Investors’ wait to benefit from good revenue growth at leading apparel companies just got longer. Arvind Ltd, Aditya Birla Fashion and Retail Ltd (AB Fashion), and Raymond Ltd reported double digit growth in revenues in the June quarter (Q1). But that did precious little for earnings. Earnings per share at Arvind fell 19%. AB Fashion and Raymond reported losses.

In fact, profitability at Arvind has been steadily falling over the last one year. In the June quarter it dropped about three percentage points, hit by high raw material prices and a strong rupee.

AB Fashion, which reported an improvement in profitability in the January-March quarter, saw its margins soften again in Q1. Raymond’s margins improved, but that is largely driven by the engineering or the non-garments businesses.

Some analysts have pared earnings estimates for these companies for the current fiscal. “In view of lower margins in the textile business, we have reduced our earnings estimates for FY2018 by 7% (already had a 7% reduction in FY2018 estimates prior to announcement of Q1FY2018 results) and have broadly maintained our FY2019 earnings estimates," Sharekhan Ltd said in a note on Arvind.

ICICI Securities Ltd has reduced its earnings estimates for AB Fashion citing continuing losses in the fast fashion or new business.

The earnings cuts, however, are not altering analysts’ views on the stocks.

Given that the established brands businesses continue to do well, most expect these companies to report good revenue growth. And as the retail channel transitions to the goods and services tax (GST) and new businesses break even, analysts forecast these companies’ earnings to get a leg-up from the next fiscal year.

Nevertheless, the ongoing trends and headwinds pose challenges to that assumption. The established brands businesses, despite delivering good growth, are yet to demonstrate a sustainable improvement in profitability. Profitability at Arvind’s so called “power brands" for instance softened from 9.1% a year ago to 8.9% in Q1. Similarly margins at AB Fashion’s lifestyle brands business are little changed.

Further, of late the garments sector is seeing an increasing number of “end-of-season" sales, which could have an impact on realizations.

Stagnant profitability would not have been much of a bother as the incremental revenue growth will anyway add to operating profits in absolute terms. But that doesn’t offer much solace. The case in point is AB Fashion. Operating profits at the established “lifestyle brands" business rose 17% last quarter. But as losses at the new investments expanded, the earnings at the brands (Madura) business slumped by one-fifth. Worryingly the losses at the new investments showed no signs of easing. While this makes breaking even at the new businesses crucial for revival in profitability, much also depends on the consumer demand and input costs trajectory.