GoColors' Parent GoFashion Slumps 4% After Q3 Earnings — Why This Analyst Sees Massive 42% Upside

Brokerage firm ICICI Securities observes that GoColors parent Go Fashion‘s double-digit growth in same-store sales growth (SSSG) in exclusive brand outlets (EBO) and consistent expansion efforts are a strong upside.

The GoFashion Analyst: Analysts at ICICI Securities led by Manoj Menon maintained their Buy rating for the stock, but revised their target price from ₹1600 to ₹1500, indicating a notable 42% upside.

The GoFashion Thesis: Go Fashion reported a year-over-year (YoY) revenue growth of around 24% and a 3% YoY increase in profit after tax at ₹24.3 Crore in the third quarter. However, the brokerage firm observed that the company's gross margin declined by around 1.6% to 59%, largely due to the marketing offers extended in large format stores (LFS), ad spending, and store expansion costs. 

ICICI Securities said that as cotton prices have gone down, the fashion retailer's managemen expects that it will have a positive impact on the gross margins in the next few quarters. As per the brokerage firm, the company looks to maintain the gross margin at around 60 to 60.5%.

The firm observed that the company's expansion plans are on track and that remains a huge positive for it. The Chennai-based retailer added "35 new EBOs in the quarter" and  the management remains confident "of adding 120-130 stores each year going forward."

The brokerage firm also highlighted the company's ability to "add new products outside of core products" as it maintained its "buy" rating.

However, the firm expects some difficulties ahead as it expects several "new players entering the category." It also cited the high revenue share from Reliance Retail in the LFS channel as a downside.

Price Action: Go Fashion was down around 4% to trade at ₹1054 in the early hours of trading on Friday.

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Posted In: Analyst ColorEarningsNewsAnalyst Ratingsclothing retailersFashion Retailerfinancial resultsGoColorsQ3FY23