Campus Activewear Q1 FY26: Is This Bold Premium Play Hurting Profits?

Campus Activewear Limited (CAMPUS) has just unveiled its Q1 FY26 investor presentation, and the numbers tell an intriguing story of strategic shifts and market navigation. While the top-line growth appears modest at first glance, a deeper dive reveals a deliberate move towards premiumization that’s reshaping the company’s financial landscape.

Let’s unpack the key highlights and what they mean for Campus Activewear’s journey ahead, especially in the context of the current Indian economic climate, which favors domestic-growth themes but remains cautious due to global uncertainties.

The Strategic Shift: Premiumization Takes Center Stage

Campus Activewear reported a 1.2% year-on-year (YoY) revenue growth, reaching INR 343.3 crore in Q1 FY26. On a quarter-on-quarter (QoQ) basis, revenue declined by 15.4% from Q4 FY25, which is largely attributed to the typical seasonal slowdown in Q1 for the footwear industry.

What’s truly noteworthy, however, is the composition of this growth. Despite a substantial 11.6% YoY decline in sales volume (from 5.8 million pairs in Q1 FY25 to 5.1 million pairs in Q1 FY26), Campus managed to grow its revenue. How? Through a robust 14.5% YoY increase in Average Selling Price (ASP), which climbed to INR 671 per pair. This wasn’t accidental; it’s a clear reflection of the company’s aggressive premiumization strategy.

The investor presentation highlights this shift vividly:

• Revenue from products priced above INR 1,500 soared from 39.9% of total revenue in Q1 FY25 to an impressive 52.7% in Q1 FY26.
• Conversely, the contribution from entry-level products (below INR 1,050) significantly dropped from 30.7% to 19.3% in the same period.

This indicates management’s conscious decision to pivot towards higher-value segments, prioritizing profitability and brand perception over pure volume chase. While the market often loves volume growth, this price-led growth strategy, especially in a competitive consumer discretionary segment, is a bold move that could yield better margins in the long run.

Sales Performance Snapshot

Campus Activewear continues to show strong presence in the North region (40.5% contribution), with a slight increase in reliance on Trade Distribution channels (55.6% vs 52.0% in Q1 FY25) while D2C online contribution saw a minor dip. This suggests an adaptable strategy to push premium products through multiple channels.

The Profitability Puzzle: Gross Margin Up, PAT Down

Despite the successful premiumization driving ASP, the earnings picture presents a more nuanced challenge.

• Gross Margin saw a healthy increase, growing 6.4% YoY to INR 193.6 crore, with the gross margin percentage improving from 53.3% in Q1 FY25 to 55.4% in Q1 FY26. This is a direct benefit of selling higher-priced products.

However, this gain was offset by rising operational costs.

• Total Expenses grew by 8.0% YoY, outpacing the 1.2% revenue growth.
• Employee Costs jumped 12.0% YoY to INR 32.2 crore.
• Advertisement & Sales Promotion expenses rose 9.7% YoY to INR 27.9 crore.

This disproportionate increase in expenses led to a squeeze on the bottom line.

• EBITDA recorded a modest 2.5% YoY growth to INR 55.4 crore, with margins barely improving to 15.9%.
• Profit After Tax (PAT), however, declined by a notable 12.6% YoY to INR 22.2 crore, with PAT margins shrinking from 7.4% to 6.4%. The impact of higher finance costs and tax expenses further contributed to this decline, as indicated by PBT falling more sharply than EBITDA.

EBITDA & PAT Performance

The Q1 PAT decline, despite revenue growth, suggests that while the premiumization strategy is enhancing gross margins, the company is incurring higher fixed and variable costs (like marketing and employee expenses) to drive this transition. For a “fast grower” like Campus (with a 21% revenue CAGR from FY21-TTM), a temporary dip in earnings can be acceptable if it’s part of a strategic investment phase that promises future growth. The challenge for management will be to ensure these increased costs translate into sustainable revenue and earnings growth in the coming quarters.

Working Capital: A Mixed Bag

Efficient working capital management is crucial for growth-oriented companies.

• Days Sales Outstanding (DSO) improved notably to 131.8 days from 147.5 days in Q1 FY25, indicating faster collection from receivables. This is a positive sign of operational efficiency.
• Days Payables Outstanding (DPO) also increased to 224.5 days from 207.3 days, suggesting the company is effectively extending payment terms with suppliers, which helps conserve cash.

However, Days Inventory Outstanding (DIO) increased to 413.8 days in Q1 FY26 from 388.0 days in Q4 FY25. This rise in inventory days, despite a volume decline, could signal a slight build-up of stock, perhaps in anticipation of future demand for the new premium products, or a slower off-take in the seasonally weaker quarter. Consequently, Net Working Capital (NWC) Days increased QoQ from 308.1 to 321.1 days. Management will need to ensure inventory levels align with future sales projections to avoid potential liquidity issues.

Robust Balance Sheet and Future Outlook

One of the undeniable strengths of Campus Activewear is its balance sheet. The company has transitioned to a net cash positive position since FY24, with Net Debt / EBITDA comfortably in negative territory. This financial strength provides a strong buffer for future investments and unexpected market shifts.

Return ratios remain healthy, with ROCE at 20.6% and ROE at 16.2% on a TTM basis for Q1 FY26. While these have moderated slightly from their FY22-FY23 peaks, they still demonstrate efficient capital utilization.

Looking ahead, Campus Activewear’s growth vectors are clear: product diversification, sustained premiumization, enhancing omni-channel experience, expanding into new territories (especially West and South India), and leveraging the brand for women, children, and kids’ footwear. The underlying Indian S&A footwear market remains significantly underpenetrated, driven by rising disposable incomes, increasing fitness consciousness, and growing preference for branded products. This macro backdrop aligns well with Campus’s strategic direction.

Key Takeaways for Investors

Campus Activewear’s Q1 FY26 results present a company in a state of deliberate transformation.

1. Premiumization is Real: The significant increase in ASP and contribution from higher-priced products demonstrates a successful execution of this strategy. This bodes well for future gross margins and brand positioning.
2. Profitability Under Pressure (Temporarily?): The decline in PAT, despite gross margin improvement, is a concern that needs monitoring. Investors should look for signs in coming quarters that the increased operating expenses are leading to commensurate revenue acceleration or better expense management.
3. Working Capital Vigilance: While DSO and DPO improvements are positive, the uptick in DIO requires attention. Efficient inventory management will be key to optimizing cash flow.
4. Balance Sheet Strength: The net cash positive status is a huge plus, providing financial flexibility.
5. Long-term Potential: The structural tailwinds for the Indian S&A footwear market remain strong, positioning Campus Activewear as a key beneficiary, provided it executes its strategy effectively and manages its cost base.

In essence, Campus Activewear appears to be sacrificing some short-term volume and bottom-line growth to execute a premiumization strategy that could unlock significant value over the medium to long term. As financial analysts, we remain vigilant, assessing if this strategic pivot translates into sustained, profitable growth in the quarters to come. The Indian market, currently in a period of correction and cautious guidance, will be closely watching for clearer signals of this strategy’s success.

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