On AOV versus customer acquisition - we have seen sharper customer acquisition this quarter while AOV continues to improve. A lot of us believe that as customer base ramps up, poorer quality customers might factor in, causing AOVs to dip. What are you seeing or doing which is proving the street wrong consistently?
We've always said that new customer AOVs tend to be lower than repeat customer AOV. That's just how the customer engages with the platform - the more comfort they get shopping on the platform, the more they get educated by us about what types of products they should be using, that's when their basket starts to expand. In terms of the new customers that we are acquiring, we are not seeing the AOVs for them dipping meaningfully. There are still lots of opportunities, still a lot of customers out there who are coming into the beauty funnel for the first time for whom affordability is not an issue.
On BPC business, very sharp margin improvement this quarter. Looks like ad income has also improved. How much is the seasonality impact? Can you break out how sustainable this margin drop is likely to be?
The beauty vertical reporting, the gross profit margin here is a weighted average of three or four very different businesses - beauty.com, Beauty Retail, owned brands as well as B2B. So the gross profit margin improvement is really an outcome of generally improvements across all four of those businesses. In terms of ad income, things are better on that front. Some of it is seasonal - we do our Pink Friday sale during the OND quarter, and that is when we do get a lot of traffic. But generally, we've really focused on improving what kind of capabilities we offer to brands in terms of their ability to advertise on our platform. Historically it used to be all top-of-funnel advertising, but we've built out the technology and the MarTech stack to enable brands to do advertising across the funnel.
On Nykaa Now. Given we have now reached a decent scale and we are talking about pushing for marketing. Any early color in terms of how much scale we have already achieved? How is profitability in Nykaa Now versus Nykaa Platform?
There is a significant percentage of orders in cities where Nykaa Now is live that are being serviced through Nykaa Now. Exact numbers we can get back to you. In cities and pin codes where it is now live, a large percent of the orders is now being fulfilled by Nykaa Now. In terms of the profitability of the margin per order, it's not very different at this point in time. Is there a chance that the average order values for Nykaa Now orders can be lower than mainline platform orders? Yes, that is possible. And in fact, it's something which we're not entirely against. We're more focused on seeing that if the frequency of purchase increases because of Nykaa Now, then that benefit is more than an offset to the potential dilution of average order values.
For the last 2 years, we have been consistently delivering strong growth, close to 25% despite of consumption slowdown. Now most of the consumption-focused companies are talking about growth revival. Can we say that growth can accelerate? Are you seeing some early indicator?
The category growth has been strong and category growth is also increasing in terms of category growth through e-commerce is increasing because a lot of offline sales through GT/MT are moving to e-commerce through the quick commerce model. So e-commerce is growing. With the introduction of AI, efficiencies, digital marketing and ability to do a lot of personalized journeys that can improve conversion makes us believe that one can hope for a little better outcomes going forward. But I'm not guiding towards that. The whole landscape is changing, very difficult to guide, but we remain prepared and hungry to continue to grow.
You talked about the partnership with Nike. Is it a different kind of revenue model? What will be the revenue streams? Do you think this is something that you could replicate across some other brands? Some color as to why Nike chose you to do it this way?
The way the deal is structured, it is finally from a unit economic perspective for Nykaa boil down to very similar to e-commerce revenues and margins where there is some inventory, there is margins like an e-commerce company and then there are costs for marketing and everything. We have a tech stack that can be made ready to offer their website in the country. And then we are also going to support it through digital marketing and fulfilment and customer experience. It's a way of operating and a service that we may offer to other strategic large partners. It has started with Foot Locker and Nike and also in Beauty, we have just offered it to kiehl's.com.
Trying to understand if the profitability of this would be much better for us since we are doing a lot more and can you give some color on the revenue streams here?
We can't guide on that now. Sorry. All we can say is it will be a win-win for both partners. We will see value and we will also see value add if done right.
On the India-U.K. trade deal and other free trade agreements (U.S., EU). How do these play into your business going forward in the next 1 to 2 years given significant contribution of imports?
We don't have much on the export side yet. But as some of our owned brands scale, Kay Beauty is there in Space and Kay in the U.K. and there's potential to take some of our other own brands outside of India. On the import side, we do import brands, quite a few brands from the U.S. and not too many from the U.K., several, but more from the U.S. and Korea. There could definitely be some benefit to us if the tariffs are going to be lower within the Beauty and Cosmetics category, especially for things like registration or some of the other licenses which we have to get for the importing of some cosmetic products. So it can be a net positive, but we've not fully quantified that yet.
