shakir — Motilal Oswal — Analyst

Got it. So, you know, I mean, in the context that now, majority of our stores, and I mean, we are opening our, you know, in these 25-30 campaign store, you know, what kind of number we think we should be able to achieve in the private label in the next probably three, four years?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

You got the guidance already earlier.

Aliasgar Shakir — Motilal Oswal — Analyst

Okay, just one more question is, you know, we’ve been earlier talking about the 200 cost savings that we have, you know, done through our, you know, cost optimization. So, you know, just want to understand, I mean, I mean, when I see your opex ICF, you know, quarterly rundown about 25 crores off, you know, a lower number against a one to 520 number, I’m looking at the I-gap numbers.

So it’s like 100 crore, you know, and realize savings. Is it lower because of the, you know, increase pendant we have done on an online or, you know, I mean, how should I look at it, because I’m seeing in terms of like to like area, we are pretty much the same versus one gift by 20. I don’t think there’s a very material increase.

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Again, that’s a good question. I just explained the savings that has also had because there is some inflation that has happened both on lease rentals as well as on the employee cost, and we also opened number of new stores. So, more or less, if you ask me, are we getting toward across, it may not be lower than that, but still we get savings on the, on the stores. Plus, like Vinod also mentioned that we do, we are making investments in our omni channel. So both on the tech as well as on the marketing, plus a lot of other new initiatives such as beauty. So most of the savings, in fact, even in our previous meetings, we did say that these savings we are planning to invest, and we are investing in for the future earliest.

Operator

Thank you, Mr. Shaka. Request you join the queue for any follow up. We’ll take the next question from the line of the Devansh Bansal from MK Global Financial Services. Please go ahead.

Devanshu Bansal — MK Global Financial Services — Analyst

Yeah, thanks for the opportunity. Sir, I had just one question. If you can quantify the lease rental inflation that we have seen?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Sorry, what inflation? The lease rental inflation will be see, we have a 15% increase once in two years. And some of the stores we have an increase of 5% every year. So an average of seven, six to seven and a half percentage will be for the quarter, but for a year it will be around about five percentage.

Devanshu Bansal — MK Global Financial Services — Analyst

Sure, thanks for the opportunity.

Operator

Thank you. The next question is in the line of Kaustubh Pawaskar from Shane Sharekhan by BNP Paribas. Please go.

Kaustubh Pawaskar — BNP Paribas — Analyst

Thanks for the opportunity says, I just have one question on your beauty business. So, we have seen recently, you know, large online players who have become aggressive in the market, and they have been tying up the brands, the beauty and fashion players. So, in that context, do you see any competition, you know, gearing up for you in the coming years?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

So, it’s a very fair question. And thanks for that. The beauty market is growing ahead of the overall retail market, as I think we all know, and within that, if you look at the– all the existing players together, they’re still– the headroom available in the market is very large.

So, to that extent, this is an area which will continue to grow and even as the competition, both existing and new one comes in the strength that we have, both in physical retail, and now online, will continue to give us that edge to grow ahead of the market. And that’s what we would expect to see.

Kaustubh Pawaskar — BNP Paribas — Analyst

Thanks. So, the number of brands we are launching in this space, how is the traction building up? Like? How are the repeat sales happening in some of this? For example, some of your brands which have not launched in past few years, you know, which gives us an indication that? Yeah, so these are, these are the products, the traction is building up. And this gives us an indication that the growth prospects are not good enough, you know, to compete with some of these online players and how to scale up in the coming years.

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Are you specifically talking about beauty, Kaustubh?

Kaustubh Pawaskar — BNP Paribas — Analyst

Yeah, I’m talking about beauty.

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Yeah. So firstly, in beauty at this stage, we have one private label brand and that is Arcelia, and within Arcelia, we have launched Bath and Body, we’ve got fragrances, we’ve got deodorants, and we’ve launched nail polishes so far, we will be launching lips and foundations going forward. So, it’s only when we have finished all of that the basket of offering would be complete.

As I mentioned to you, we saw a five times growth eight times growth on our Arcelia sales from the first quarter of last year. So, the overall thing is obviously dramatically high, but as a percentage of total is still insignificant, given that it is not the entire category is not completed. So, as we go forward, we would expect the sales from our private brands to continue to grow and would get very, very strong as they– as it progresses.

Kaustubh Pawaskar — BNP Paribas — Analyst

Okay, so, thanks, thanks for giving me the opportunity.

Operator

Thank you getting the next question from the line of Ankit Kedia from Phillip capital. Please go ahead.

Ankit Kedia — Phillip Capital — Analyst

Sir, a couple of repeat questions from my side. So, in private label while the value contribution on [Indecipherable] is around 20%. I believe the right indicator would be the volume contribution given that the asp or private label would at least be 20 to 30% below the other brands operating. So, you know if you can give the breakup between the older stores a new store what we will the volume contribution? Because that will show the acceptance of the product to the consumer level.

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Fair question or the volume contribution of private label to the overall Atari business is over 25%.

Operator

Thank you. Next question is from the line of Abhijeet Kundu from Antique Stock Broking please go ahead.

Abhijeet Kundu — Antique Stock Broking — Analyst

Hi, my question [Indecipherable] no digital transformation that’s happening you have been also heavily investing into it other retailers are also doing that. So some qualitative aspect on understanding on what I mean what are– what does it comprise of, because there would be a lot of things happening in supply chain, where the lead time would be reducing across functions, what is the change that we can expect to see and know how will it help the overall operations of the company to see if the cost of the company going ahead? Some some color on that?

