Q2FY24 Review: Trent: Stellar run continues

8 Nov 2023 , 01:25 PM

Trent has continued its stellar run, reporting a 59% top-line growth in Q2FY24 (11% above analysts of IIFL Capital Services estimate), driven by store additions in Zudio as well as sharp sales ramp up in younger Zudio stores. Higher top-line and better gross margins resulted in a large beat at Ebitda and PAT level (up 72%/56% respectively). In an environment where most peers in apparel retail have reported a decline in same store sales, Trent’s same store sales grew 10% in Q2FY24. With 77 net store additions in Zudio YTD, Trent is well on track to meet analysts of IIFL Capital Services estimate of 150 annual store additions in this format. Maintain BUY with a TP of Rs2,730. 

All round beat: 

Trent delivered a robust Q2FY24 performance, above analysts of IIFL Capital Services estimates on all fronts, driven by a large beat on top-line and better than expected gross margin. Net sales (standalone) grew 59.5% (11% above analysts of IIFL Capital Services estimate), while reported Ebitda grew 72% YoY with Ebitda margin at 15.9%. They estimate pre IND AS Ebitda margin at ~10% in 1HFY24 which is flat YoY. Trent added 2/23 stores in Westside/Zudio respectively on a net basis during the quarter. Despite being an EOSS quarter, gross margin was flat QoQ. Emerging categories such as beauty, personal care, innerwear and footwear contributed 19% to revenues. 

Stellar performance amid broad slowdown: 

While most peers in apparel retail have reported a decline in same store sales in Q2, owing to continued demand weakness and a festive mismatch, Trent continues to be an outlier with a same store sales growth of 10% across its fashion concepts (vs. 12% growth in Q1FY24). While the top-line growth is largely being driven by store additions in Zudio,  analysts of IIFL Capital Services believe the sales ramp up in young Zudio stores has also been above expectations, driving the top-line beat. 

Adj Ebitda upgrade of ~10-11% over FY24-26: 

As highlighted in analysts of IIFL Capital Services recent note, Trent is currently in a sweet spot and has embarked on a high growth phase for the medium term. It has added 77 Zudio stores YTD (including 3Q) and is well on track to meet their full year estimate of 150 net store additions in this format.  Analysts of IIFL Capital Services factor in the Q2 beat which is resulting in a 9-12% upgrade in their sales/Ebitda estimates for FY24-26, driven largely by higher sales throughput in Zudio stores. They forecast sales/Ebitda Cagr of 34%/35% over FY23-28. Maintain BUY with a TP of Rs2,730.