Could you give a broad sense of what the current import contribution to your business would be? And on Perfumery - AOV is 3x what you see in other retail stores. So perfumes would be a pretty substantial part of business now given high AOV and the fact you sell one fragrance every 5 seconds. Math says 6 million fragrances. Is that right for the year?
In regards to our import share of business, we don't disclose our imports portfolio in terms of what that is as a percent of total revenue. But what I can say is that we do have not just our import brands, but a lot of brands what we call as international brands who are manufacturing outside of India and importing into India. That is quite a substantial significant percent of our revenues. Now with regards to fragrance, the Nykaa Perfumery store average order value is 3x that of our regular retail stores. One is generally fragrances are a higher ASP product than makeup and skin care. But also secondly, because this is a slightly more luxury retail concept, the kind of brands we keep in the store are more of the higher-end fragrance brands. So this is where we do believe that over time, India's fragrance market will continue to evolve to get to a higher share of mix from luxury fragrance brands.
On the BPC margins. Historically, we've guided that given the investments we have been trying to make into this business, the margins will sort of remain at the 9% ballpark which we did in FY25 for the overall BPC. Given the strong performance we've seen for 9 months where we've already seen 100 bps expansion in gross margin and the advertising levers, is there a case that this can structurally keep improving year-on-year?
Each of the businesses can continue to improve their profitability. Now for the major contributor to this business vertical, which is the beauty.com business, there could be a decision to reinvest some of the profits back into the business in terms of continuing to expand our market share and our reach and our customer acquisition. Whereas in B2B and in other businesses, there is meaningful improvement in profitability that will really make it to the bottom line. So again, it's a bit hard to say that at the consolidated level, where does this number end up. But each business individually, structurally in a good position to continue to improve their respective margin profile.
When you are highlighting the mix impact on gross margin, you basically mean within categories sold on beauty.com which are accretive to gross margin, just to clarify?
From EBITDA margin improvement, clearly, I think we feel that there is a scope for continuing to improve EBITDA margins for the beauty consolidated like beauty vertical business because all the 4 businesses are going to gain from increase in scale and marketing costs, S&D costs, not so much, but definitely marketing costs as well as other expenses also will get a leverage of scale. So I think we feel more confident about EBITDA margin improving. I don't want to guide towards any direction, but I think it can sustainably improve going forward. On gross profit margin, it's more of a mix also that comes to play. And hence, it's difficult to give the guidance of the overall consolidated number.
On House of Nykaa, very strong growth, but especially the growth from third-party channel was much meaningfully higher than Nykaa Platform - Nykaa Store grew 45% versus third-party platform Y-o-Y growth of more than 100%. What is leading to such acceleration versus the core platform?
I think there's good growth kind of across all the channels. There are definitely some new third-party channels that were added in the last year. So it's more a reflection of just new channels being opened up rather than a slowdown in a particular channel versus not.
On the gross margin expansion for the Beauty business. Is it mainly the B2B losses driving the gross margin higher or even the B2C portion of the Beauty business is seeing a gross margin expansion?
There are several things playing out leading to this margin accretion on gross margin. One of the big drivers is that the House of Brands business of ours continues to accelerate its growth. It is getting a lot of consumer traction across multiple brands, whether it be Dot & Key, Kay Beauty, Nykaa Cosmetics. Vishal spoke about the improvements he's driving in the unit economics of the B2B business that has resulted in a 500 basis point plus improvement at EBITDA level. When it comes to beauty.com, the gross margin has also improved because of the ad income and certain category mix evolution as well as it being a festive quarter.
Most of these reasons are sort of present in the past couple of quarters as well, whereas the kind of expansion that we have seen this quarter is materially larger. Is there anything specific like lower amount of discounting or any kind of GST-led sort of benefits?
No, no, there are no one-offs. I think there's improvement in ad income for the core business. Overall, B2B net retention margins are much lower than gross profit margin of the beauty business. But in the base, there was certain gross retention margin and that has improved to a certain extent. And also owned brands have also had a role to play and improving profitability of owned brands also have a role to play. So we have worked on improving the gross margin of our owned brands over last 3 to 4, 5 quarters and some of that impact also gets further accelerated as the sales pick up.