Strong revenue growth, margin expansion ahead for retail major Trent

Retail major Trent reported strong standalone revenue growth of 52.5 per cent year-on-year (y-o-y) led by 10 per cent growth in like-for-like (L-F-L) sales alongside store additions in Q3FY24.

As raw material costs are reduced, it has led to a sharp improvement in the gross margin improvement.

Cost controls led to operating profit and net profit growth of 86 per cent and 112 per cent y-o-y respectively.

The consolidated revenue grew 51 per cent y-o-y to Rs 3,470 crore and reported operating profit doubled y-o-y to Rs 630 crore with 18.1 per cent margin (+410 basis points or bps y-o-y).

The adjusted consolidated net profit stood at Rs 340 crore (Rs 120 crore in Q3FY23).

The stock markets’ enthusiastic response to the results has driven the share up by 25 per cent in just two sessions.

Given the strong revenue growth, aggressive store additions, and margin expansions from lower raw materials and operating leverage, analysts are seeing a 30 per cent operating profit and revenue growth over FY24-26.

 

Trent’s standalone revenue growth of 52.5 per cent to Rs 3,310 crore was due to healthy store additions and an impressive 10 per cent like for like growth.

Westside’s revenue is estimated to have risen 24 per cent y-o-y to Rs 1,540 crore. It added five new stores and closed one, taking the net total to 227 stores.

Zudio’s revenue rose 93 per cent y-o-y to Rs 1,760 crore, led by a strong footprint increase of 41 per cent y-o-y.

It added 50 new stores and closed one, taking the total count to 460 stores.

Star Bazaar’s revenue rose 26 per cent y-o-y to Rs 760 crore, driven by a big like-for-like jump of 24 per cent y-o-y.

It added two stores (net), taking the count to 67 stores.

The gross profit grew 54 per cent y-o-y to Rs 1,520 crore, while margin expanded 60bps y-o-y to 46 per cent attributable to lower raw material costs.

Trent was among the few retailers that did not hike prices in the FY22-23 raw material upcycle, and it is benefiting from moderating raw material prices.

The employees and other expenses grew by 53 per cent and 34 per cent y-o-y to Rs 240 crore and Rs 650 crore.

The operating profit jumped 86 per cent y-o-y to Rs 623 crore led by the gross margin improvement, and leverage in other expenses. Margin improved 340 bps Y-o-Y to 18.8 per cent.

The net profit surged 112 per cent y-o-y to Rs 340 crore led by strong same-store sales, aggressive store additions, raw material moderation, and better operating leverage.

According to the management, the EBIT margin (pre-Ind AS accounting standard) stood at 13 per cent versus 8.5 per cent in Q3FY23.

The “fashion concept formats” registered LFL growth of over 10 per cent y-o-y for Q3FY24.

The portfolio included 227 Westside, 460 Zudio, and 28 stores across other lifestyle concepts.

In 9MFY24, Trent has added 125 stores across all the lines.

Emerging categories, including beauty and personal care, innerwear, and footwear contributed to over 19 per cent of the standalone revenue.

Online revenue continued to grow via Westside.com and other Tata group platforms and online contributes over 5 per cent of Westside’s revenues.

Star Bazaar – the grocery arm is seeing very strong LFL growth despite a limited footprint (67 stores, 10 cities).

This is commendable given the challenging demand environment.

Unlike peers that passed on the sharp RM price increases last fiscal, Trent absorbed the impact, seeing strong customer response to holding the price line.

It is now reaping the benefits. It has a strong balance sheet despite the expansion.  The stock hit a high of Rs 3,970 before dropping to Rs 3,840 on profit-taking.

It is up 21 per cent in the last month and up 26 per cent in the last two sessions.