Fila, Foot Locker to boost growth for Metro Brands

Metro Brands on track to grow: Metro Brands, leveraging its strong execution capabilities and robust store economics, is poised for major growth, buoyed by the addition of new brands Fila and Foot Locker, analysts said. 

Despite potential short-term moderation in Same Store Sales Growth (SSSG) and margin adjustments, the company anticipates a consistent 20 per cent growth over the next five years. 

Metro Brands's impressive revenue productivity, 25 per cent store-level EBITDA margin, and quick payback period of less than two years underscore its steady store economics, analysts at brokerage firm Motilal Oswal said in a report.

With a strategic focus on internal accruals, Metro Brands plans to fund the addition of over 250 stores annually, capitalising on its strong operational track record. 

The introduction of Fila and Foot Locker, alongside other formats, positions Metro Brands to tap into a vast growth opportunity. Currently operating across five formats in 189 cities, the company's 795 stores highlight major potential for expansion, they said.

Fila and Foot Locker, as new growth engines, are expected to contribute substantially to Metro Brands's revenue. 

Image Credits: Metro Brands

While Fila focusses on re-energising its business in the near term, both brands aim for 400-500 store additions in the next three to five years, the brokerage noted. 

With an average revenue per store comparable to Metro Brands's, the brands could generate Rs 1,500-2,000 crore in sales, representing approximately 50 per cent of consolidated revenue with strong EBITDA and PAT margins, the Mumbai-based brokerage said.

Despite Metro Brands trading at a premium with a price-to-equity (P/E) of 55 times, the rich valuation is supported by a robust growth outlook, internal funding capability, and superior store economics.  The valuation does not currently account for the potential earnings from Fila and Foot Locker, which are estimated to bring additional revenue potential of Rs 1,500-2,000 crore over the next 3-5 years. 

Financial performance 

Metro Brands consolidated net profit dropped over 13 per cent to Rs 67.6 crore in the September quarter (Q2FY24), from Rs 77.9 crore in the same quarter last year.

Its revenue zoomed 17 per cent to Rs 555.7 crore, from Rs 476.3 crore a year ago.

Ecommerce sales, including omni-channel, for the company stood at Rs 60 crore, the company said in the investor presentation.

The stock zoomed over 51 per cent in 2023. As of 9:18 am, shares of Metro Brands were trading 2.44 per cent higher at Rs 1,290 per share.