Trent shares slide as Q1 revenue growth fails to reassure investors
Trent's shares fell after Q1 results showed revenue growth below expectations, with like-for-like sales remaining in low single digits.
Shares of Trent, the Tata Group's fashion retail arm, fell as much as 3.06% on Friday as investors looked past a first-quarter profit beat and focused on the pace of revenue expansion. The stock was trading 2.79% lower at 3,020.20 rupees by mid-session, a day after the company reported a 22% jump in quarterly profit.
The earnings were supported by margin expansion and the continued rollout of its Westside and Zudio store chains. However, revenue rose 18% to 57.55 billion rupees, falling short of the 20%-21% growth that several brokerages expect over the medium term.
A key concern remains like-for-like growth, which stayed in the low single digits for a second consecutive quarter. "Growth continues to be driven primarily by store expansion while like-for-like growth remains in the low single digits," said Chetan Mahadik, AVP - consumer discretionary at brokerage Systematix Group. He added that a longer maturity curve for newer stores could weigh on near-term productivity, even as expansion into smaller cities remains a long-term growth driver.
Investor caution has been building since Trent's softer-than-expected business update last month, which triggered a 12% drop in the stock on July 7. On Thursday, shares gave up an intra-day gain of as much as 3.7% after the earnings release, ending the session 0.7% lower.
India's large apparel retailers are increasingly expanding into smaller cities to tap rising incomes and demand for branded fashion. But investors are now paying closer attention to store productivity and like-for-like sales, as rapid network expansion temporarily weighs on revenue per store.
Brokerages believe faster revenue growth is the next catalyst for Trent's stock. Citi noted that first-quarter revenue was about 4% below its estimates despite stronger margins, and that faster sales growth would be needed to sustain the retailer's valuation multiples. Bernstein said Trent continued to deliver on profitability, but revenue productivity per square foot declined as rapid expansion into newer markets weighed on store productivity.