Trent Q4's revenue growth slows, stock sinks 4%; should you buy, sell, or hold?

Trent reported its slowest revenue growth since FY2021.

Value retail chain Trent Ltd.'s shares sank four percent in trade on Wednesday, April 30, after the Tata Group firm's revenue growth moderated to multi quarter-lows for the quarter ended March.

Trent reported revenue from operations of approximately Rs 4,217 crore for the fourth quarter, marking a year-on-year growth of nearly 28 percent. Excluding a one-time gain of Rs 543 crore in the base quarter, its adjusted profit stood at Rs 318.15 crore, up from Rs 128 crore in the same period last year.

The Tata-group company has reported its slowest revenue growth since FY21 in the January-March quarter, joining a growing list of global and Indian apparel brands that are now grappling with a sharp deceleration in revenue growth, a reversal from the boom seen in the immediate aftermath of the pandemic.

At 9.40 am, Trent shares were quoting Rs 5,185.5 on the NSE, lower by 3.8 percent compared to the previous close.

In FY25, the apparel player opened 40 Westside and 244 Zudio stores and consolidated 24 Westside & Zudio stores each. As of 31st March, the store portfolio included 248 Westside, 765 Zudio and 30  stores across other lifestyle concepts.

"We are evolving the quality of our store portfolio and we are consciously increasing the density of our presence in such markets. Given the business model choices and the intent to drive share of revenue in key markets, we believe, it would be appropriate to pursue revenue growth across

comparative micro markets vis-à-vis just the performance of comparative stores," said the firm in a filing with the bourses.

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Trent's EBIT margin expanded 100 bps in Q4FY25 even with mid-single digit like-for-like (LFL) growth, lower than high-single digit LFL in Q3FY25, which did not drive operating leverage.

Nuvama Institutional Equities suggested that Trent's slowing LFL growth could be due to a combination of various factors: weakening demand, cannibalisation from new stores in same micro-areas, potential over-competition and base effects. "Moreover, falling LFL growth in the Star portfolio presents a concern that needs resolution for the format to achieve meaningful scale."

The domestic brokerage trimmed its price target on Trent to Rs 6,224, down from Rs 6,662 earlier, while maintaining its 'buy' target.

Global broking house Morgan Stanley maintained its 'overweight' call, with a price target of Rs 6,359 apiece, stating that the fourth fiscal quarter had some hits and some misses. The higher-than-expected compression in gross margins indicates some inventory write-offs, noted the brokerage, regardless of which, the EBITDA margin posted a beat.

International brokerage Jefferies raised its target price on Trent to Rs 5,900, while maintaining its 'hold' call. The brokerage noted that Trent's like-for-like growth moderated to mid-single digits, which could disappoint investors.

In Jefferies' base case, the brokerage believes that Trent should see a 35 percent CAGR in standalone sales over FY2025 to FY2028.

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