Ethos Ltd, one of India's most well-known luxury and premium watch retailers, reported its financial results for Q4 FY25 on May 5, revealing a mixed performance that highlighted both strength and vulnerability. While year-on-year (YoY) revenue and EBITDA growth was robust, the company's net profit growth remained modest, impacted by a significant increase in depreciation and finance costs.

Revenue and Operating Performance

Ethos reported a 23.3% increase in revenue, with total sales reaching ₹311.31 crore in Q4 FY25, compared to ₹252.52 crore in Q4 FY24. This performance was backed by strong demand for premium watch brands, improving footfalls in high-end retail stores, and expansion into adjacent product categories.

The EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) came in at ₹47.59 crore, registering a 32.3% YoY growth from ₹36 crore. Operating margins also improved, rising to 15.3% from 14.2% in the year-ago quarter.

Key highlight: The improvement in margins suggests better operational efficiency and higher profitability per rupee of revenue.

Net Profit Impacted by Higher Depreciation

Despite the encouraging revenue and EBITDA numbers, net profit increased just 8.1% YoY to ₹22.74 crore, significantly lower than the EBITDA growth. The main reason behind this modest rise was a 33.1% spike in depreciation expenses, which rose to ₹16.9 crore.

Depreciation expenses reflect the cost of wear and tear of fixed assets, and a surge of this nature may be linked to Ethos’s expanding store network, investments in infrastructure, and new formats.

Additionally, finance costs rose 28.71% to ₹5.20 crore, further impacting the bottom line. This increase in interest expenses could reflect higher borrowings for capex or working capital, especially as the company scales operations.

Cost Pressures Rise Across Categories

Ethos also faced cost escalations across multiple categories. The total expenses rose 22.52% to ₹285.84 crore.

• Purchase of stock-in-trade grew to ₹216.12 crore, up 15.27% YoY, in line with increased revenue.

• Employee costs climbed nearly 10% to ₹21.32 crore, indicating growing workforce strength and possibly higher wages.

• Finance costs, as mentioned, surged 28.71%, adding further pressure on profits.

While rising costs are common in a growth phase, the disproportionate increase in depreciation and finance costs warrants attention for future quarters.

Market Reaction and Stock Performance

Despite healthy topline growth, investors reacted negatively to the results. Shares of Ethos fell nearly 4% intraday to ₹2,441.75 on the BSE before closing 3.93% lower for the day.

Reasons for the stock decline include:

• Sequential decline in both revenue and net profit.

• Concerns over cost inflation and future margin pressure.

• Muted net profit growth despite strong operational performance.

Sequential Performance Weakens

Compared to Q3 FY25, Ethos reported a 15.84% fall in revenue and a 22.86% decline in profit. This sequential drop is significant and may reflect seasonal factors, as Q3 includes festive sales, but it also shows margin sensitivity during leaner quarters.

Focus Areas for Investors Going Forward

While the Q4 report had some strong elements, investors and analysts will watch closely for trends in the following areas:

1. Average Selling Price (ASP): Ethos operates in the luxury segment where ASPs can impact revenue disproportionately. Trends in ASPs will reflect both brand mix and consumer sentiment.

2. Store Expansion Plans: Ethos has been aggressively expanding its retail presence. Updates on new store openings, performance of recently launched stores, and the cost-to-revenue efficiency of each format will be crucial.

3. Diversification Strategy: Ethos is expanding into adjacent product lines, including jewellery and luxury luggage. Early traction in these categories could offer margin-accretive growth in the medium term.

4. Digital Strategy: With the luxury segment also embracing online retail, Ethos’s investments in e-commerce platforms, CRM, and omni-channel initiatives will play a vital role in scaling.

Outlook for FY26 and Analyst Sentiment

Despite the short-term blip in profits, analysts are largely positive on the structural growth story of Ethos. With rising urban affluence, expanding premium customer base, and brand awareness, Ethos is well-positioned to tap into India's luxury consumption wave.

However, the company must keep a close eye on operating leverage, ensure debt remains under control, and maintain inventory efficiency, especially as it ventures into new geographies and categories.

Conclusion

Ethos Ltd’s Q4 FY25 results reflected strong operational performance and revenue growth, but profitability was under pressure due to non-operating cost escalations, particularly depreciation and finance charges. The company's expansion-led investments, while positive for long-term growth, are currently affecting the short-term profit trajectory.

Investors should continue to monitor key KPIs like same-store sales growth, ASPs, store additions, and performance in non-watch segments, which will be instrumental in shaping Ethos’s future profitability and stock performance.

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