When Trent Ltd announced results for the three months ended September, it marked the first time in many quarters that standalone revenue growth fell below 50% year-on-year. That trend has continued in the December quarter (Q3FY25), with revenue at ₹4,535 crore, representing a growth of almost 37%, down from 40% in Q2.
Moderating growth, along with steep valuations, weighed on investor sentiment, pushing the stock down by about 35% from its 52-week high of ₹8,345 apiece seen on 14 October. More recently, investors seem to be jittery about the impact of the launch of the Shein India app By Reliance Retail on 1 February.
This marks the return of the online fast fashion retailer Shein to the country after about five years since its ban. While the exact impact of this development on Trent will be clear over the coming quarters, this does increase competition in the sector.
For now, notwithstanding the growth moderation, Trent’s sales performance is still quite robust amid the company’s store consolidation and the general weakness in consumer sentiments. “While the recent results trajectory has been weaker than the past, we expect Trent to continue to outperform its peers,” wrote analysts from Kotak Institutional Equities in a report on 7 February.
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Trendy enough?
Trent’s fashion concepts clocked high-single-digit like-for-like growth in Q3, softer than the double-digit growth seen in Q2. It operated with a footprint of over 11 million square feet across its fashion brands as on 31 December, which is up 33% over a year ago.
Trent opened 12 Westside and 58 Zudio stores (including one in Dubai) on a net basis in Q3. Westside is the company’s fashion retail stores chain and Zudio is its value fashion format. Trent’s store portfolio included 238 Westside, 635 Zudio and 34 stores across other lifestyle concepts as on 31 December. Trent’s store portfolio optimization strategy involves upgrading or consolidating smaller footprint stores with newer stories in more attractive micro markets.
Regarding profitability, gross margin contracted 124 basis points (bps) year-on-year to 44.7%. Kotak’s analysts reckon this can be attributed to a higher mix of sales from Zudio and possibly a higher proportion of franchisee stores. “Higher franchisee share is also evidenced by slower-than-expected year-on-year growth in operating expenses (rental, employee and other expenses),” said the Kotak report. Ebitda growth in Q3 was 34% with the quantum of margin drop relatively smaller at 34 bps to 18.5%.
Meanwhile, Trent’s supermarket concept, Star, saw operating revenue growth of 25% in Q3 and double-digit like-for-like growth. “Calculated revenue per square foot (at Star) was up 4% year-on-year to Rs31,600 (versus +4% year-on-year for Avenue Supermarts at Rs39,000), and revenue per store increased 12% year-on-year to Rs51.2 crore (versus +4% year-on-year for Avenue Supermarts at Rs163 crore),” pointed out Motilal Oswal Financial Securities. Star’s total store count was steady sequentially at 74.
All said, Trent’s strong growth rates, backed by aggressive store additions, scaling up of Zudio and promising emerging categories, including beauty & personal care, offer a huge runway for growth over the next few years. But there are some hiccups.
“We are optimistic on Trent’s growth story while stretched valuation provides lower margin of safety,” said Centrum Broking, adding that it cut its multiple on the domestic business to 47x from 55x. Following the stock’s correction, it changed Trent’s rating to ‘buy’ from ‘add’ with a revised sum-of-the-parts-based target price of ₹6,245 (EV/Ebitda of 43.3x for FY27 estimates). Notably, Trent’s shares are still more than 40% higher in the last one year and currently trade at about ₹5,360 apiece.
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