Clothing company Trent’s expansion seamlessly aligns with growth success

4 minutes of reading Last update: August 11, 2024 | 22:50 IST

Shares of Trent, the largest listed apparel retailer, surged on Friday after the company beat market expectations for the April-June quarter (Q1) of 2024-25 (FY25). The Tata-owned firm added 11.2 per cent to its shareholder wealth in a single day, taking its weekly gains to 16 per cent. The stock has been a top wealth creator in the S&P BSE 100 over the past year, rising 3.3 times or 231 per cent.

Standalone revenue for the quarter grew 56 per cent year-on-year (YoY) to Rs 3,992 crore (consolidated at Rs 4,104 crore), which was on a high base. It had grown 46 per cent in the previous quarter. The company has more than doubled its revenue in the last eight quarters and has grown 12-fold since Q1 2021-22.

The company’s growth in the June quarter was driven by both like-for-like (LFL) improvement and store expansion. The company reported double-digit LFL growth for its fashion concepts (Westside and Zudio).

Westside added six stores in the quarter, while Zudio expanded with 16 stores in 12 cities. Compared with the previous year, Westside’s store additions were in the mid-single digits, while Zudio grew 44 percent.

The company noted that both Westside and Zudio continue to gain popularity despite challenges including hot weather in some regions and the general election.

Noel Naval Tata, CEO of Trent, commented: “The overall market sentiment remains subdued and competition is intensifying. For our part, we continue to see encouraging traction for our lifestyle offerings across brands, concepts, categories and channels.”

Trent’s results stand out among its peers struggling to grow sales.

Aditya Birla Fashion and Retail (ABFRL) reported 7.3 per cent growth in consolidated revenue, while standalone revenue growth remained at 0.6 per cent. Its lifestyle brands contracted 5 per cent year-on-year with negative single-digit LFL growth.

Analysts at Nuvama Research, led by Rajiv Bharati, noted, “ABFRL reported moderate revenue growth amid an overall slowdown in discretionary consumption. While Pantaloons fared relatively well, riding on stronger demand from the value segment, ethnic and lifestyle businesses suffered due to a delayed wedding season.”

Despite a strong seasonal quarter, Page Industries also reported weak revenue growth of 4% on a 3% increase in volume. The company’s recovery could be delayed, given that the 4% increase was based on a weak base during a typically strong sales period.

The strong revenue performance is reflected in the company’s operating performance. Consolidated gross margins were 45.1 per cent, up 188 basis points (bps) on the back of operating leverage and moderate input costs. Operating profit (earnings before interest and tax) rose 113 per cent to Rs 417 crore, while consolidated operating profit rose 105 per cent to Rs 445 crore. This growth came despite a 64 per cent increase in staff and rent costs and a 57 per cent increase in other expenses. The company reported an operating profit margin of 10.6 per cent, up 280 bps over the previous year, despite a growing share of lower-margin Zudio stores.

In addition to the fashion business, investors will be monitoring the progress of the Star hypermarket format stores. The 72-store business saw revenue growth of 29 percent and LFL growth of 20 percent. The company saw improved operating performance across its brands, staples, fresh produce and general merchandise offerings, which now account for more than 70 percent of revenue. With strong customer pull, the Star business is expected to become an additional growth engine and boost overall profitability.

Centrum Research raised its earnings forecasts for fiscal 2025 and 2025-26 by 11-13.5 percent on continued store expansion and improved financial performance.

Analysts Shirish Pardeshi and Nikhil Kamble of Centrum Research said, “In a challenging environment across categories, with aggressive store expansion, Trent has seen solid consumer traction and healthy LFL growth. This indicates a successful marketing strategy that drives value for money customers, sharp pricing leading to customer traffic and the right store matrix.”

The brokerage has given the stock an “add” rating, noting that valuations at 131 times FY25 earnings are stretched.

First published: August 11, 2024 | 22:50 IST