Discretionary Spending: Jewellery, Footwear Lead Growth – Sector Outlook & Top Picks
- Consumer discretionary spending is showing a mixed picture, but certain sectors are emerging as clear outperformers, according to recent analysis.
- Gaurav Jogani, of JM Financial Institutional Securities, highlighted the strength in jewellery, attributing it largely to a 65% year-on-year increase in gold prices.
- The quick-service restaurant (QSR) sector is stabilizing, but growth is increasingly reliant on promotional pricing.
Consumer discretionary spending is showing a mixed picture, but certain sectors are emerging as clear outperformers, according to recent analysis. Jewellery and footwear are currently driving growth, while quick-service restaurants are navigating a challenging environment focused on value and cost management.
Gaurav Jogani, of JM Financial Institutional Securities, highlighted the strength in jewellery, attributing it largely to a increase in gold prices. “Apart from this, the footwear segment was a surprise,” Jogani noted. “Casual premium footwear players grew in the mid-teens, and grocery players also performed well. Apparel had a mixed bag performance due to an early festive season shift and a delayed winter.”
QSR Sector Adapts to Price Sensitivity
The quick-service restaurant (QSR) sector is stabilizing, but growth is increasingly reliant on promotional pricing. Jogani explained that QSRs are responding to consumer trends by “driving value through discounts and combo offers.” While transaction volumes have stabilized, these price reductions are impacting same-store sales growth.
Despite the pressure on sales, QSR margins have been surprisingly resilient. Cost-cutting measures and a reduction in unnecessary discounting have contributed to improved gross margins. “Gross margins improved, and cost management led to better than expected margins,” Jogani said. “We expect this trend to continue into , though sequentially margins may dip as it is a non-seasonal quarter.”
Balancing Promotions with Brand Value
The reliance on discounting raises concerns about the long-term impact on brand equity. However, Jogani observed a shift away from deep discounting towards value-focused combinations. “The intensity of discounting has reduced. Players are now focusing on value combos to drive footfalls. This has helped improve gross margins while sustaining consumer interest.” This suggests a more strategic approach to promotions, aiming to attract customers without eroding brand perception.
Company Performance and Sector Valuations
Within the discretionary sector, Titan is highlighted as a strong performer, demonstrating robust topline growth despite the volatility in gold prices. “Titan is driving EBITDA growth in a calibrated manner, leading to earnings upgrades,” Jogani stated. The footwear sector is also showing signs of revival, potentially benefiting from future Goods and Services Tax (GST) adjustments extending to a wider range of discretionary items.
Valuations across both the QSR and broader discretionary sectors have corrected from previous highs, suggesting limited downside risk. “If SSSG growth rates revive, we could see a bottom in valuations and earnings,” Jogani commented. This indicates that a recovery in same-store sales growth could be a key catalyst for improved investor sentiment.
M&A Activity and Industry Consolidation
Looking at broader industry trends, recent data from Greenwich GP indicates a slight increase in M&A activity within the North American Consumer Discretionary industries, up approximately compared to . However, M&A activity declined in the eCommerce, Jewellery, Footwear & Apparel sectors during .
Jogani downplayed the threat from regional cloud kitchens, citing consolidation within that sector driven by macroeconomic pressures and funding constraints. This suggests a more stable competitive landscape in the QSR space.
Key Metrics to Watch
Looking ahead, investors and analysts will be closely monitoring same-store sales growth (SSSG) and brand contribution margins. Sustained cost rationalization and advertising efficiencies will also be critical factors influencing performance in the upcoming quarter. These metrics will provide insights into the underlying health of consumer discretionary businesses and their ability to navigate the evolving economic environment.
Top Picks for Investors
Jogani identified several companies as preferred picks within the discretionary space. These include Titan, Lenskart, Metro Brands, and Vishal Mega Mart. In the QSR sector, Devyani and Sapphire are recommended buys. These selections reflect a positive outlook for these companies based on their current performance and growth potential.
The overall picture suggests a consumer discretionary sector navigating a complex landscape. While challenges remain, particularly in the QSR space, certain segments like jewellery and footwear are demonstrating resilience and growth. The ability of companies to manage costs, adapt to changing consumer preferences, and maintain brand value will be crucial for success in the coming quarters.