Shoppers Stop Limited (SHOPERSTOP) Q3 FY23 Earnings Concall Transcript

Shoppers Stop Limited (NSE: SHOPERSTOP) Q3 FY23 Earnings Concall dated Jan. 24, 2023

Corporate Participants:

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

Analysts:

Nihal Mahesh Jham — Nuvama Institutional Equities — Analyst

Bharat Chhoda — ICICI Securities Limited — Analyst

Percy Panthaki — IIFL Securities — Analyst

Priyanka Trivedi — Antique Stock Broking — Analyst

Kaustubh Pawaskar — Sharekhan by BNP Paribas — Analyst

Rahil Shroff — Private Investor — Analyst

Ankit Kedia — Phillip Capital — Analyst

Varun Singh — ICICI Securities — Analyst

Devanshu Bansal — Emkay Global — Analyst

Vignesh Iyer — Sequent Investments — Analyst

Aliasgar Shakir — Motilal Oswal Securities — Analyst

Disha Sheth — Anvil Wealth — Analyst

Gaurav Jogani — Axis Capital — Analyst

Shalini Gupta — East India Securities — Analyst

Tejas Shah — Avendus Spark — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q3 FY ’23 Earnings Conference Call of Shoppers Stop Limited. [Operator Instructions]

Today we have with us the senior management represented by Mr. Venu Nair, Customer Care Associate, Managing Director and Chief Executive Officer; Mr. Karunakaran Mohanasundaram, Customer Care Associate, Chief Financial Officer; Mr. Jaiprakash Maheshwari, Customer Care Associate, Vice President, Finance and Accounts. We will begin the call with the opening remarks from the management, after which, we will have the forum opened for an interactive Q&A session.

I must remind you that the discussion in today’s earnings call 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 would now request Mr. Venu Nair for the opening remarks. Over to you, sir.

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Thank you, Rutuja, and good morning, friends. Thanks for joining us today to discuss the Shoppers Stop financial results for the third quarter of FY ’23. As Rutuja mentioned, along with me, I have Karuna, our CFO; and Jaiprakash, our FP&AP [Phonetic].

Our Q3 and the year-to-date results investor deck as well as the press release have all now been shared on our website, BSE and NSE. I’m confident you have gone through this. For the last eight quarters, we have been growing consistently. For this quarter too, we have achieved our highest quarterly sales, EBITDA and PBT. Our success in the last eight quarters and the continuous improvement therein is the outcome of our well-thought-out strategy and of the judicious capital allocation that we have been doing.

Let me now get into the details of our Q3 performance and the way ahead. The strong momentum that started at the beginning of the year has been continuing even though we witnessed a little bit of moderation on that immediately after Diwali. Fortunately, it did not last long. We had robust sales in the quarter, growing at 20%. Our gross margin improved by 20 basis points, our EBITDA by 27% and PBT by 44%. We had our highest-ever EBITDA of INR128 crores during this quarter. Of course, this did include a one-time income of INR17 crores, which I will talk about a little later. Even excluding that, it was our highest-ever quarterly profit on EBITDA and PBT.

The run-up to Diwali was strong, as I said, initially in the East, up to Pujo and then for the rest of the country. Post Diwali, we did have a couple of weeks of muted sales. Our focus on beauty through Singles Day and Block Friday helped to bring customers back to our stores and online. Subsequent to that, December sales were led by winter wear, wherein we had invested disproportionately this year. And this, again, helped to bring customers back into our stores.

On some of our other KPIs, our average transaction value grew by 10% versus last year due to the mix of our customers purchasing higher value-added products. Our average selling price grew by 10%. Our items per basket was flat and our cash memo count increased by 11% last year. And these significant improvement in KPIs indicate the strong undercurrent of the business and our ability to deliver results now for nine quarters consecutively. Our average bill value has now been increasing for 11 quarters consecutively. And this is a clear indication of the fact that our customers are blessing us with more business.

Let me now share some of the details on operational costs. On a like-for-like basis, our costs remained flat. Excluding lease rental escalations, our investment in e-com, refurbishing the store, etc., was an investment of INR25 crores. We do believe these investments are critical for the future and we will continue to invest. Last year, we did receive some rebates on lease rentals due to COVID, which helped us to lower our occupancy costs. And overall, the costs have gone up by 10%, it is purely due to the new stores and investment as said above. With the strong sales and the tight control on costs, we reported an EBITDA of INR128 crores; in non-GAAP, a growth of 27%; and INR24 crores as per GAAP financials.

Last time, we had briefly touched upon our plans to strengthen our beauty business. I would like to give more details on this now. We have now gotten to the distribution of beauty brands with exclusive rights for India. Our beauty strategy is to be the best beauty destination with leading engagement combined with great customer experience. In addition to this, we expect our company to become the priority retailer for all beauty brands internationally and in India, make the stores more interactive, educative and engaging, continue to make our website stronger with our own brands and distribution brands and strengthen the SS beauty brand across both the standalone and within our own Shoppers Stop stores.

Our long-term objective is to distribute international luxury bridge — bridge to luxury and premium brands in India positioning these brands as experts within their categories, capitalizing on the history, strengths and expertise. This is to enable our brands and brand partners to create a strong distribution vertical across fragrance, skin care and makeup categories. We will have exclusive launches and plan to capitalize on this. We are starting off this vertical, launching eight brands from the L’Oreal international division, Clarins and Earthi. We expect this division to contribute more than INR500 crores in the next couple of years and add a significant profit to the bottom line. This distribution business will be through our 100% subsidiary Global SS beauty.

Our capex investments in new stores and refurbishments for the quarter was at INR21 crores. I’m extremely happy to say that we opened six department stores and five beauty stores during the quarter. Needless to say, our capex has been funded through internal resources. Not only that, but our internal accrual is also sufficient to fund our loan repayments as on date this year.

During the quarter, the working capital increased by INR85 crores, primarily in our private brands and beauty. Both these verticals are recording healthy growth and we believe we need to invest in these verticals, particularly during the festive season, such as Diwali and Pujo and also the end of season. All of these have been funded by internal accruals. Having said that, we are monitoring the inventory levels very closely and you will observe a reduction in the absolute inventory numbers by the end of Q4.

Last year, we had provided around INR25 crores as interest in the previous years, particularly during COVID. However, the relevant sections in statutes have now been repealed and we have had a one-time benefit of reversing this provision of up to INR20 crores. Of the INR20 crores, we have included INR17 crores as other income and INR3 crores reduced from the interest expense. As always, as a compliance adhering company, we had provided interest on a conservative basis month-on-month [Phonetic] and as these provisions are no longer required, we have now reversed them. We have obtained the expert’s advice on the same and implemented the same accordingly.

