Page Industries, the leading player in the apparel industry, is facing a period of uncertainty as several challenges have affected its earnings outlook. The delay in demand recovery, changes in the inventory system, senior management exits, and competition headwinds have all contributed to the company’s current predicament.
The September quarter witnessed muted sales, further downgrades, and an 8 percent decline in revenues compared to the same quarter last year. Additionally, volumes in the quarter decreased by 8.8 percent. While rural demand remained robust due to festivities, the urban and mid-premium segments lagged.
The industry’s unsustainable business practices, characterized by excessive inventory accumulation and higher discounting, promotions, and trade schemes, have also impacted Page Industries’ growth. Furthermore, the company’s market leader position may have been compromised due to prudence in pricing.
Systematix Research has lowered its estimates for the next fiscal years, citing near-term growth challenges and competition headwinds. Motilal Oswal Research, on the other hand, maintains a ‘neutral’ rating due to elevated valuations and uncertainty surrounding sales and earnings outlook.
Although Page Industries has made progress in implementing its auto-replenishment system (ARS) across the distributor network, certain concerns remain. The company faced teething issues with the latest version of ARS, resulting in a loss of 5-7 percent of sales in the last two months. However, management is actively addressing these issues to restore normalcy.
The delay in demand recovery poses another significant challenge for Page Industries. Seasonality trends indicate that the first half of the year typically accounts for 54 percent of the company’s annual volumes. IIFL Research suggests a potential 6 percent downgrade in FY24 volume/sales estimates if demand recovery is further delayed.
Furthermore, the recent changes in senior management, including the appointment of a new CEO and CFO, add another layer of uncertainty for Page Industries. Analysts believe that these changes, coupled with the untimely resignation of the Chief Operating Officer, may hinder the company’s growth trajectory.
While the stock currently trades at a reasonable valuation, analysts caution that there are no immediate triggers for a near-term turnaround. Moreover, the possibility of further earnings downgrades remains a concern.
Overall, Page Industries faces a challenging road ahead as it navigates demand recovery, fine-tunes its inventory system, and copes with management transitions. Analysts and investors will keenly watch for signs of improvement and a more positive outlook in the coming months.
