Campus Activewear Q1 FY26: Premium Strategy Soars ASP, But Profit Plunges – What's Next?
Campus Activewear Limited (CAMPUS) has just pulled back the curtain on its Q1 FY26 performance, and the results paint a fascinating picture of a company navigating a strategic pivot amidst a challenging market. While headline revenue growth might appear modest, a deeper dive reveals a deliberate, bold move towards premiumization that is fundamentally reshaping its financial architecture.
In a quarter marked by internal transitions and a “muted” demand environment, Campus Activewear is betting big on elevating its brand and product mix. But is this strategic gamble translating into sustainable profit, or are the growing pains overshadowing the long-term vision? Let’s dissect the numbers and management commentary to uncover the story behind the data.
The Premiumization Play: Less Volume, More Value?
Campus Activewear reported a 1.2% year-on-year (YoY) revenue growth, bringing the top line to INR 343.3 crore for Q1 FY26. On a sequential basis, revenue saw a typical seasonal decline of 15.4% from the stronger Q4 FY25.
What truly stands out is the composition of this growth (or lack thereof). The company experienced an 11.6% YoY decline in sales volume, with 5.1 million pairs sold compared to 5.8 million in Q1 FY25. Yet, revenue still nudged upwards. The secret sauce? A remarkable 14.5% YoY surge in Average Selling Price (ASP), which climbed to INR 671 per pair. This isn’t a mere market fluctuation; it’s a direct outcome of management’s conscious “premiumization” strategy.
The shift is evident in the product mix:
- Revenue contribution from products priced above INR 1,500 jumped significantly from 39.9% in Q1 FY25 to an impressive 52.7% in Q1 FY26.
- Conversely, entry-level products (below INR 1,050) saw their share drop from 30.7% to 19.3% in the same period.
Management highlighted that the sneaker category was a star performer, growing 150% YoY, now accounting for over 50% of the portfolio. This focus on higher-ASP sneakers, coupled with a deliberate scaling down of lower-margin products like entry-price point school shoes, clearly drove the ASP accretion and, as we’ll see, gross margin improvements.
Sales Performance Snapshot
| Parameter | Q1 FY25 | Q4 FY25 | Q1 FY26 | YoY Growth % | QoQ Growth % |
|---|---|---|---|---|---|
| Revenue (INR Cr.) | 339.2 | 405.7 | 343.3 | 1.2% | -15.4% |
| Volume Sold (mn pairs) | 5.8 | 6.2 | 5.1 | -11.6% | -17.0% |
| ASP (INR per pair) | 586 | 658 | 671 | 14.5% | 2.0% |
Channel-wise, the distribution channel grew by 8.0-8.6%, and Large Format Stores saw a healthy 20% growth. However, the online marketplace experienced de-growth due to significant internal transitions – a raw material warehouse consolidation and SAP implementation – which impacted supply for 15-20 days, causing an estimated revenue loss of INR 10-12 crore. This highlights the double-edged sword of operational upgrades.
Despite these headwinds, the focus on domestic growth themes, especially in consumer discretionary, aligns with broader Indian market trends. The strong growth in distribution and LFS channels indicates Campus Activewear is effectively tapping into the domestic consumption narrative.
The Profitability Paradox: Gross Margins Up, But PAT Dips
The premiumization strategy immediately paid dividends at the gross margin level. Gross Margin expanded robustly by 6.4% YoY to INR 193.6 crore, with the gross margin percentage improving from 53.3% in Q1 FY25 to a healthier 55.4% in Q1 FY26. This is a clear indicator that selling higher-priced products is fundamentally improving the profitability per pair.
However, the story gets more complex further down the income statement. Total Expenses grew by 8.0% YoY, significantly outpacing the modest 1.2% revenue growth.
- Employee Costs rose 12.0% YoY to INR 32.2 crore.
- Advertisement & Sales Promotion expenses jumped 9.7% YoY to INR 27.9 crore. Management noted A&P spends were “ahead of the curve,” with a lag expected in sales realization.
This disproportionate rise in operating costs diluted the gross margin gains. While EBITDA saw a modest 2.5% YoY growth to INR 55.4 crore, its margin barely budged, moving from 15.8% to 15.9%. The real impact was felt on the bottom line: Profit After Tax (PAT) declined notably by 12.6% YoY to INR 22.2 crore, with PAT margins shrinking from 7.4% to 6.4%. Higher finance costs and tax expenses further amplified this decline, as reflected in the steeper fall in PBT.