From operations, I will now move to the performance of our strategic pillars. As always, I’ll focus on each of our strategic pillars. First Citizen is our first strategic pillar and a few notable features on our First Citizen program. We have always believed our customers are our success. The retail landscape is fast changing. Today’s consumer seek personalization and demand experiences going beyond the typical shopping experiences. Through experiential retail, we can give our customers unique and innovative experiences, both online and inline [Phonetic]. Our ability to engage with our customers and specifically, our First Citizen customers, based on the information that they share with us and we have of them, gives us a unique advantage in the market. Of the total offline sales, our loyalty members contributed to 77% and our online sales contributed to 38%. Our new enrollments have increased by over 2 lakh members compared to the previous quarter. Overall, for the year, we have now added over 7 lakh new members.

Apart from the active members, we also focused on bringing back customers who have not come to us for over a year. I’m extremely happy to say that we converted 1,40,000 members from inactive to active. This indicates the strong loyalty to our membership program and speaks volumes of the ability for us to engage with our loyalty members and make shopping a delight for them. Not only are we focusing on bringing back customers who have not shopped with us for over a year, we are focusing on ensuring that they come back the second time after we bring them back, ensuring that it is a sustainable return to our business.

We started our HDFC co-branded loyalty card in April this year and I’m happy to say that we have added more than 30,000 co-branded members in the last two months. We also added a significant number of new Black Card loyalty members during the quarter. For our Black Card loyalty members, and this is our unique subscription — annual subscription program, as you will remember from the previous calls, and we continue to focus on these customers by offering them experiences unique and different to what they would normally get. During the quarter, we had a special showing of Mughal-E-Azam for our Black Card First Citizens in Mumbai, had a Golfing Sunday and, in the East, we had specific Pujo-related showing for them at the Westin. The average spend of this Black Card customer is as much as 4 times of our normal members and we will continue to focus on this segment.

On private brands, which is our second strategic pillar, the private brands business grew by 23%. We achieved INR203 crores of sales for the quarter, an important milestone for our private brands. This is the highest quarterly sales that we have achieved in the history of the company. Year-to-date, we have grown our private brands business by 84% and sequentially, quarter-on-quarter, our private brands sales have consistently grown. As a proportion of our total business, it now contributes to 20% of our total apparel business and 14% of our total business. Within the digital channels, our private brands contribution has increased to 16.5%.

During the quarter, we had invested in Kashish, which is our Indian wear brand for women and on Bandeya, which is the menswear brand. Both of these had very strong growth. Our focus on women’s apparel has yielded very, very satisfactory results. In fact, in Indian wear, our private brands now contribute to almost 50% of our total business. Also worth mentioning that our own brand STOP, which is the everyday workwear brand that we have, is the largest brand that we now have in apparels across our own stores and online.

Moving on to the third strategic pillar of beauty. Our beauty business grew by 18% with an all-time high mix of 16.2% to our total sales. This has been one of our best quarters for beauty in the history of Shoppers Stop. Engagement with customers is a key part of the beauty buying process. We did 112,000 makeups during the quarter, which led to strong engagement and higher sales. It is worth-mentioning that this 112,000 is against an original plan to do 100,000 makeovers in the full year. Compared to that target of 100,000 makeovers for the full year, we actually did more than that just in one quarter and we will now end up doing over 4 lakh makeovers in the full year, which illustrates the great traction that we have had with our beauty customers and gives us a strong platform to bring customers back into the stores. As you will understand, the whole engagement that comes in with makeovers gives us a unique opportunity as a retailer in this business.

November is an important month in beauty. We had Block Friday and Singles Day with exciting offers on our beauty products and campaigns endorsed by Malaika. We recorded our highest-ever sales during this period as well. We opened five beauty stores during this quarter and made considerable progress in our exclusive beauty website. The ssbeauty.in website as well as the SS beauty app Is expected to go live in the first week of March ’23. Currently, it is in the testing beta phase within a close group, which brings me on to the next strategic pillar, which is omnichannel.

And as I’ve explained before, we’ve had a great healthy growth in our offline business and during the fiscal, our customers have had the option of visiting our website, coming to our stores and buying the same. With a strong base in FY ’22, our overall sales through the digital channel remained flat, but we do know that all customer journey start or the majority of the customer journey start online and then happen offline and that’s a reflection of the fact that we have got strong healthy sales. We continue to offer personalized suggestions to potential buyers based on their past search history and we are gaining immensely from this. To make a truly omnichannel system perfect, it is essential that there is strong integration between our stores, warehouses and having real-time inventory and I’m extremely proud to say that we’re the first large retail business to be able to do this, offering products to our customers across the entire ecosystem that we have of the 250-plus stores and shoppersstop.com on a real-time basis. Today, over 70% of what we ship to our customers is from our stores. Specifically on the numbers and our investments, we continue to invest into digital, and we invested in performance marketing, tech upgrades and more importantly, the new website on ssbeauty.in.

Finally, moving on to expansion. I’m glad to say that we opened six new department stores and five new beauty stores during the quarter. Of the above, two are in Tier-1 cities and two in Tier-2 cities where we continue to focus. As on date, during this financial year, we have now opened nine department stores and 11 beauty doors apart from renovating nine large stores. We have incurred a capex of INR101 crores, which includes technology and INR6 crores as opex for renovating the stores. These are completely funded by our internal accrual that signifies the strength of our balance sheet.

In conclusion, I would say that we have been able to sustain the strong momentum on sales, both organically and inorganically. Our success of the last eight quarters and the continuous improvement therein is an outcome of the well-thought-out strategy that we have in place and the judicious capital allocation that we have been doing. Retail has changed dramatically over the last couple of years and we have adapted to that change, transforming ourselves into an omnichannel retailer focusing on engaging with our customers and offering them a great experience whenever and however they interact with us. Our pristine balance sheet gives us the ability to invest in our growth areas: that’s beauty, expansion, digital, data analytics and private brands.

With the sales growth we are planning for the next three years, we should be able to deliver significant cash. Our framework approach is customer experiential focus, engagement-led and community building, while remaining conscious of capital allocation. This framework approach has guided us well in the last two years and we believe this framework will serve us well in the coming quarters. I’m fairly confident our total sales growth should be able to maintain the mid-teen growth, post opening of the new stores and the pipeline that we have. We have just begun our journey on distribution of beauty and we should be the priority retailers for all international brands, particularly in the premium and lifestyle spaces. We will continue to deliver on our strategic pillars and, most importantly, our engagement with our customers will make Shoppers Stop the ultimate destination for their business and for their brand [Phonetic].

