Pepe Jeans India has posted a 16.3% growth in its net profit to Rs 49.21 crore in FY17 on the back of a healthy sales growth of 21% to Rs 424.06 crore, according to the company’s filing with the Registrar of Companies (RoC). The profit before interest and depreciation grew 15.3% in the previous fiscal to Rs 79.53 crore despite a 39% increase in royalty payments to Rs 210.8 crore. In contrast, key competitor Levi Strauss India reported a 27% decline in its net profit to Rs 57.83 crore owing to a 15.2% higher royalty of Rs 72.14 crore paid to parent Levi Strauss and Co in FY17. The US-based Levi Strauss entered India 15 years ago while London-based Pepe Jeans made its entry 28 years back. According to a Technopak report, the Indian apparel market has seen a growing inclination of consumers towards Western wear and casual wear.
This is clearly reflected in Pepe’s performance, despite the year being “marred by the negative effect of demonetisation”, as the company put it. Industry experts said the performance of brands and retailers was impacted by demonetisation, but the big brands have still managed to do well mainly on account of affordable pricing of quality products. Rajat Wahi, partner, Deloitte India, said: “Most of these foreign brands are offering products starting at lower price points to attract more customers, and there has been a bit of down trading in the sector.”
In July 2016, Pepe started warehousing with an established third party logistics partner in Mumbai to prepare effectively for the GST, the company said in its RoC filing. This has helped it make a smooth transition, avoiding any disruptions due to launch of the new indirect tax regime. The fiscal also saw Pepe triple sales of its kids product range to Rs 36 crore, which it had launched in India in mid-FY16. The other big development for the company was the receipt of single-brand retail approval for 100% foreign direct investment by Pepe Jeans Europe BV. This paved the way for the launch of company-owned retail operations. By March 17, the company had five company-owned stores operational.
Another competitor of Pepe, Italian fashion brand Benetton, which entered India 26 years ago, has not been able to get its strategy right despite its long stay. Brands, such as Levi and Gap, which launched many years later, have grown at a much faster pace. Benetton is facing a tough road ahead, with the company reporting a loss of Rs 49.44 crore in FY17, compared with a profit of Rs 2.3 crore in FY16. Sales declined 5% from a year ago to Rs 698.8 crore in FY17, in a stark contrast to its peers.