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Sure. Thanks, Abhijeet for that. The investments and the agreement that we are focusing on is across all the phases of customer touchpoints beginning from the customer discovery point of view the UI UX online, as well as the digital engagements within the store. Going further on the UI UX content and engaging experience is very, very vital. And you will see a significant improvement in that when we launch SS beauty.

And going further on assist.com as well in the coming quarters.

Then as we move on, we will in terms of the overall discovery of the product online, and making it a lot more personalized, and based on the customer history. And then we are blessed with a loyal customer in terms of the first citizen and using their transaction data to be able to help them get a much more sharper and narrow focus in terms of what would appeal to them, which then increases the whole conversion that we would be able to achieve online.

If I was to just give you an example, even today, the customer on an offer customer, irrespective of whether they’re shopped online or offline on the shopper stock.com as a possible customer, they can see their entire purchase history over the last many years, whether it is offline or online. And that just know that what the customer is able to see what we are able to do is to use that data to then be able to offer personalized brands or products depending on what they love.

And this is something that we will be dialing down further on. And this is one area we are investing into. The other areas that we are looking into is also the lead time and the delivery part because that is equally important when that is post-purchase. That’s a very important part of the customer journey.

And using algorithms to be able to get the product into the customer much faster. And one of the indicators of that is the speed at which we are able to get product to our customers. And that has significantly improved to the extent that today debate almost more than 40% of what is ordered returns would be with the customer within 48 hours.

And that’s more than double of what it was last year, same time. The other indicator that, again shows the improvements that have been made on the customer journey, just the operating and on Google Play. Two years back 18 months back when COVID hit our rating was around 2.7. Today, it is worth to 4.5. And it is at par with some of the major online-only players and as Omni channel retail to be able to offer that kind of experience just illustrates the engagement that we have with our customers.

Operator

Thank you. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead.

Tejas Shah — Spark Capital — Analyst

Hello, yeah. Hi, thanks for the opportunity. My question is you spoke, you spoke about the customer, servicing the customer wherever they are in terms of omni channel presence. So just wanted to understand the journey of the customer is the discovery happens an online platform and fulfillment happens in offline order. It is fungible both ways.

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

It’s fungible both ways. And that’s something which we are increasingly seeing where if I were to give you as an example, in the case of let’s say watches, it might be something where the customer starts the journey online does his research looks at the various products available and then before making the actual purchase comes into the store to see the product, probably wear it on his wrist and then buy.

So that’s one part of the journey and fully on the other side where in some of our beauty products where it is a repeat purchase and the current purchase for that the customer would come into this would want to undertake lipstick, she would want to check the shade where it feels and be comfortable with it for them the repeat purchase would happen online. So, it is extremely fungible now and we expect that to continue to happen as we go forward.

Operator

Thank you. I now request the management to answer the questions received online. I request you to take over this.

Venugopal G. Nair — Customer Care Associate, Chief Executive OfficerManaging Director

Thank you, Oman[Phonetic]. So the first question was overall area for the company was 4.4 million square feet in FY 22. And now, additional 3.8 million square feet. Is the company showing carpet area now? Can you share both the area for the next four quarters for us to get an understanding what is the industry norm for area, carpet, or saleable–selling– saleable area?

The industry norm is carpet, which is circa 80% of the chargeable area. On chargeable, we are now at 4.5 and it may increase to 4.8 million square feet, and the carpet area would be 80% of that. The next question, what is the same store growth pre-COVID? I think that’s already answered. The next question was, it was around the contribution of private labor and again that I think has got answered.

The fourth one, Omni channel contribution has reached sub 5% of revenue. Does this level of contribution justify with 50 Crores in opex for FY 23? When do you think is the inflection point in Omni channel? I think again, I touched upon data or other went deep into that area, it’s not fair to look at the investments only as investment for discipline because it is an Omni channel business and effectively, it has to be seen as an investment for across the entire chain offline and online.

Most customer journeys will initiate in the– in the digital space and hence, it is an absolute necessity. And as the offline sales increases due to the impact of COVID and the restrictions moving away, the overall contribution from digital has reduced but as I said, it’s really fungible. And internally, we have stopped looking at it separately as online or offline because that’s not a fair way to look at it. And even if we were to look at just the digital as you said, it has grown by 29% despite the large trace.

Next one is on inventory. While the total inventory system– in the system is 1129 Crores, private label inventory 360 Crores — level our inventory sales external source which is 32% of total inventory revenue contribution of 14 to 15%. Are you sitting on very high inventory of private label or expect revenue to grow at an exponential pace? 360 degree Crores–360 crores inventory includes private brands as well as national brands. Private brands will be worth 50% of this because there are a few national brands where also we have an alternate model where we buy out the inventory.

Next question is, 13% sales growth about given FY 20 is a positive. Gross margin also, back to pre-COVID, EBITDA margins also strong. Our customer visits are double but doesn’t reflect in revenues to that extent. As an Omni channel business, our customer entry which we showed includes the online visits and the conversion in the online channels does tend to be lower than the offline channels.

Next one is on employee expenses. They are up 7.5 Crores quarter-on-quarter–I think this was this was already answered. The next one is on depreciation, the reported depreciation has fallen by 7.5 Crores quarter-on-quarter despite incremental store additions. However, one should–how should one look at this? What will be a quarter depreciation 200 for us going ahead? We follow a straight line method and some of the assets have been fully depreciation last year due to that our depreciation reduced the 7.5 Crores. Our overall depreciation for the year would be around 125 to 130 Crores.

Next one is answered. Yeah, I think we–all the others have been answered. I think, Oman[Phonetic] — we are–

Operator

[Operator Closing Remarks]

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