Thanks for listening and I’ll now request the moderator to open the floor for questions.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Nihal Mahesh Jham from Nuvama. Please go ahead.

Nihal Mahesh Jham — Nuvama Institutional Equities — Analyst

Yes, sir, thank you so much and good morning to the management. So three questions from my side. First is, I just required a couple of data points. One is, could you share the like-to-like growth versus pre-COVID and the walk-ins, excluding the online visits?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Okay. Do you want to go through all three and then on?

Nihal Mahesh Jham — Nuvama Institutional Equities — Analyst

Sure, I’ll just mention the other two also. The second one was that when you’re speaking of this INR500 crores for the B2B distribution business, could you give a sense of what are the kind of counters we are targeting to reach the roadmap for the same, and potentially there would be initial cost, if you could quantify the same? And the last question would be, are we contemplating any other formats in the value segment? There have been certain press articles on it and if you could just give some more clarity.

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Yeah. Okay. So on the first one in terms of the walk-in growth, the year-to-date number — I’m sorry, the Q3 numbers, specifically, we had an overall growth of 16% in total and like-for-like growth of 1%.

Nihal Mahesh Jham — Nuvama Institutional Equities — Analyst

Sure, the like-for-like growth was 1%, if I heard right.

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Yeah and that’s over pre-COVID.

Nihal Mahesh Jham — Nuvama Institutional Equities — Analyst

Okay. And on the walk-ins? Just for the offline, in the store business?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

On the offline business alone, over three years, it was largely flat at a total level and minus 7% on a like-for-like basis.

Nihal Mahesh Jham — Nuvama Institutional Equities — Analyst

Is it possible to get the absolute number? We’ve given the customer entry of 39 million [Phonetic] which, I think, includes online. I was just looking at the offline entry, specifically.

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Yeah. Just one second.

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

Nihal, can I just message you separately on that, I mean, because we know track both online and offline together. I will message you separately, what will be the offline.

Nihal Mahesh Jham — Nuvama Institutional Equities — Analyst

Sure, sure, I’ll wait for that. Thanks.

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

Okay, now just coming back to your question on beauty, you did ask something, you said — the distribution business, you asked something about the past but we could not hear fully.

Nihal Mahesh Jham — Nuvama Institutional Equities — Analyst

Yes. So, what I was referring to, you gave a target of INR500 crores from this business in the next couple of years. Is it possible to give a sense of what are the kind of doors we plan to reach for the distribution business and the cost that will also entail, given it’s a new business that we are setting up totally organically?

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

Yeah, so in terms of cost, this should be largely breakeven from year two onwards, even year one, it should be a very, very minimal loss. In terms of the doors, what we are approaching is Lifestyle, [Indecipherable] and Sephora and other beauty companies, Nihal.

Nihal Mahesh Jham — Nuvama Institutional Equities — Analyst

Just one thing, there would be no targeting on GT? I know these brands are premium, but just to be sure of the fact that there won’t be a focus on general trade or trying to reach the — these counters, it’ll mainly be the premium beauty retailers?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Absolutely. Our focus will be on the premium organized retailers.

Nihal Mahesh Jham — Nuvama Institutional Equities — Analyst

That makes it clearer. Sure.

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Just coming back to your question on walk-ins, offline walk-ins grew by 14%.

Nihal Mahesh Jham — Nuvama Institutional Equities — Analyst

Sure. Thank you.

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Yeah.

Nihal Mahesh Jham — Nuvama Institutional Equities — Analyst

And the last bit on the value fashion?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

That’s — I mean, while it is something which has appeared in the press in the past, it’s not — and it is a very attractive segment and a segment that we continue to look at, at this point, we won’t have anything concrete to be able to share. But as and when we crystallize our plans on that, we will come back on that.

Nihal Mahesh Jham — Nuvama Institutional Equities — Analyst

Absolutely. Thank you so much, sir. I wish you all the best. I’ll come back in the queue for my further questions.

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Thank you, Nihal.

Operator

Thank you. The next question is from the line of Bharat Chhoda from ICICI Securities Limited. Please go ahead.

Bharat Chhoda — ICICI Securities Limited — Analyst

Yeah, hi. So basically, I just wanted to understand about this gross margins in the beauty business like that we are targeting.

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

So, Bharat, are you referring to the gross margin in the distribution business?

Bharat Chhoda — ICICI Securities Limited — Analyst

Yes, yes, distribution, yeah.

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

Okay, it will be more or less same in the range what we are doing right now, between 30 percentage to 35 percentage. That would be the range we are targeting the gross margins for our distribution business also.

Bharat Chhoda — ICICI Securities Limited — Analyst

Okay. And would we be spending anything on this or the brands would be spending for the brand visibility or how it is in this? Ideally how — and anything that we are paying to them specifically, something like a royalty payment? How this model works, sir?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

So it does vary from brand to brand in terms of what the arrangements would be. But broadly, the investment into marketing and building the brand tends to be done by the brand itself.

Bharat Chhoda — ICICI Securities Limited — Analyst

Okay, sir. Thanks for answering the question, sir. Thank you so much.

Operator

Thank you. The next question is from the line of Percy Panthaki from IIFL Securities. Please go ahead.

Percy Panthaki — IIFL Securities — Analyst

Sir, just continuing from the previous question on the distribution business gross margin of 30%, 35%, that is actually quite unheard of. I mean Nykaa has a similar B2B distribution business and they mentioned that they would be targeting a 10% to 12% gross margin and a 5% kind of EBITDA margin. So just wanted to understand when there are two people in the value chain sharing the overall margins, how is it that the margins are so high in this business?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

I mean, I cannot comment on what the others are doing. It is on the wholesale price that these margins are talked about, and it’s probably the base which might be different. Happy to discuss it separately and get into more detail to explain that.

Percy Panthaki — IIFL Securities — Analyst

Sure, sure, understood. And also just to confirm this INR500 crore target is for FY ’26?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Across the next two years, so by FY ’25, we should be getting close to that number.

Percy Panthaki — IIFL Securities — Analyst

Right, right. And also, just like you have shared some idea on gross margin, once you achieve that scale of INR500 crore, what kind of EBITDA margin would you target on this business?

