Trent Ltd’s shares plummeted as much as 12% on Tuesday to around ₹2,947 after its June quarter (Q1FY27) update disappointed on revenue growth. Standalone revenue increased 18.5% year-on-year to ₹5,666 crore. For perspective, analysts at Motilal Oswal Financial Services were expecting around 22% year-on-year growth.
Recall that revenue growth in Q4FY26 had come in at 20.2%, reversing a trend of consecutively falling growth rates in the previous six quarters (Q2FY25 to Q3FY26). It is likely that investors in Trent expected the improving growth trend in Q4FY26 to continue in Q1FY27. Until Monday, the stock had gained 20% over the past month, suggesting investors were anticipating a further acceleration in revenue growth.
“(Q1FY27) revenue growth was primarily driven by about 26% year-on-year increase in store count, with revenue per store declining about 5% year-on-year (versus about 4% year-on-year fall in Q4FY26), indicating either a slower ramp-up of newer stores or continuation of cannibalization impact on select stores,” said a Motilal Oswal note.
On a net basis, Trent added one Westside store and 19 Zudio stores in the June quarter, taking the total count to 301 and 982, respectively, as of 30 June. The pace of store additions has been far slower than Q4FY26, when Trent added 22 net Westside stores and 109 net Zudio stores. For the full year FY26, it opened 52 net Westside stores and 198 net Zudio stores. Typically, store additions tend to be slower in Q1, so it is likely that the pace may pick up going ahead. Trent is looking to add 50 Westside stores and 200-250 Zudio stores in FY27.
Given that Trent’s Q1 sales growth was in line with Goldman Sachs’ expectations, it has maintained its FY27 sales growth estimates, even as its investor conversations over the last three weeks suggested that Street expectations were significantly higher than 19% reported by the company. “Our FY27/FY28 sales growth estimates are about 20.3%/19.5% (with risks to the downside if like-for-like growth does not recover to mid-to-high single digits in H2FY27),” said a report by Goldman Sachs on 6 July. Like-for-like growth in Trent’s fashion portfolio in Q4FY26 and FY26 was in the low single digits.
Can it maintain margins?
Margins will be keenly watched when the company announces its Q1FY27 results. In Q4FY26, gross margins expanded 171 basis points year-on-year to 44.3%, the steepest rise in recent quarters. A key monitorable will be whether the company can sustain these margins. Management’s commentary on demand conditions will also be crucial for assessing future growth.
From a medium-term perspective, improved revenue growth rates will bring cheer. Note that Trent has regularly delivered growth rates above 30% in the past. In FY25 and FY24, year-on-year standalone revenue growth was almost 40% and 55%, respectively. FY26 revenue growth dropped to 18.2% to ₹19,701 crore, and reclaiming earlier growth rates appears challenging.
Analysts from Bernstein reckon Trent's Q1 update indicates its growth bottomed out at 17% and about 20% should be a “new normal” expectation. “Any acceleration beyond this would require some sustained improvement in the urban consumption environment,” they wrote in a report dated 6 July.
Against this backdrop, Trent’s price-to-earnings multiple of nearly 68, based on Bloomberg consensus FY27 estimates, appears pricey. For now, a weaker Q1FY27 revenue show amid intense competition should keep sentiment for the stock subdued in the near-term, unless margins surprise meaningfully.