Beauty products retailer Nykaa’s parent FSN E-Commerce on Tuesday posted a 344% year-on-year jump in its net profit for the quarter ended September to Rs 5.2 crore on the back of improved sales and profitability. The company’s revenue from operations grew 39% on year to Rs 1,230.8 crore on improved demand across the beauty and fashion categories on a low base.

Nykaa’s profitability grew 171 basis points to 5% during the quarter on the back of improved gross margins, driven by own brands mix, reduced fulfilment costs and marketing efficiency. Operating margins could have improved further, had the company not seen increased selling and distribution costs, employee costs and other expenses during the quarter.

The company’s selling and distribution costs increased due to the expansion of eB2B and offline distribution of owned brands, while employee costs went up due to investment into new initiatives and other expenses increased due to investments into infrastructure. Falguni Nayar, executive chairperson, MD and CEO of Nykaa, said the company sees these costs as an increase in investments into the future.

Going ahead, Nykaa expects a strong second half of the year as for the retail industry Q3 is usually the strongest quarter on the back of weddings and the holiday season in December, Anchit Nayar, CEO, beauty, e-commerce at Nykaa, said. “We do not expect a muted Q3 and are optimistic about good performances across segments,” Anchit said during a post earnings conference call.

During July-September, the company’s consolidated gross merchandise value (GMV) improved 45% on year to Rs 2,345.7 crore.

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The beauty and personal care segment’s GMV grew 39% y-o-y to Rs 1,630.1 crore, while orders grew 39% to 8.4 million during the quarter. The fashion segment’s GMV grew 43% y-o-y to Rs 599.1 crore.

On a revival in demand in the beauty and personal care segment during the quarter, Anchit said there has been a revival across the spectrum — from mass to luxury products and domestic to international brands, which is reflecting in the company’s sales numbers.

Nykaa is making accelerated investments into regional warehouses to improve fulfilment costs, rolling out new stores as well as upgrading the existing ones and office space to bring back employees to the office, Nayar said.

The stock closed at Rs 1,185.75 on the BSE, up 2.44% from the previous day’s close. This came after Nykaa’s stock saw a sharp sell-off in the last few weeks, falling as much as 21% in the past one month, just ahead of the end of the one-year post-IPO lock-in period, which ends this month.

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Nykaa got listed on November 10 last year.

Responding to the investor sentiment seen with Nykaa’s stock in the last few weeks, Nayar said there are a lot of new generation tech companies which are finishing one year from listing around this time. There were certain fears in terms of lock-in expiry of existing pre-IPO shareholders. “I can’t tell it for sure but may be those were the fears that resulted in what happened in the stock, but in the long term, the company’s share price should reflect the underlying performance. So, we are focused on building the company for the future. We are continuing to invest in strong rollouts of warehouse and office spaces to strengthen the company,” Nayar said.