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

Percy, as Venu said, this will be in a separate subsidiary called Global SS Beauty Limited. So EBITDA margin should be slightly higher than whatever Shoppers Stop margins are, though the initial years, it’ll be — there’ll be a breakeven or a marginal loss. But in year three and year four, it will be more or less in line with Shoppers Stop.

Percy Panthaki — IIFL Securities — Analyst

Understood. And how many brands have you tied up with for this distribution business?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

We have currently tied up with over 12 brands, and this is, obviously, a business that we will continue to grow and we will be adding more brands as we go forward.

Percy Panthaki — IIFL Securities — Analyst

Right, sir. And my last question is on the physical retailing Shoppers Stop department stores. On a per square feet basis, this quarter, more or less, you are in line with the similar quarter, pre-COVID. So just wanted to understand now, in light of your store expansion targets, do we see this sales per store on an average being flat from here? Because even if you do see your same-store sales growth, the new stores opening up at below-system average will pull down the average sales per square feet. So just your thoughts on this topic, sir.

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

I think it’s a fair assessment. And in the short-term, I reckon we would see flattish sales per square foot. However, as we get into year two and year three from now, because of the overall percentage of new stores will start to shrink from the total mix, we would expect the numbers to continue to grow, I mean the sales per square foot to start growing. Also worth pointing out that a number of the new stores that we have now open and are opening are smaller, which takes care of the productivity, so that the aim is we do start off with a strong sales per square foot in the new stores as well.

Percy Panthaki — IIFL Securities — Analyst

Right, sir, that’s all for me. Thanks and all the best.

Operator

Thank you. The next question is from the line of Priyanka Trivedi from Antique Stock Broking. Please go ahead.

Priyanka Trivedi — Antique Stock Broking — Analyst

Yeah, hi, thank you for the opportunity. My first question is on what would be the…

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Priyanka, your voice is not clear, Priyanka. Can you come closer to the mic or — it’s very difficult to hear you.

Priyanka Trivedi — Antique Stock Broking — Analyst

Yeah. Am I audible now?

Operator

Actually, Priyanka, your voice is breaking. Maybe you can shift to a better connectivity.

Priyanka Trivedi — Antique Stock Broking — Analyst

Now, is it audible?

Operator

Yes.

Priyanka Trivedi — Antique Stock Broking — Analyst

Yeah. So my first question would be on what would be the square footage addition in the first — in the nine months that have gone by, and if you could give the breakup between the department stores and the beauty stores and the capex breakup also between these two?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

So, we added nine department stores, which totaled to 3,08,000 square feet. On a chargeable basis or on a carpet area, it was 2,37,000 square feet. And that’s on the — that’s the department store. And on beauty, specifically, it was — I mean, it’s 11 stores that we added in total. So that would be circa around 10,000 — no, about 15,000 square feet that we would have added.

Priyanka Trivedi — Antique Stock Broking — Analyst

Okay. And in terms of the capex, what would be the split, if that’s possible?

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

So you’re talking about the cash spend, Priyanka?

Priyanka Trivedi — Antique Stock Broking — Analyst

Yes, yes, yes.

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

We are close to INR100 crores in the first nine months.

Priyanka Trivedi — Antique Stock Broking — Analyst

Okay, got it. Okay. And my second question would be on, if you could give us a sense on the contribution of the womenswear to our overall basket and the split between the western wear and the ethnic wear in that basket?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Broadly, within womenswear, western womenswear contributes to — I mean, the two put together contribute to 21% of our total business with western womenswear being at around 21% and Indian wear being at 7%.

Priyanka Trivedi — Antique Stock Broking — Analyst

Okay. Got it. That’s it from my side. Thank you.

Operator

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

Kaustubh Pawaskar — Sharekhan by BNP Paribas — Analyst

Yeah. Good morning, sir. Thanks for giving me the opportunity. So my question is on demand front. As you mentioned that festive was good, but post-festive, there was some moderation in demand and for our case, I guess, beauty was the one which helped us to mitigate the pressure to some extent. So just want to understand from demand per se, what do you expect — how much time it will take for things to rebound, because again there is a strong wedding season which is coming up? So in that context, can you provide some views?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

The — I mean, if we take our current trends, the kind of momentum that we had in December has continued into January. February is a strong wedding month, and hence we expect that to move up a bit more. But overall, if we look at the fundamentals, especially in the segment that we operate in, which is in the premium lifestyle space, it has been quite robust and that’s what we expect to continue.

Kaustubh Pawaskar — Sharekhan by BNP Paribas — Analyst

Thank you. And what was the contribution of the online omnichannel business this quarter and what was the growth on Y-o-Y basis if you could give that number?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

On a year-on-year basis, it was flat and the contribution to the overall business from our digital channels was at 4.4%. Now, I must underline this with what we have been saying now for a few quarters. As an omnichannel business, what gets registered or where the final purchase is happening digitally is not just the only way we should be looking at it, because especially, given that we operate in the premium space and the ASPs are high for a number of products, customers would start the journey digitally, but finish offline and hence a lot of the business that we generate offline does start online. And that’s the way it should be looked at. And that’s also the reason we have stopped separating it out as online and offline. Being a true omnichannel retailer, the right way to do it is to look at it together.

Kaustubh Pawaskar — Sharekhan by BNP Paribas — Analyst

And one last one on the capex. So how many stores you are planning to add over the next two years, and what could be the capex for the same and whether we will be comfortable doing it through internal accruals over the next two years?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

So we have budgeted to do between 12 to 15 stores every year, which we will do this year. We’ve opened nine, we’ve got another five, which are under fit-out. So we will end up between 12 to 14 department stores this year. We will do a similar number next year. And on beauty, we would do between 10 to 15 doors again. All of these would be entirely through internal accruals.

Kaustubh Pawaskar — Sharekhan by BNP Paribas — Analyst

Okay. And capex would be around similar? Around INR120 crores to INR130 crores kind of?

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

Yeah.

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Including refurbishments, yes.

Kaustubh Pawaskar — Sharekhan by BNP Paribas — Analyst

Including refurbishments. Okay. Okay. Thank you. Thanks for that understanding and all the best for the future.

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Rahil Shroff [Phonetic], an Individual Investor. Please go ahead.

Rahil Shroff — Private Investor — Analyst

Hello, sir. Just your guidance overall for the EBITDA and revenue margins outlook for last quarter, this year, for quarter four and financial year ’24, if you have any target in mind and which area are you expecting the most growth in?

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

The EBITDA, if you’re asking for next year, it will be higher than this year in terms of overall margin. But if you are aware, I mean, we don’t give any specific guidance on any of the margins. But all I can tell you is it’ll be higher than this year, Rahil.

