Trent Q2 Profit Weighed By Zudio, Westside Store Closures, Say Analysts

Trent Ltd. posted solid revenue and profit growth in the second quarter of fiscal 2025, but still fell short of analysts' 'elevated' expectations, mainly due to store consolidations and a slowdown in additions. The Tata group’s retail arm saw a 47% rise in net profit to Rs 335 crore, short of the Rs 431 crore estimate projected by Bloomberg analysts. 

While Motilal Oswal Financial Services said that Trent maintained its 'industry-leading pace of expansion', brokerages collectively were also in consensus about a considerable moderation in growth rates, particularly in store openings, which has raised questions about future momentum.

The company’s revenue grew by 40% year-on-year, propelled by the performance of Zudio and Westside stores. Despite the robust growth, the revenue fell short of projections by approximately 6%, primarily due to the consolidation of 16 Zudio and nine Westside locations to enhance operational efficiency. Ebitda margins, a key indicator of operational profitability, remained stable at 15.9%, in line with past quarters reflecting Trent's resilience despite higher rental expenses and slight declines in gross margins.

Motilal Oswal: Maintained a 'buy' rating with a target price of Rs 8,200, citing Trent’s ability to outperform consumer sentiment trends with steady growth and resilient margins. The brokerage acknowledged, however, that the company's revenue and Ebitda were 6-8% below expectations, largely due to store consolidation. Trent's strong track record is anticipated to continue, driven by ambitious expansion plans and a focus on high-performing stores.

Jefferies: The brokerage, taking a more cautious view with a 'hold' rating and a target price of Rs 5,900, pointed out that while Trent’s revenue growth remains strong at 40%, the pace has moderated from previous quarters where it consistently exceeded 50% growth. Jefferies noted challenges, including weak consumer sentiment and seasonal factors, but noted that management remains confident about long-term opportunities. Their report also flagged the store closures, especially in Zudio and Westside formats, as a potential indicator of future moderation in growth.

Nuvama Institutional Equities: Retained a 'buy' rating with a target price of Rs 7,475 per share, noting that Trent’s growth softened from previous highs due to the impact of store closures. Nonetheless, they emphasised Trent’s ongoing leadership in the retail industry, with Ebitda margins remaining resilient. Nuvama highlighted Trent’s focus on emerging categories, such as beauty and footwear, alongside the Zudio and Star Bazaar segments, which continues to strengthen its growth outlook.

Bernstein Research: Retained an 'outperform' rating on the stock with a target price of Rs 8,100 per share, implying a potential upside of 16%. The primary metric for the company, which is its growth, was soft, said the brokerage. But recovery is underway despite the slowdown in store additions. Zudio store growth is indicative of a rapid store network increase. Revenue per store is roughly 10% across Zudio and Westside, in-line with management commentary. 

Despite the moderation during the quarter, brokerages collectively see a strong runway for Trent’s growth. The company’s success in new categories such as beauty and lab-grown diamonds, its strategic store additions in high-demand areas, and the ramp-up of Star Bazaar with its own brand offerings present substantial growth opportunities. However, slower-than-expected store additions and consolidation in key segments are watchpoints for potential growth constraints.

• Revenue up 39% to Rs 4,157 crore (Bloomberg estimate: Rs 4,388 crore).

• Ebitda up 41% to Rs 643 crore (Bloomberg estimate: Rs 670 crore).

• Margins at 15.5% versus 15.3% (Bloomberg estimate: 15.3%).

• Net profit up 47% at Rs 335 crore (Bloomberg estimate: Rs 431 crore).

Trent stock fell as much as 3.62% during the day, before paring gains to trade 2.31% lower at Rs 6,355.20 apiece as of 10:42 a.m., compared to a 0.06% decline in the benchmark Nifty 50. 

It has risen 156.90% in the last 12 months and 106.49% on a year-to-date basis. Total traded volume so far in the day stood at 3.6 times its 30-day average. The relative strength index was at 22.42 indicating that the stock is oversold.

Of the 21 analysts tracking Trent, 13 have a 'buy' rating on the stock, four recommend a 'hold' and four suggest a 'sell', according to Bloomberg data. The average of 12-month analysts' price target implies a potential upside of 7.3%.