Trent stock hits new highs on strong Q1 revenue, but beware of risks

Note that Q1FY23 was the first normal quarter in the last three years and as such, stalled demand is likely to end. On a three-year compound annual growth rate, overall revenue growth stood at 29%.

But the good news ends here. The company failed to convert the pace of revenue growth into margins.

Trent’s Q1 gross margin was flat at 49.3% sequentially and down 370 basis points versus Q1FY20. One basis point is 0.01%. Further, increase in cost of staff and other expenses meant Ebitda (earnings before interest, taxes, depreciation and amortization) margin was below Q1FY20 levels at 18.4% and the measure also missed analysts’ estimates.

Note that overall margins are expected to be impacted as Trent focuses on store expansion. The company currently has a portfolio of over 450 fashion stores.

“While sharp growth in Judio may have eroded margins, Westside margins have also seen a sharp decline as discounts and promotions return to intensity,” analysts at Jefferies India said in a report on August 11.

Meanwhile, investors seem to be holding enough of the optimism as shares have risen 27% so far in calendar year 2022, well ahead of the Nifty 500 index’s appreciation of around 1% in the same period.

Strong revenue growth is driving earnings growth for the stock, but valuations are a turning point. Analysts at IDBI Capital Markets & Securities Ltd have increased their FY13-24 earnings per share estimate by 5-7%, driven by better-than-expected performance in revenues, but due to costlier valuations by the domestic brokerage house. Has maintained a sales rating. Stores.

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