Sales recovery, margin gains help Trent outperform peers in Sept quarter

Aggressive expansion and good execution are expected to could keep growth rates elevated going ahead

The Trent stock gained about 5.3 per cent in trade on Wednesday and was among the top gainers in the BSE 200 Index. The gains came after the company beat analyst estimates in the September quarter across all parameters. 

Led by strong store additions, the company posted its best ever quarterly revenue performance. On a lower base, sales in the quarter at Rs 1,040 crore was up 2.2 times over the year ago quarter. Store additions grew by 46 per cent helping the company achieve revenues which were 25 per cent above pre-Covid levels. On a like-to-like basis however sales were lower than pre-Covid run rate. 

Easing of restrictions especially in the latter half of the quarter boosted consumer sentiment and demand, helping the company keep its Westside and Zudio stores open for 91 per cent of the trading days up from 46 per cent in Q1FY22. Retail expansion continues to remain strong with Trent adding seven Westside and ten Zudio stores in the quarter with total count for both standing at 191 and 147 respectively. Westside’s online sales was up 95 per cent y-o-y and accounts for 5 per cent of revenues. 

While the topline performance was best among peers, the company also delivered a strong operating performance. Analysts at Motilal Oswal Research point out that margin performance was good despite revenues being below pre-COVID levels on a like to like basis. The reported gross margins improved by over 1,000 basis points y-o-y to 52 per cent while it was higher by 428 basis points from the pre-covid margins in Q2FY20 despite higher raw material costs. Higher gross margins and cost control efforts helped improve operating profit performance by 540 basis points to 21.7 per cent. 

Brokerages have marginally increased their earnings estimates for FY22 post the Q2 performance and expectations that the growth momentum would continue on the back of improved demand during the festive season. 

The triggers for the stock in the medium term, according to Sharekhan are innovation in product portfolio, scaling up of supply chain, higher margin private label portfolio, aggressive store expansions and digital sales.

While prospects for the company are bright, the stock which is up nearly 40 per cent over the past six months factors in most of the gains. Investors can consider the stock, which is trading at 98.4 times its FY23 earnings estimates, on dips.