Trent Limited’s margin performance during the December quarter (Q3FY23) was forgettable. But it looks like investors are focusing more on revenue growth, with the apparel retailer beating estimates on that front.
Year-on-year (YoY), standalone revenue growth was 61% 2,171 crore, especially due to store expansion in Judio, which is the company’s value fashion concept. In the nine months ended December, Trent added 93 Judio stores and 11 Westside stores. Trent’s flagship concept, Westside, also saw healthy traction. In Q3, this store format saw 17% year-over-year growth. Overall, Trent’s three-year revenue compound annual growth rate (CAGR) was about 36% in Q3, and that’s nothing to sneeze at.
The stock closed nearly 9% higher on Thursday, adding up to gains of more than 25% over the past year. Sustained revenue growth is key to maintaining the stock’s momentum. Investors would also do well to track the margin trajectory, which hasn’t lived up to expectations over the last three quarters.
Q3 EBITDA (earnings before interest, tax, depreciation and amortization) growth was relatively low at 25% on a three-year CAGR basis. Ebitda margin fell 619 basis points to 15.5%. The growing share of Judio stores that cater to the lower priced product range is a major factor weighing on profitability. While Trent has been adding stores at a rapid pace, operating leverage is not yet fully operational. Thus, some analysts have cut FY24 EBITDA estimates for Trent.
In the value segment, Trent’s peers such as V-Mart Retail Ltd. are bearing the brunt of the K-shaped economic recovery. Demand in the mass segment remains weak. Against this backdrop, it helps that Judio is doing well.
“The discretionary category is witnessing a challenging demand environment, but Trent continues to grow at a healthy pace with steady same-store sales growth,” said analysts at Motilal Oswal Financial Services Ltd in a February 9 report. Nevertheless, the signs of slowdown in the urban sector warrant a close watch on demand. Shares of Trent are likely to be weighed down by worries about falling demand, which are down 14% from their 52-week high. 1,566 each. Still, valuations aren’t exactly cheap.
Following the third quarter results, analysts at Kotak Institutional Equities have cut their FY2024-25E earnings per share forecast by 3-4% on more modest margin assumptions. “It leads to a revised fair value 1,300 ( 1,320 earlier), “said analysts in a report. Shares of Trent closed 1,341.90 on Thursday to Rs.
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