Rahil Shroff — Private Investor — Analyst

Okay. And where are you seeing the most growth from? I know you mentioned your beauty segment is doing well, the distribution channel. Any other business segment you’re thinking to entering?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Our growth will come from our strategic pillars. We are a house of brands and that’s the foundation on which our business is. And the disproportionate growth would come through beauty, private brands and through expansion of our physical stores as well as online. The distribution business on beauty would support the growth within beauty.

Rahil Shroff — Private Investor — Analyst

Okay, okay. And as for revenue margins also you would have it in the same lines as current growth for the next year?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Yes.

Rahil Shroff — Private Investor — Analyst

Okay, that’s it for me. Thank you and all the best.

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Thank you.

Operator

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

Ankit Kedia — Phillip Capital — Analyst

Sir, my first question is regarding the private label. We will be touching around INR100 crores revenue from private label this year. Out of the brands we have, how many brands have crossed INR150 crores? And STOP would have multiple categories where they are present across, so if you can give subcategory-wise, if any of them have become sizable in nature today for us? And what is the growth plan for these brands to grow further?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

I wouldn’t want to break down the individual brand numbers because, obviously, it’s — that’s more internal. But what I would say is that, of the nine brands that we have, two of them would be INR100 crores plus individually and then the other three would cross the INR100 crore in the next 12 to 18 months.

Ankit Kedia — Phillip Capital — Analyst

And sir, given that the discounting this time in private level would have been slightly higher, the EOSS was much earlier for the industry, are we seeing gross margins under pressure lately? And are we comfortable with the inventory in the system we have for private label?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

So firstly, the end of season sale for us actually was slightly later than earlier in the previous years. And so, to that extent, the overall level of discounting that we have had to do was in line with what we had expected.

Ankit Kedia — Phillip Capital — Analyst

Sure. And the last question is regarding the beauty business, ssbeauty.in is already launched, we can see the beta version live. We’ve also seen the app, what you mentioned there. So what is the marketing plan regarding this launch? Are we expected to spend higher in A&P in coming quarters? And also on the INR500 crores of B2B run rate, some part of this will also be in our Shoppers Stop, right, and every — some part of the revenue would also be booked in the standalone entity. So if you can just say how much are we looking from our own entity in Shoppers Stop departmental stores vis-a-vis third-party?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

So on the ssbeauty.in, we plan to launch it formally in March and it would be accompanied with a strong marketing program where we would give it — I mean focus and bring attention of customers to this new platform. Obviously, it takes time to build the customer — acquire customers on to a new platform and hence, the investment that is needed for it. And it will be for both the ssbeauty.in website, the app as well as for the SS Beauty stores because what we are creating is a whole ecosystem for beauty as SS Beauty. In terms of the revenue that comes in through that, it is incremental to the extent that these are new stores and would be over and above what we get through Shoppers Stop or through the department stores where we have the beauty brands.

Ankit Kedia — Phillip Capital — Analyst

Sir, my question was on the B2B business, the INR500 crores which you mentioned. So the business of — some part or big chunk could also be through Shoppers Stop. So is that number over and above the INR500 crores?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

No, that would be included within that. And that would be within Shoppers Stop. As Karuna had clarified, the distribution business itself would be under a separate subsidiary called Global SS Beauty and the revenue from the distribution business will be under that vertical.

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

Ankit, just to clarify, whatever Shoppers Stop sells to the end customers, it will be included in Shoppers Stop sales. Whatever Global sells it to Shoppers Stop and other companies will be in Global SS Beauty company. On consolidation, the intercompany sales will be eliminated.

Ankit Kedia — Phillip Capital — Analyst

Sure. And Karuna, the investments which we have done in the subsidiary through CCPS, do you think the working capital requirement is sufficient currently for that? Or do you think, as the size increases to INR300 crores over next two years, we’ll need to invest further in the subsidiary?

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

Ankit, I already answered the question. See, we have already invested INR5 crores, we are planning to invest another INR25 crores in this month. In addition to that, we will have some temporary borrowings to take care of the working capital. Net-net, we expect INR50 crores in the next four to five months. What we have also informed the Board is, I mean, as we increase the business and if there is a need for capital, it will be a combination of preference shares plus bank borrowings.

Ankit Kedia — Phillip Capital — Analyst

That’s helpful, Karuna. Thank you so much.

Operator

Thank you. The next question is from the line of Varun Singh from ICICI Securities. Please go ahead. Mr. Varun Singh, please go ahead with your question, your line is unmuted.

Varun Singh — ICICI Securities — Analyst

Yeah. Am I audible now?

Operator

Yes, please go ahead, sir.

Varun Singh — ICICI Securities — Analyst

Okay. Sir, thanks for the opportunity. Sir, my question is on the beauty, your B2B beauty business. So I just wanted to understand that what is the need of entering into this business, given that we already have enough on our plate with regards to revising the private brands and chasing high-growth opportunity in small tier cities, led by the success of incremental efforts that we’re putting in revising the private label brands? So how are you thinking with regards to, like, why to chase growth opportunity in the B2B space?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

I think what I would like to emphasize is that the reason for getting into the distribution business is to strengthen our beauty pillar. Beauty, as you would appreciate, is an important strategic pillar for us and to make the supply strong in that area is why we are getting into this as most of or the majority of what we sell in our beauty business is international brands and the big national brands that we have. And by having exclusive partnerships, we are able to bring in brands which are — I mean, we have the right of first refusal onto them and depending on the strength of the brand and what we would like to take it forward, it gives us the ability to be able to take it much deeper within our own stores across both Shoppers Stop and department. The key factor, of course, which I would like to add is that, it gives us the ability to get higher margins and better inventory control, because of the fact that we have the end-to-end margin available with us.

Varun Singh — ICICI Securities — Analyst

Okay. So are we saying that the operating business economics of this segment of business will be superior or at least in line with the beauty business that we exist with?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Absolutely.

Varun Singh — ICICI Securities — Analyst

If I’m understanding correctly?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Yes, absolutely.

Varun Singh — ICICI Securities — Analyst

Okay, right. And sir, my second question is on the offline business. Sir, so we have been — I think on strategy front, we have done almost every — all right things with regards to accelerating store renovation rate and optimizing store sizes, etc., but still walk-ins numbers does not look very much encouraging. So, like, how are you looking at this number or gradual improvement? And also, I mean, the reason that I’m asking this question is because when we look at revenue growth from three-year CAGR perspective, so it still continues to be a low-single-digit number. So like when — or how are you looking at improvement in this number? And, of course, I think the current quarter number is — I understand is very much encouraging, but any thoughts on this, sir, will be really helpful.

