Key Highlights: After Top-Level Exits & Cutting Costs, How Did Nykaa Perform In Q1?

Listed beauty ecommerce giant Nykaa’s parent, FSN E-commerce, released its financial results for the first quarter (Q1) of the financial year 2023-24 (FY24) on Friday (August 11). Here are the key takeaways:

Headline Numbers: Nykaa’s consolidated net profit rose 8.2% year-on-year (YoY) to INR 5.4 Cr in Q1 FY24, growing from INR 5 Cr in the year-ago period. Sequentially, profits soared 138% from INR 2.3 Cr in Q4 FY23.

Similarly, Nykaa’s revenues from operations continued to register strong growth, jumping 23% YoY to INR 1,421.8 Cr in Q1 FY24. The Falguni Nayar-led company’s operating revenues also logged quarter-on-quarter (QoQ) growth of 9.2% from INR 1,301.7 Cr in Q4 FY23.

The gross merchandise value (GMV) of the startup soared 24% YoY to INR 2,667.8 Cr in the quarter that ended June 2023, up from INR 2,155.8 Cr in the year-ago period. Similarly, GMV zoomed more than 9% from INR 2,445.4 Cr in Q4 FY23. 

The uptick in overall financials largely came on the back of business from existing customers across segments as well as a renewed focus on cost improvements. 

EBITDA margin during the quarter improved 60% YoY to INR 73.5 Cr in Q1 FY24.

Focus On Trimming Costs: As competition continues to mount from incumbents and deep-pocketed new entrants, Nykaa appears to be working heavily towards its strategy of cutting corners and retaining quality customers. 

Nykaa’s total operating expenses, which include all major expenditures, improved by 205 bps YoY to 38.3% in Q1 FY24. A breakdown of the data revealed that while fulfilment expenses, as a percentage of revenue from operations, reduced by 172 bps YoY to 9.5% in Q1 FY24, the company trimmed its marketing expenses, as a percentage of operating revenues, by 111 bps to 11.2% during the same quarter.

However, on a YoY basis, all these three standalone metrics saw a rise in Q1 FY24. While fulfilment expenses rose nearly 5% YoY, promotional expenditures rose 12%. 

The company trimmed fulfilment expenditures on the back of its regionalisation strategy under which it reduced air shipment ratio and freight cost per order. It also undertook shift optimisation across its fulfilment centres, which led to further improvement. 

On the other hand, marketing efficiency came on the back of targeting ‘quality customers’ while driving GMV growth from existing users.

Beauty & Personal Care Vertical Drives Growth: The BPC vertical continued to be Nykaa’s growth engine, accounting for more than 69% of the total GMV in Q1 FY24. During the quarter under review, the BPC arm’s GMV rose 24% YoY to INR 1,850 Cr while the number of orders surged 17% YoY to 9.5 Mn.

Existing customers led the sales as they contributed 79% to BPC vertical’s GMV during the quarter. Alongside, the BPC arm’s contribution margin, as a percentage of net sales value, improved by 125 bps YoY to 26.5% in Q1 FY24. 

Nykaa’s BPC vertical operated 152 physical stores at the end of June 2023, which yielded a revenue of INR 151.2 Cr. 

Meanwhile, annual unique transacting users on the BPC side rose 21% on a yearly basis to 10.3 Mn at the end of June. BPC average order value (AOV) improved by 4% to INR 1,849 in Q1 FY24 versus INR 1,780 in the year-ago period.

Fashion Arm Sees Mixed Growth: The contribution of the fashion vertical to Nykaa’s total GMV contracted to 24.5% in Q1 FY24 against 27% in the year-ago period. Overall, the BPC vertical’s GMV jumped 12% YoY to INR 653.7 Cr in Q1 FY24.

The fashion arm improved its GMV contribution from existing customers as they accounted for 44% of the volume during the quarter. 

Meanwhile, operational metrics saw an uptick as the number of orders logged on Nykaa Fashion rose 12% YoY to 1.3 Mn in the quarter. Annual unique transacting customers zoomed 30% YoY to 2.6 Mn, while cumulative traffic to the vertical jumped 7% YoY to 126 Mn at the end of June 2023.

Average order value (AOV) hovered around the INR 4,413 mark, rising a meagre 1% compared to the corresponding period last year. 

New Growth Verticals: While BPC and fashion were the stars of the show, other offerings of Nykaa also continued to scale heavily. GMV for the rest of the verticals ros 92% YoY to INR 163.3 Cr in Q1 FY24 compared to INR 85 Cr in the year-ago period. 

The new growth verticals include the company’s new businesses such as NykaaMan and B2B platform ‘SuperStore by Nykaa’. With 188 brands listed on its platform, SuperStore by Nykaa had 1.19 Lakh transacting retailers across 699 Indian cities at the end of June 2023. 

SuperStore by Nykaa also processed 263.9 Lakh orders during the quarter under review. Nykaa claimed that the average GMV per month for the vertical rose 2.6X YoY in Q1 FY24 while fulfilment cost declined 10% YoY. 

Not So Sweet Goodbyes!: Reacting to recent C-suite exits during a post-earnings call, Nykaa’s executive chairperson, managing director and chief executive officer (CEO) Falguni Nayar attributed the departures to the company upgrading its talent pool, adding that some of the executives that left were not doing any significant work. 

She also said that there has been no ‘significant erosion of talent’ due to the departures. 

“Nykaa has a tight evaluation process where we have decided to differentiate between high performers, average performers and performers which are below the threshold… there was no significant erosion of talent. Talent is better now than ever,” said Nayar, as per Moneycontrol.

Recently, Nykaa has been hit by multiple top-level exits, including its chief marketing officer Shalini Raghavan, Nykaa SuperStore CEO Vikas Gupta, and chief business officer Gopal Asthana, among others.