Trent's Q2 margin, growth bring cheer. Can it sustain the momentum?
Trent Ltd's shares were trading 6% higher on Friday after the September quarter (Q2FY27) results showed some bright spots. First, the retailer’s like-for-like growth for its fashion portfolio stood at mid-single digits in Q2, an improvement from a low-single digit growth in Q1. The pick-up in like-for-like growth is encouraging as broader demand trends are still largely subdued. Also, the festive season has shifted to Q3 this year. Of course, investors will watch if higher like-for-like growth sustains.
Secondly, standalone Ebitda margin expanded by 99 basis points year-on-year to 18.2%. Ebitda is a key measure of profitability and is short for earnings before interest, taxes, depreciation and amortization. This comes in the backdrop of elevated inflation. “The volatile geopolitical circumstances, interest rate trends and supply-chain disruptions continue to contribute to this playout,” said the company's Q2 investor presentation.
Margin expansion meant Trent’s Ebitda increased by almost 30% year-on-year, faster than the 22.5% growth in revenues to ₹5,788 crore. The Westside format is estimated to have delivered a better same-store sales growth. Emerging categories, including beauty & personal care, innerwear and footwear contributed over 21% to Trent’s Q2FY27 revenues.
Store additions have been an important growth driver. On a net basis, Trent opened 10 Westside and 17 Zudio stores in Q2FY27. The company is improving its presence in select existing catchments, while expanding into secondary cities and emerging micro-markets. Approximately 85% of Zudio stores opened last quarter were in peripheral growth markets or in tier-II cities and beyond. As on 30 September, Trent’s store portfolio included 311 Westside, 999 Zudio (including 7 stores in the UAE) and 32 stores across other lifestyle concepts.
The management highlighted that greater cluster density, coupled with an improving customer proposition, is delivering encouraging revenue throughput. While newer and secondary markets offer attractive growth potential, they have a relatively longer maturity profile.
Going ahead, inflationary pressures remain a primary threat to margins. According to Trent, sourcing efficiencies and broader supplier engagements continue to help in navigating inflationary headwinds. “While near-term earnings growth is relatively subdued owing to inflation, we expect a meaningful acceleration in FY28E, with earnings growth of 25% in FY27E-29E,” said Elara Securities (India). Store additions, better profitability at Westside and like-for-like recovery at Zudio could drive standalone earnings per share (EPS) growth.
Trent’s shares are currently about 10% below their 52-week highs of ₹3,399.70 seen on 3 July. ICICI Securities has maintained their ‘Add’ rating on Trent stock with a revised target price of ₹3,150 ( ₹3,000 earlier), based on a sum-of-the-parts based valuation. “At our target price, the stock would trade at a price-to-earnings multiple of 58x on September 2028 estimated EPS,” said the broking firm’s analysts in a report dated 30 October. Rising competitive intensity and slower-than-expected sales growth are key risks for Trent.