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

It’s an interesting point and over a period of time and what we focus on is looking at the total engagement that we have with our customers across offline and online. As you would appreciate, majority of the customer journey start digitally today and eventually end up with an actual purchase. The fact that we have seen consistent increase in our average basket size is indicative of the fact that customers who are walking in into our stores are the most serious customers and that’s what’s helping us to generate the growth that we have. Having said that, coming specifically to customer entry where we have now got into the drop which we used to see four, five years back has been arrested and that is something which we are pleased about. What we’re seeing is that customers are now coming in small — I mean, earlier you used to see large groups of customers coming in and that’s changed, and that’s the change that we’re seeing across the country, where you’ve got smaller individual families coming in and individuals coming in. And that’s partly why you don’t see the total number not being high. At the same time, when we look at the specific stores, which are our large stores, the customer numbers are growing and very encouraging. We have a few large stores in catchments, which have now become less dominant. While these are still large stores, it is into these specific stores where we see a drop in sales and that could be one of the reasons for that is because we have expanded within that city itself.

Varun Singh — ICICI Securities — Analyst

Got it, sir, got it. Sir, that’s very much helpful. Thank you very, very much.

Operator

Thank you. The next question is from the line of Devanshu Bansal from Emkay Global. Please go ahead.

Devanshu Bansal — Emkay Global — Analyst

Yes, sir, hi. Thanks for the opportunity. So there are multiple tailwinds for Q4 this year in the form of delayed winter, higher number of weddings and there is no omicron-led disruption as well. Can you help us understand how this Q4 can be different versus the historical Q4s based on the trends that you’ve seen so far in January?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

We expect the Q4 numbers to continue the momentum that we have had in the first three quarters and should be significant in March because of the comparison versus last year, where there was a level of omicron, etc. And so to that extent, it might not be directly compared. But if we just look at the momentum that we have had and the absolute numbers that we have been getting in Q1, Q2, Q3, we expect that to continue.

Devanshu Bansal — Emkay Global — Analyst

Got it, Sir, typically, versus historical trends in Q4 versus Q3, so how has that been shaping up so far in January? Are we seeing better results or is it largely in line?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

It’s large — I mean, I would say it’s slightly better than what we had expected so far.

Devanshu Bansal — Emkay Global — Analyst

Got it. And sir, the comparable — the second question is on margins. So if we exclude the other income in both the quarters, it’s a 50 basis points decline. So what explains that?

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

I mean, I’m not — we could not hear you properly. Can you please repeat the question again? You said some decline in margins.

Devanshu Bansal — Emkay Global — Analyst

Yeah. So ex of other income in both this quarter as well as base quarter, there is a 50 basis points of decline. So what explains that?

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

This is last year you are talking about?

Devanshu Bansal — Emkay Global — Analyst

Yeah, versus last year Q3.

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

So, last year Q3 we had significant concession on rent. And overall, the expenses were lower. But as we see, it’s more or less in line with the numbers. I mean, I could not see a drop in margins.

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Where are you picking this up from? Because we’ve actually had an increase in the margin.

Devanshu Bansal — Emkay Global — Analyst

Sir, I’m talking about the pre-IndAS numbers, so if we exclude other income from both the quarters, then we are getting a 50 basis points sort of a decline.

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

Okay, now we got it. See, that’s — I think Venu said in his speech. Last year, we had significant concessions on the lease rental because it was impacted by COVID. What also happened last year was some of the concessions for Q1 and Q2 came in Q3. And we don’t account unless until those concession happens, we accounted that. So that’s one of the main reason, plus we have also opened close to nine stores this year. The productivity will improve as we progress. So — but the cost will — some of the cost will be there. So these are the two large reasons where the EBITDA margin is 50 basis points lower than the last year.

Devanshu Bansal — Emkay Global — Analyst

Got it. So, I was coming from that point, so this store expansion is going to continue going ahead as well. So will this sort of materially impact our margin improvement going ahead or we should be able to sort of negate this impact with the kind of investments we are doing on private labels as well as on the beauty front?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

We would be able to negate the impact of the higher lease cost with the growth in business that we would see across each of our strategic pillars.

Devanshu Bansal — Emkay Global — Analyst

Got it, sir. Thank you. That’s it from my end.

Operator

Thank you. The next question is from the line of Vignesh Iyer from Sequent Investments. Please go ahead.

Vignesh Iyer — Sequent Investments — Analyst

Hello?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Yeah.

Vignesh Iyer — Sequent Investments — Analyst

I just wanted to know what is the ASP for the company in quarter two? What was the number?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Our average selling price for the quarter was INR1,627.

Vignesh Iyer — Sequent Investments — Analyst

Okay.

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

And that was a 10% growth over last year.

Vignesh Iyer — Sequent Investments — Analyst

I mean, Q2 to the earlier Q2, that way?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Q3.

Vignesh Iyer — Sequent Investments — Analyst

Yeah. Q3 as a guide. And what is the total capex we are planning for? I mean, how much we have spent for the current year in total and what is the plan for Q4?

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

So we have spent INR101 crores on the capex, INR81 crores, INR82 crores is on account of stores and the balance on account of technology and other things. For the next — for this quarter, Q4, we expect anywhere between INR25 crores to INR30 crores capex in line with what we normally spend per quarter.

Vignesh Iyer — Sequent Investments — Analyst

Okay. And so your spend is on the distribution — the new business, right, the beauty — SS Beauty, right? So that — including — so excluding that, what would be the capex for the next year, a rough estimate?

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

Again, Venu just now clarified. On the new stores plus refurbishments, it will be anywhere between INR120 crores to INR150 crores, plus we also have some plans on tech, which we are working out right now. So I would — I mean, if I have to give a ballpark number, it will be between INR150 crores to INR200 crores next year.

Vignesh Iyer — Sequent Investments — Analyst

Okay, including SS Beauty, right?

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

The SS Beauty capex is very, very small. I mean, probably, it will be less than INR10 crores next year.

Vignesh Iyer — Sequent Investments — Analyst

Okay. Thanks. Thank you, sir. Thank you.

Operator

Thank you. The next question is from the line of Aliasgar Shakir from Motilal Oswal. Please go ahead.

