Nykaa, a leading e-commerce platform for beauty and fashion, has reported its financial results for the September quarter. While the company posted a solid 24.4% year-over-year revenue growth, its profitability took a hit and missed analyst expectations. The primary reason for this mixed performance was a significant slowdown in its Fashion segment, which offset the strong growth from its core Beauty and Personal Care business.
Revenue Grows but Profitability Takes a Hit
Nykaa’s consolidated revenue for the quarter showed a healthy increase, driven primarily by its well-established Beauty Personal Care (BPC) division. This segment saw its net sales value jump by 25% compared to the same period last year, indicating continued strong demand for its products.
However, the positive revenue story was dampened by the company’s profit figures. Nykaa’s profit after tax (PAT) was recorded at ₹13.40 crore, which was significantly lower than the consensus estimate of ₹24.70 crore. This miss was also reflected in its EBITDA margin, a key indicator of operational profitability, which remained flat at 5.5% and slightly below expectations.
The Fashion Segment’s Struggles are a Key Factor
The main challenge for Nykaa this quarter was the subdued performance of its Fashion arm. This segment reported a modest 13% year-over-year growth, lagging far behind the beauty division.
Analysts point to two major reasons for this slowdown. First, there is a general slowdown across the fashion industry. Second, many consumers deferred their festive shopping to the second half of the year, which impacted sales in this quarter. To counter these challenges, Nykaa maintained high marketing expenditures.
- Elevated Marketing Spend: The company invested heavily in marketing to sustain growth, which put pressure on its profit margins.
- Shift in Festive Purchases: A change in consumer buying patterns meant that the usual pre-festive sales rush did not fully materialize in this quarter.
This strategy of aggressive marketing highlights a focus on long-term market share, but it comes at the cost of short-term profitability.
A Tale of Two Segments in Customer Growth
The performance gap between Nykaa’s two main business units is also evident in their Gross Merchandise Value (GMV) and customer metrics. The Beauty segment was the clear star, showing robust growth across the board.
In contrast, the Fashion segment’s growth was much more muted. This disparity highlights the different market dynamics each segment is currently facing.
| Segment | GMV Growth YoY | Revenue Growth YoY |
|---|---|---|
| Beauty | 29% | 24% |
| Fashion | 10% | 22% |
| Total | 24% | 24% |
On the customer front, Nykaa’s BPC business saw its annual unique transacting customers rise by a strong 21% to 13.7 million. However, the Fashion segment’s customer base grew by only 7%, and the number of orders remained flat year-over-year. Interestingly, the average order value in Fashion surged by 10%, suggesting that customers who did shop were buying higher-priced items.
Future Outlook and Strategic Direction
Despite the current challenges, analysts believe there is room for improvement in the second half of the fiscal year. Brokerage firm Nuvama noted, “We reckon an improvement in growth in H2 on the back of higher festive and wedding demand.”
Nykaa’s strategy going forward involves a careful balancing act. The company plans to continue its marketing efforts to drive growth while also focusing on operational efficiencies to improve margins. Key initiatives include expanding its marketplace model to include more third-party sellers, launching personalized marketing campaigns, and investing in technology to enhance the customer experience. The company’s ability to navigate the market slowdown while executing these strategies will be crucial for its future performance.
