The stock of Trent, the largest listed apparel retail company, surged on Friday after the company exceeded Street expectations for the April-June quarter (Q1) of 2024-25 (FY25). The Tata-owned company boosted shareholder wealth by 11.2 per cent in a single day, bringing the week’s gains to 16 per cent. Over the past year, the stock has been a top wealth creator in the S&P BSE 100, rising 3.3 times, or 231 per cent.
Standalone revenues for the quarter increased by 56 per cent year-on-year (Y-o-Y) to Rs 3,992 crore (consolidated at Rs 4,104 crore), coming off a high base. The previous year’s quarter had registered a growth of 46 per cent. The company has more than doubled its revenue over the past eight quarters, with a twelvefold increase since Q1 of 2021-22.
Growth for the company in the June quarter was driven by both like-for-like (LFL) improvement and expansion of the store network. The company reported double-digit LFL growth for its fashion concepts (Westside and Zudio).
Westside added six stores during the quarter, while Zudio expanded by 16 stores across 12 cities. Compared to the previous year, Westside’s store additions were in the mid-single digits, whereas Zudio’s grew by 44 per cent.
Noel Naval Tata, chairman of Trent, commented, “The overall market sentiment remains subdued with increased competitive intensity. On our part, we continue to witness encouraging traction for our lifestyle offerings across brands, concepts, categories, and channels.”
Trent’s performance stands out as peers struggle with sales growth.
Aditya Birla Fashion and Retail (ABFRL) reported a 7.3 per cent increase in consolidated revenues, while standalone revenue growth was flat at 0.6 per cent. Its lifestyle brands contracted 5 per cent Y-o-Y with negative single-digit LFL growth.
Analysts at Nuvama Research, led by Rajiv Bharati, observed, “ABFRL posted muted top-line growth amid a broader slowdown in discretionary consumption. While Pantaloons performed relatively well, benefiting from stronger demand in the value segment, the ethnic and lifestyle businesses were hurt by the delayed wedding season.”
Despite being a seasonally strong quarter, Page Industries also reported weak 4 per cent revenue growth on a 3 per cent volume improvement. There may be a delayed recovery for the company, given that the 4 per cent growth was based on a soft base during a typically robust sales period.
The strong revenue performance is mirrored in the company’s operating results. Consolidated gross margins were 45.1 per cent, 188 basis points (bps) higher due to operating leverage and moderated input costs. Operating profit (earnings before interest and tax) grew by 113 per cent to Rs 417 crore, while consolidated operating profit increased by 105 per cent to Rs 445 crore. This growth occurred despite a 64 per cent rise in employee and rental costs and a 57 per cent increase in other expenses. The company reported an operating profit margin of 10.6 per cent, 280 bps higher than the previous year, despite a growing share of lower-margin Zudio stores.
In addition to the fashion business, investors will monitor the progress of the Star hypermarket format stores. The 72-store business recorded revenue growth of 29 per cent and LFL growth of 20 per cent. The company reported improved operating performance across its brands, staples, fresh products, and general merchandise offerings, which now contribute over 70 per cent of revenues. With strong customer traction, the Star business is expected to become an additional growth engine and boost overall profitability.
Centrum Research has raised its FY25 and 2025-26 earnings forecasts by 11-13.5 per cent due to continued store expansion and earnings outperformance.
Analysts Shirish Pardeshi and Nikhil Kamble of Centrum Research said, “In a challenging environment across categories, with aggressive store expansion, Trent witnessed robust consumer traction and healthy LFL growth. This indicates a successful marketing strategy driving value-for-money customers, sharp price points leading to customer traffic, and the right store matrix.”
The brokerage has an ‘add’ rating, noting that valuations at 131 times its FY25 earnings are in stretched territory.
First Published: Aug 11 2024 | 10:50 PM IST