Aliasgar Shakir — Motilal Oswal Securities — Analyst

Yeah, thanks for the opportunity. I had a question on the growth over the next two, three years, so, a slightly longer question. So Venu had mentioned that we are planning — we would double our revenues, right, over the three-year period and I think [Technical Issues] FY ’20 number. So as of now, if we see we — from FY ’20 numbers have — if I see the GAAP numbers, then our growth is relatively tepid and you also mentioned SSSG versus pre-COVID is about 1%. So how should you see, over the next two years, this growth being? One is that, is renovation — renovating store going to have a reasonable jump from here that should help drive growth for you? And secondly, what proportion of growth can come from the new store addition? I know the number you have mentioned, but incremental revenue that can come from there be, and probably margin improvement from private label. So if you could just tack it down and explain that guidance on doubling of revenue, how are we placed there.

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

So if I break that down and how we are looking at it, the growth from our current business would have — would be from two engines: the like-for-like growth and growth from new store addition. And these two combined together, we expect a CAGR of 20% every year. And then the distribution business would add on to that. Apart from that, we do have a couple of other plans, which we will bring in, in the subsequent quarters as we crystallize on to them.

Aliasgar Shakir — Motilal Oswal Securities — Analyst

Okay, and the 20% growth that you mentioned, if you could break it down, the new store addition. If you’re building about close to 12, 14 stores from departmental and even in beauty, that should be about 10%, 12% growth and maybe high-single-digit SSSG. Is that what you are hinting?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Absolutely. We would be looking to mid-to-high single-digit like-for-like and the rest coming in from new store additions.

Aliasgar Shakir — Motilal Oswal Securities — Analyst

Okay. So that will be about 20% growth. But even with a 20% growth, we will not touch doubling of revenue. So, you think, I mean, the contribution from these new engines of growth that you hinted will be very meaningful in the range of about probably 20%-plus or they would be, I mean, relatively lower?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

The new engines of growth would lead to substantial numbers coming in, in the year two and year three as we have just touched upon. And that would definitely help us to add to the existing numbers that we just talked about.

Aliasgar Shakir — Motilal Oswal Securities — Analyst

Okay. One, of course, is the B2B and the other you have not disclosed your plans yet, right?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

And we also have the SS Beauty which we just talked about.

Aliasgar Shakir — Motilal Oswal Securities — Analyst

Got it. And what about the margin improvement? How meaningful that should come by, because I’m just asking from two point of view? One is renovated stores, what should be the contribution from them in revenue? I understand, from margin, it should be significant, given that new stores typically do much higher SSSG. And then from any other of these levers of growth that you are hinting in terms of SSSG improvement, how should that play out in terms of margin?

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

Aliasgar, Karuna here. I think we discussed, normally, we don’t give guidance on the margin. I can give you overall number. See, our margin should improve for number of reasons. One, the private brand mix should be [Indecipherable]. Second, as you rightly said, the new stores are in — we have a, what you call a smaller place — smaller space and then that should give — deliver higher margins. So what we expect is probably a high-single-digit in the next two years. And third year from now, it will be either — it should be close to a low-double-digit number. So these are the margins what we are internally targeting.

Aliasgar Shakir — Motilal Oswal Securities — Analyst

Okay, understood. This is very helpful. Thank you.

Operator

Thank you. The next question is from the line of Disha Sheth [Phonetic] from Anvil Wealth. Please go ahead.

Disha Sheth — Anvil Wealth — Analyst

Hello.

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Yeah, Disha.

Disha Sheth — Anvil Wealth — Analyst

Yeah. Sir, when you mentioned that the like-to-like growth was 1% and you also mentioned that the December momentum was strong, so how are we getting the 18% growth since the like-to-like is just 1%?

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

So the like-to-like 1% was pre-COVID, which Venu said. If you’re comparing the like-to-like growth versus last year, we are around about in mid-double-digits, close to 15 percentage to 16 percentage and the overall is 20 percentage.

Disha Sheth — Anvil Wealth — Analyst

Okay, okay. Sorry, I missed on that Pre-COVID part. And secondly, sir, on the margin front, sorry, I missed one line of what you said on the improvement of margins, what are the levers. First, I heard the beauty distribution business. But that would be on the subsidiary. On standalone basis, what can help [Technical Issues] margins?

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

What we said was our overall strategic pillars, the private brand with higher margin should improve the overall mix. And that should give us — that’s one lever. Second, our new stores, being smaller in size, will have a higher throughput and that should also increase the overall margins, plus our fixed cost will not be linear to [Indecipherable], so that will also be fixed. So these three things will help us to improve the overall margins.

Disha Sheth — Anvil Wealth — Analyst

Okay, okay, yeah. Thank you, sir, that’s it from my side.

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

Thanks, Disha.

Operator

Thank you. The next question is from the line of Gaurav Jogani from Axis Capital. Please go ahead.

Gaurav Jogani — Axis Capital — Analyst

Thank you for the opportunity, sir. Sir, my first question is with regards to the SSSG. If you can, sir, please clarify, I think there was lot of confusion between the walk-in and the SSSG numbers. So if you can just highlight what has been the SSSG growth on a Y-o-Y basis and versus the pre-COVID levels.

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

Gaurav, I’ve just clarified. The SSSG growth versus last year is 16 percentage, versus pre-COVID is 1 percentage.

Gaurav Jogani — Axis Capital — Analyst

Sure. And sir, my next question is with regards to the gross margin. So if you see typically in Q3, we generally have a higher gross margin due to the better sales mix and the festive season coming in. But this time around, if you see, our gross margins haven’t expanded to that extent. It’s largely actually been declining on a Q-o-Q basis. So if you can explain the reasons for the same? And in this light, how do we see Q4, because Q4 being a season where we typically see some discounts coming in?

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

I am not sure from where you got this number because even versus the last year or even pre-COVID, our gross margin remained more or less constant, probably, here and there, 10 or 20 basis points. That’s it, other than that, it remained largely constant versus the pre-COVID or even versus last year.

Gaurav Jogani — Axis Capital — Analyst

Sir, I am saying Q-o-Q. So basically in Q2 FY ’23, if we see our gross margins on the non-GAAP basis was around 32.7%, I’m excluding the other income here. And if you see for this quarter, its 32.3% to that extent, and hence — it’s a Q-o-Q comparison because Q3, generally, we see a gross margin expansion, usually.

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

I am not getting that number. We are having a different number. Probably, Gaurav, what we can do is we can discuss with you offline. I mean, you have my number and I have your number. Let me understand, what are your numbers and then we can probably discuss that. One thing I would add, the GAAP numbers also include consignment sales treated in a different way. So let me understand what is it and then I can talk to you.

Gaurav Jogani — Axis Capital — Analyst

Sure. Thank you and that’s all for me.

