When the bar is set high, every shortfall appears glaring. A case in point is Trent Ltd’s September quarter (Q2FY25) results where the retailer clocked almost 40% standalone revenue growth to ₹4,036 crore. Taken in isolation, growth is simply stellar. However, it is a moderation from the 50% plus growth rates seen in recent quarters and also below some analysts’ expectations.
The September quarter revenue growth missed the 50% mark for the first time since Q4FY21, pointed out analysts from Nuvama Institutional Equities in a report on 7 November. “The growth is still healthy though, given the persistent slowdown in consumption; in fact, Trent’s growth is still industry-leading,” added the Nuvama report.
But investors aren’t pleased. Trent’s shares are down close to 10% in the past two trading days. With this, the stock is about 25% lower than its 52-week high of ₹8,345 apiece seen on 14 October.
The closure of 25 stores–16 Zudio and nine Westside–capped overall growth this time around. Zudio is Trent’s value fashion format and Westside is the company’s leading fashion concept. As on 30 September, the company’s portfolio comprised 226 Westside stores, 577 Zudio stores and 28 stores across other lifestyle concepts.
Trent said that its fashion concepts registered double-digit like-for-like growth during the last quarter. Nonetheless, gross margin contracts by 50 basis points year-on-year to 44.2%. The drop in gross margin could be attributed to higher mix of sales from Zudio. One basis point is one-hundredth of a percentage point.
But, Ebitda margin contraction was curbed and the measure was flattish at 15.9%. Ebitda is short for earnings before interest, tax, depreciation and amortization. As such, profit margins have missed analysts’ expectations.
Kotak Institutional Equities has trimmed its FY25-FY27 estimated revenue by 2-5%, assuming a more moderate area addition, driving a 4-6% earnings per share cut.
Meanwhile, Trent’s Star business continued to witness improved customer traction with growing sales densities. This business saw a like-for-like growth of more than 14% and operating revenue growth of 27% in Q2FY25. “In its annual general meeting in June 2024, the company singled out this business as its next dominant growth driver, and we expect higher store additions going forward,” said Kotak’s analysts in a report on 7 November. Star is present in the food, grocery and daily needs segment.
So far in 2024, Trent’s shares have more than doubled, beating the Nifty 50’s 11% returns by a wide margin. Hereon, investors will watch if growth picks up after the last quarter.
Growth in the December quarter should benefit from favourable festive trends. No doubt, from a medium-to-long-term perspective, Trent has a huge runway for growth on the back of store expansion and newer categories such as beauty. Even so, the sharp run-up in the stock may well curtail significant upsides in the near term.