EBITDA & PAT Performance
| Parameter | Q1 FY25 | Q4 FY25 | Q1 FY26 | YoY Growth % | QoQ Growth % |
|---|---|---|---|---|---|
| EBITDA (INR Cr) | 54.0 | 76.7 | 55.4 | 2.6% | -27.8% |
| EBITDA % | 15.8% | 18.7% | 15.9% | ||
| PAT (INR Cr) | 25.4 | 35.0 | 22.2 | -12.5% | -36.6% |
| PAT % | 7.4% | 8.5% | 6.4% |
This performance suggests that Campus Activewear, a “fast grower” with a 21% revenue CAGR (FY21-TTM), is currently in an investment phase. The company is incurring higher fixed and variable costs – for brand building, talent, and operational upgrades – to support its strategic shift. A temporary dip in earnings can be justifiable if these investments are laying the groundwork for stronger, more profitable growth in the future. However, the market will be keenly watching for these costs to stabilize and translate into tangible bottom-line expansion.
Working Capital: Efficiency Gains, But Inventory Needs Watch
On the working capital front, Campus Activewear demonstrated a mixed, but largely positive, performance:
- Days Sales Outstanding (DSO) improved notably to 131.8 days from 147.5 days in Q1 FY25, indicating more efficient collection of receivables. This is a positive sign of operational discipline.
- Days Payables Outstanding (DPO) also extended to 224.5 days from 207.3 days, suggesting the company is effectively managing payment terms with suppliers to conserve cash.
However, Days Inventory Outstanding (DIO) saw an increase to 413.8 days in Q1 FY26 from 388.0 days in Q4 FY25. This rise in inventory days, even as sales volumes declined, could signal a slight build-up of stock. It might be a strategic build-up for the new premium product lines, or a result of slower off-take in the seasonally weaker Q1. Consequently, Net Working Capital (NWC) Days increased QoQ from 308.1 to 321.1 days. Management will need to maintain tight control over inventory to prevent potential liquidity drag and ensure alignment with future sales projections, especially given the “muted” demand environment.
Capacity & Financing: Ready for the Long Haul
Campus Activewear continues to strengthen its operational backbone. The Paonta Sahib facility commenced production of uppers, and the Haridwar II facility is now fully operational. These are results of past CapEx, enhancing manufacturing efficiency and throughput capacity. While specific new CapEx guidance wasn’t provided, these expansions signal readiness for future growth.
Financially, Campus boasts a strong balance sheet, having transitioned to a net cash positive position since FY24, with Net Debt/EBITDA comfortably in negative territory. This financial strength provides ample flexibility to fund future growth initiatives through internal accruals and offers a significant buffer against market uncertainties. Return ratios remain healthy, with ROCE at 20.6% and ROE at 16.2% (TTM for Q1 FY26), demonstrating efficient capital utilization, though they have moderated slightly from peak FY22-FY23 levels.
Outlook: Optimism for Recovery and Double-Digit Growth
Despite the Q1 challenges, management expressed significant optimism, stating that the internal disruption issues are “past us now” and they are “very positive about recovery from Q2 FY'26 onwards,” with July sales already in line with internal budgets.
They reiterated a double-digit growth target for the full year, citing high visibility of the order pipeline extending till December. Furthermore, Campus Activewear continues to aspire for a 17%-19% EBITDA margin trajectory in the medium term, targeting the upper band for this year, driven by sustained premiumization and cost efficiencies. The BIS regulation, curbing illicit footwear imports, is also expected to provide a positive tailwind for local brands like Campus.
Key Takeaways for Investors
Campus Activewear’s Q1 FY26 results present a company executing a calculated strategic shift.
- Premiumization is Driving ASP and Gross Margins: This is a clear strategic win, positioning the brand for higher value and better long-term profitability per unit.
- Short-term Profitability Squeeze: Increased operating costs, particularly A&P and employee expenses, coupled with internal operational transitions, have impacted the bottom line. Investors need to monitor if these costs lead to a commensurate acceleration in profitable revenue in subsequent quarters.
- Operational Headwinds are Temporary, but Impactful: The warehouse consolidation and SAP implementation created short-term disruption, particularly for online sales. The management’s confidence in recovery from Q2 onwards needs to be validated by performance.
- Balance Sheet Strength is a Key Differentiator: The net cash positive status provides a robust foundation for future growth and resilience in uncertain times.
- Long-term Growth Drivers Remain Intact: India’s underpenetrated S&A footwear market, rising disposable incomes, and increasing health consciousness offer strong structural tailwinds, aligning well with Campus’s strategic direction. The benefits from BIS regulations are also a positive for organized players.
In essence, Campus Activewear is undertaking a strategic transformation, sacrificing some short-term volume and bottom-line growth to solidify its premium positioning. While the immediate impact on PAT raises questions, the significant ASP growth and gross margin improvement suggest the underlying strategy is sound. The challenge lies in efficiently scaling this premium strategy while meticulously managing operating expenses and inventory. As financial analysts, we will be closely watching for signs that the higher costs incurred in Q1 translate into sustained, profitable growth, validating this bold strategic pivot in the coming quarters.
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