Five key takeaways from Nykaa’s earnings for the first quarter of 2023-24

On August 11, the Indian e-commerce company Nykaa released its earnings results for the first quarter of 2023-24 (April-June). The earnings reveal that the company saw a 17% rise in profit (before tax) year on year (YOY), going from Rs.83.40 crores in June 2022 to Rs.97.19 crores as of June 2023. Nykaa divided its earnings into three broad categories— beauty and personal care (BPC), fashion, and others (this includes its new businesses NykaaMan, B2B platform SuperStore by Nykaa, the content platform LBB and its wellness brand Nudge). Of these, the fashion segment seems to be performing less than ideal due to an industry-wide slowdown. 

Here are some interesting points we found in Nykaa’s earnings:

Nykaa’s BPC customers spend $80 per capita: The company claims that its customers spend five times more than the average beauty shopper (who spends $15). Nykaa says that its BPC segment saw a 24% YOY growth and 79% of this growth is because of its existing customer base. An important highlight here was that third-party channels (these typically include online marketplaces, social media platforms, affiliate marketing, etc.), have grown 90% YOY in terms of their GMV contribution. “And this has been a conscious strategy to take our brand wider beyond our platform,” Falguni Nayar, the CEO of Nykaa said during the company’s earnings call. 

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Fashion segment saw a slower quarter: The company’s earnings reveal that its fashion business grew by 12% in the quarter which is lower than the company’s long-term expectation. “Throughout the industry, everybody’s talking about it, that it was a particularly tough quarter for fashion,” Nayar, said. According to a report by MoneyControl, this slump is a byproduct of people in small towns cutting back on discretionary expenses. What is noteworthy here is that both monthly average unique visitors on the platform and average order value have seen nominal growth, at 2% and 1% respectively. The CEO of Nykaa Fashion, Adwaita Nayar, pointed out that 44% of the fashion segment’s GMV was coming from existing customers, adding that “it’s this metric that is giving us confidence and comfort that we are continuing to find strong product market fit with the customer.”

SuperStore by Nykaa saw 2.7 times growth in transacting retailers: As of June, SuperStore consists of 1,19,564 transacting retailers and 188 brands. Vishal Gupta, the CEO of SuperStore by Nykaa said that “the benefits of this also are flowing into our bottom line because as GMV is growing by 2.6X, our feet on ground people productivity [effectiveness of employees] has gone up by 1.8X,” adding that the company’s fulfillment costs and sales and distribution costs have come down 0.9 times and 0.7 times compared to the same quarter last year. He said that SuperStore has a unique advantage over anyone else in helping its retail customers because “we not only have our B2B data, we also have B2C data, for example, what beauty products are selling in a certain pin code.” 

Fall in operating costs and gross profit: Nykaa’s total operating expense (YOY) as a percentage of revenue was 38.3% in this quarter, falling from 40.4% in the same quarter last year (2022-23). “Quite a lot of the operating cost improvement has come through with the regionalization of our fulfillment centers and reduced freight costs and also regionalization of our marketing expenses,” P Ganesh, Nykaa’s Chief Financial Officer said. The company also says that it has attained marketing efficiency and that marketing costs were down by 111 basis points (BPS, used to show the change in the value of a financial instrument, 1% change is equal to 100 BPS) by attracting better quality customers. As far as the fall in gross profit margin (by 89 BPS) is concerned, Ganesh attributed that to the increase in the mix of Nykaa SuperStore in the company’s financial records. 

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Fall in adverting revenue: A representative from Citi Bank asked during the call if Nykaa’s ad revenues in its BPC segments fell Year On Year. Anchit Nayar the CEO of beauty e-commerce at Nykaa said there are two reasons for this: “So the first is that we did launch our ad tech platform towards the end of the quarter and it is a very different way of working for a lot of brand partners from what they were used to earlier,” adding that in the past everything was handled by the Nykaa brand managers. These brand managers, he said, would help companies upload their ads and monitor their performance, “and now, we’ve moved to what is really industry standard, which is a self-serve ad platform where brands have to themselves come up with the creative design, commercial offers and decide on the duration of their banners on the platform,” he mentioned. “The second thing is, there was a little bit of a pullback of spends from direct-to-consumer [D2C] brands,” he said, adding that there is pressure on D2C bands in terms of profitability, which could have led to this. He did, however, point out that “we believe its an aberration and I would not try to draw some sort of longer-term trend from this.”