Nykaa Q3: Lower Discretionary Spending Impacted Margin & Revenue, Says CEO Falguni Nayar

Weak consumer spending amid the global economic slowdown hurt Nykaa’s revenue and margin during the December quarter, its executive chairperson, MD and CEO Falguni Nayar said during the company’s earnings call.

“In terms of Q3 of this financial year, it was quite strong but the margin may be slightly impacted in terms of consumption because of what’s going on in terms of discretionary spend,” said Nayar.

The beauty ecommerce platform’s EBITDA margin contracted 94 basis points (94 bps) year-on-year to 5.3% in the December 2022 quarter.  

It must be noted that companies have been feeling the pinch as discretionary spending has been showing signs of a decline in the country over the last few months due to high inflation, and macroeconomic headwinds. 

“In such a difficult environment, I think it does shave away a little bit from the top in terms of consumption,” said Nayar, explaining that there could have been slight consumer downgrades from some brands to the cheaper ones. However, she added that it was not much of a concern.

As per Nayar, since the growth and customer acquisition remained strong, the quarter was not a difficult one for the beauty ecommerce major.

While it must be noted that Nykaa reported a better Q3 FY23 compared to the preceding September quarter, in terms of both top and bottom lines, its consolidated net profit declined 70.7% to INR 8.5 Cr in Q3 FY23 from INR 29 Cr in the corresponding quarter last year. 

Meanwhile, the listed startup’s operating revenue grew 33.2% YoY to INR 1,462.8 Cr during the quarter under review.

In a release, Nayar hinted that eight fewer festive days in the December 2022 quarter also affected the top and bottom lines.

Nykaa’s gross margin also declined 293 bps YoY to 43.4% in Q3 FY23. The company, in the release, said that the decline was due to a change in the beauty and personal care (BPC) category mix, higher brand-funded discount during the festive season, and consumer downgrades.

However, Nykaa’s Gross Merchandise Value (GMV) grew 37% YoY and 19% sequentially to INR 2,796.5 Cr in Q3 FY23, with BPC, fashion, and other new initiatives segments reporting a strong GMV growth. 

Offline sales continued to account for less than 10% of total sales during the quarter under review. However, Nayar said that offline sales growth has been showing a healthy uptick and has been robust throughout the year. 

Nykaa has been aggressively trying to gain market share in the offline space. It increased its own physical store count to 141, as on December 31, 2022, from 124 such stores at the end of the September 2022 quarter. 

Nayar said that Nykaa will continue to roll out more physical stores.

Besides, she also reiterated that the company will keep its investments steady as it is “investing for the future”.