What’s keeping Trent as a top-of-the-line retailer versus peers?
Trent Ltd’s stock has gained a whopping 232% in the past one year to ₹6,438. Investors are thrilled about the apparel retailer’s consistently high revenue growth. For instance, its standalone revenue grew nearly 90% y-o-y in FY22 on a favourable base, 99% in FY23 and 55% in FY24.
FY25 has started well with 57% revenue growth in the June quarter (Q1). That’s no mean feat at a time when many retailers have struggled to push their sales. Broadly, other retailers have cited fewer wedding days, heatwaves and the general elections as factors that capped their growth. Shoppers Stop’s revenue rose 5% in Q1, Go Fashion (India)’s 16%, Page Industries’s grew 4%, Bata India’s dipped 1.4%, Reliance Retail’s core retail revenue rose 7%.
“We acknowledge that companies such as Trent and Go Fashion possibly have lower salience on weddings than peers,” Kotak Institutional Equities analysts said. However, they believe this is not the sole reason for the divergence of Trent’s performance versus others. It could also be grabbing a share from rivals. “We believe Trent’s focus on merchandising and value-forit
Trent's year-on-year revenue growth and gross margin expansion were strong in Q1FY25 offering is keeping demand buoyant and perhaps leading to share gains versus other brands/retailers,” pointed out the 13 August Kotak report.
Sure, vigorous store expansion over time is a factor boosting Trent's growth. Last quarter, opened six Westside stores and 16 Zudio stores, taking the respective total count to 228 and 559 as of 30 June. Trent said its fashion concepts saw doubledigit like-for-like growth in Q1. Revenues from Trent’s value fashion format Zudio likely grew faster than Westside, its leading fashion concept. The vast store footprint aided Zudio’s growth. Despite higher Zudio presence in the sales mix, gross margin in Q1 expanded 170 basis points y-o-y to 46.2%. The emerging categories, including beauty and personal care, innerwear and footwear, are gaining traction and now contribute over 20% of standalone revenues.
Post results, analysts raised their earnings estimates for FY25 and FY26. Motilal Oswal Financial Services has increased its PAT estimates for FY25 and FY26 by 10% and 16%, respectively. “Based on strong revenue productivity, aggressive store additions, margin tailwinds from moderating raw material, and operating leverage, we estimate a compound annual growth rate of 41%/52% in revenue/pat over FY24-26,” said the broker.
Trent’s growth momentum looks poised to sustain, and the sharp rally in the shares suggests investors are capturing the brighter picture adequately, for now.