Retail: Demand weakness still there ….

23 Feb 2024 , 10:46 AM

In Q3FY24, demand weakness was felt across companies in the Retail sector barring few names like Titan, Trent, Nykaa, etc. Among the QSR space, Pizza continues to be impacted due to higher competition. Other QSRs were also impacted owing to high veg. days in Q3 and softer demand on non- festive days. In Jewellery, Titan continued its strong performance, given the good festive demand. Apparel retail, which started to witness demand pressures from Q3FY23, is yet to witness any meaningful uptick even as Trent continues to be an outlier in this space. 

Titan: Strong growth continues: 

Titan posted strong revenue growth of 23% (ex-bullion) YoY in the Jewellery business and margins came in at 12.2% and the company maintained its full year guidance of 12-13%. Timing effect of Shraad had some impact in Q3; however, the overall festive season was very good. Post festive period from December onwards, demand was soft because gold prices rose ~Rs200 between November and December. However, management mentioned that 4Q would be better and would likely see a rebound. 

QSR: Persistent demand weakness: 

Q3FY24 witnessed another weak quarter in terms of demand — evident in SSSG that has continued to deteriorate sequentially as well, due to softer demand on non-festive days, except for BBQ. Pizza remained the most impacted space, fuelled by intense competition apart from weak demand sentiment. KFC for both the franchises, which was holding till Q2, saw SSSG decline in Q3 that could have been impacted by higher number of veg. days in Oct’23. Ebitda margin (pre Ind AS) for the sector declined ~150bps YoY, owing to negative operating leverage. Overall, revenue growth for most QSR players in Q3 was largely driven by addition of new stores as SSSG continues to deteriorate QoQ and YoY. 

Apparel retail: 

Aggregate sales in the coverage universe grew 21% YoY (12% excluding Trent) and on a Q2 + Q3 basis, top-line growth was 18% (7% excluding Trent). SSS growth improved for most companies, aided by the festive mismatch — a phenomenon that benefitted formats with higher East India salience (V-Mart, Pantaloons). Overall demand trends remain subdued and management commentary across the board does not paint a rosy picture for the near term. Trent continues to be an outlier, driven by aggressive store additions in Zudio as well as healthy SSS growth in its fashion concepts (Westside + Zudio).