Metro Brands stumbles in Q1. Can faster store rollout put it back on track?

Mint

2 days ago

Metro Brands Ltd's earnings estimates were downgraded after its June quarter (Q1FY26) results. Eid falling in March and early monsoon rains in key markets such as Gujarat and Maharashtra hurt volumes in physical channels, leading to an estimated 2-3% revenue impact. As a result, Q1 consolidated revenue grew 9% year-on-year on a low base to ₹628 crore, below estimates. In the previous two quarters, revenue growth was slightly above 10% each.
The company has a lot of ground to cover to meet its desired long-term revenue CAGR target of 15-18%.
'We lower our FY26e/27e revenue by around 2.4% on average, factoring in a sub-par Q1 and continued decline in sales per square feet," Anand Rathi Shares and Stock Broking said in a report. Metro's sales per square foot fell year-on-year for the ninth straight quarter in Q1FY26, declining 3% to ₹4,350.
Metro added a net 20 stores in Q1, taking the total to 928, and entered a new city. An accelerated rollout is planned in H2FY26, especially for brands such as Fila, Clarks, and Foot Locker, while maintaining a disciplined, profitability-led approach.
BIS-related supply chain disruptions prompted a cautious stance on Foot Locker expansion, but this is expected to normalize by the end of FY26. The company aims to open three Foot Locker outlets ahead of the festive season in Q3FY26, scale up New Era from Q2FY26, and launch Fila exclusive stores in H2FY26. Fila is expected to break even in FY27. Metro is also stepping up Walkway store additions—four were opened in Q1FY26—targeting the mass-market segment. Its portfolio also includes Metro, Mochi, and Crocs.
Higher marketing spends, which management intends to keep at 3.5-4% of sales in FY26, dented profitability, with Ebitda margin down 45 basis points year-on-year to 31%. Still, long-term guidance of an operating margin above 30% has been retained, supported by cost-control measures. Premiumization remains a tailwind, with products priced above ₹3,000 contributing 56% of Q1FY26 sales.
Despite these efforts, prolonged demand weakness and slower store additions have weighed on the stock, which is down 12% over the past year. However, rivals Bata India Ltd and Relaxo Footwears Ltd have seen a sharper drop. 'Against a weak backdrop, Q1 revenue/profit after tax growth of 7-9% appears decent (versus peers)," said Emkay Global Financial Services.
Even so, valuations remain steep. Metro trades at 58x estimated FY27 earnings, Bloomberg data show.