Operator

Thank you. The next question is from the line of Shalini Gupta from East India Securities. Please go ahead.

Shalini Gupta — East India Securities — Analyst

Yeah. Good morning, sir. I have just one question on the other income, which actually you have…

Operator

Sorry to interrupt you, Ms. Shalini, but we are unable to hear you, ma’am. Can you speak a bit louder?

Shalini Gupta — East India Securities — Analyst

Okay, one sec. Can you hear me now?

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

Yeah, we can hear you, Shalini.

Shalini Gupta — East India Securities — Analyst

Sir, I had just one question on the other income. So this quarter, the other income is up 68% [Phonetic] Y-o-Y. And during the course of his presentation, sir had mentioned that there was a INR17 crore adjustment or something he was saying which, if you could just repeat that?

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

Okay, let me give you what does the other income includes. In our non-GAAP income, other income includes space on hire, plus our income from the loyal members, it can be the normal loyal members and the Black Card members. These are the three large items. And as Venu during the speech, we had provided interest in the previous years, which now that particular section has been repealed, because of which we have reversed INR20 crores out of which INR17 crores has been included in other income. So that comes to around about INR32 crores, INR33 crores. So that’s the breakup of other income, Shalini, for Q3.

Shalini Gupta — East India Securities — Analyst

Okay. And sir, my second question is, like, Arcelia was a private brand for beauty for Shoppers Stop. So what is happening to Arcelia now? What are your plans?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

On Arcelia, we launched in this quarter, we have now launched lips and nails. And as you would see, the range is now largely in place and it is about building scale into that. Currently, within the Shoppers Stop ecosystem, it is within the Top 3 in each of the categories that it operates in. And we would look to take this further and beyond the Shoppers Stop ecosystem as well so that it grows the brand as a whole.

Shalini Gupta — East India Securities — Analyst

Sir, could you just quantify how much — how big Arcelia is?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Again, we don’t really break down individual brands, Shalini.

Shalini Gupta — East India Securities — Analyst

Sure. Yes, sir, okay. Thank you. That’s all from my side.

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Jignesh Kamani from GMO. Please go ahead. As the participant left the queue, we’ll move to the next participant which is Tejas Shah from Avendus Spark. Please go ahead.

Tejas Shah — Avendus Spark — Analyst

Hi, thanks for the opportunity. Sir, first question pertains to our B2B business. If I understood correctly, we are targeting INR500 crores turnover by FY ’25. Is that a correct understanding?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Yes.

Tejas Shah — Avendus Spark — Analyst

And, sir, this will be at wholesale price you said, right?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

This would be at the retail price.

Tejas Shah — Avendus Spark — Analyst

Retail, okay, okay. And sir, how much capital [Speech Overlap].

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Sorry, when you say wholesale, this is the price at which the subsidiary business would sell. That’s what I meant.

Tejas Shah — Avendus Spark — Analyst

Yes. So, as a customer, they’ll be — the market [Phonetic] will be at least 40% higher, I am assuming.

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Roughly, yes.

Tejas Shah — Avendus Spark — Analyst

Okay, okay. And sir, so to kind of create that kind of business, how much capital we’ll have to infuse in near-term, including what we have done now?

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

Tejas, I — sorry, Jignesh, I just said that. What we are doing is, we have infused INR5 crores, we are planning to infuse another INR25 crores as preference shares, probably either this month or beginning next month. We are also planning to buy [Phonetic] INR20 crores. And as we expand the business, we will do a combination of issue of preference shares, as well as borrowings from the bank for the working capital.

Tejas Shah — Avendus Spark — Analyst

Sure. And sir, this capital would largely go in creating logistics or warehouse capabilities or are there any other plans also?

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

No, see, we have an existing warehouse, which — that’s sufficient for us to cater this demand. This capital will be largely for the working capital, which is the inventory, as well as the receivables because we are also targeting other than Shoppers Stop to sell these products.

Tejas Shah — Avendus Spark — Analyst

Sure. And sir, just to understand this business better, let’s say, I’m a dealer in beauty products, I have a shop. What will be my incentive or what will be my reason to switch from existing distributor to Shoppers Stop or SS Beauty?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

I think what I would clarify and emphasize is that each of these brands that we are getting into, we would have the exclusive rights in the country. So you’re not switching distributors. The Global SS Beauty will be the only opportunity for you to get that brand into your store.

Tejas Shah — Avendus Spark — Analyst

Sure. So sir, are we making any minimum investment guarantee for these brands to do marketing activities, because we’ll have to create markets for this brand?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

The investments required for building the brand would be done jointly or by the brand itself and would be a part of the total commercial agreement that we would have with them. There is definitely an investment that is factored in, but that is something which is in agreement with the brand itself.

Tejas Shah — Avendus Spark — Analyst

Got it, got it. So you spoke about financial capital, but what kind of managerial capital we’ll need, because this is slightly out of our comfort zone, kind of, business versus what we have done as a company? So will we need a talent pool? Perhaps, if you can elaborate on that as well.

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Yeah, the talent pool required for this, we already have started building the team and we do have a good team already in place. It is set up as a different vertical and a different business and operates on a different flow and that’s the way we’re building it.

Tejas Shah — Avendus Spark — Analyst

Got it. And lastly, sir, do we see ONDC as an option to kind of bypass the stage of, like, creating a direct D2C consumer franchise without getting into this? Because, at certain level, ONDC is kind of trying to create the disruption by empowering all the stores to go direct to consumers. So, are we kind of even thinking on that line, how to kind of think out of the box and leverage some of these opportunities which are coming at the peripheral of the ecosystem today?

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

We have engaged with ONDC and we have had initial discussions with the ONDC team and it’s certainly an exciting opportunity that we see to be able to expand our reach, and we would — as we are upgrading our own shoppersstop.com, ONDC would certainly be one of the platforms that we would be looking at.

Tejas Shah — Avendus Spark — Analyst

Got it. That’s all from my side. Thanks and all the best.

Operator

Thank you.

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

See, one last — Rutuja, Amar from Nippon is here. He has sent questions to us. We believe, by and large, we have answered the questions. If Amar is still there and if he has any further questions, we can take that.

Operator

[Operator Instructions]

Karunakaran Mohanasundaram — Customer Care Associate & Chief Financial Officer

Probably what we will do is we’ll connect with Amar one-on-one separately.

Operator

Shall we move to the…

Venugopal G. Nair — Customer Care Associate, Managing Director and Chief Executive Officer

Yes, please.

Operator

[Operator Closing Remarks]