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Q2 Review: Is consumer demand waning? Analysing the same store sales growth of Trent Ltd
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4 min read | Updated on November 14, 2024, 19:27 IST
SUMMARY
Despite a festive season, the retail sector faces headwinds as consumer demand remains affected due to rising inflation and delayed rate cuts. Lifestyle player Trent is growing its revenue and expanding, however, its same store sales growth has slowed, indicating demand concerns.
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Trent’s displays growth in topline amid waning consumer demand - Examining same store sales growth
Consumer demand is waning amid rising prices and stagnant real wage growth with demand in the Indian retail market taking a hit despite the festive season. The country’s retail inflation hit a 14-month high in October 2024 at 6.1%, up from 5.49% in September and 3.60% in August. Additionally, delayed rate cuts have restricted consumer spending, affecting lifestyle brands.
Trent Ltd has recorded ₹8,027 crore in H1FY25. As of September 30th, 2024, Trent has 875+ stores and 180+ city presence. The company reported a 39% YoY increase in standalone revenues for Q2FY25, reaching ₹4,260 crore, with Profit Before Tax rising 48% to ₹555 crore. The company’s consolidated revenues, including contributions from its Westside, Zudio, and Star brands, rose to ₹4,394 crore, marking a 39% growth YoY.
In Q2 earnings, Trent's Chairman Noel N Tata ( also the Chairman of Tata Trust) noted that consumer sentiment has remained relatively muted along with seasonality which has resulted in retail businesses facing headwinds.
For Q2, Trent’s retail formats like Westside and Zudio saw double-digit same-store sales growth. The Star business, Trent's supermarket chain, experienced a 27% revenue growth in Q2, boosted by improved sales density and customer loyalty.
Is Consumer Demand Waning in India?
Trent’s overall revenue is experiencing steady growth, accompanied by an increase in new store openings. To accurately gauge consumer demand, however, it’s essential to focus on sales growth within established stores. Analysing Trent’s Same Store Revenue Growth in recent periods provides valuable insights into consumer demand trends across its existing store base.
Trent’s Same Store Sales Growth (%) in the last 5 quarters
| Particulars | Q4FY23 | Q1FY24 | Q2FY24 | Q3FY24 | Q4FY24 | Q1FY25 | Q2FY25 |
|---|---|---|---|---|---|---|---|
| Revenue (A) (₹ crore) | - | 2,536 | 2,891 | 3,312 | 3,187 | 3,992 | 4,036 |
| Store Count (B)(Nos) | 629 | 674 | 699 | 754 | 843 | 859 | 877 |
| Same Store Revenue (C= A/B) | NA | 4.03 | 4.29 | 4.74 | 4.23 | 4.74 | 4.70 |
| Same Store Revenue Growth QoQ (C) | NA | NA | 6.45% | 10.49% | (-)10.76% | 12.06% | (-)0.84% |
(Source - Company earnings) (Note - Same Store Revenue is calculated by dividing the revenue for the quarter by the number of stores operational at the end of the previous quarter)
Referring to the above table, in the recent 4 quarters the same store revenue has witnessed a muted trend with Q4FY24 reporting a decline in same store sales growth. Also in Q2FY25 SSSG witnessed a fall of 0.84% on a QoQ basis.
Even though Trent has witnessed robust sales growth on a YoY and QoQ basis in recent periods, the growth has been driven by aggressive store expansion. Whereas the muted same store revenue growth indicates that consumer demand is waning or either saturated in the existing stores.
In Q2 earnings, Trent witnessed encouraging results riding on initiatives such as product offer, store portfolio and operating supply chain despite subdued consumer demand. Trent's substantial growth has attracted investors' attention with share price rallying over 156% in the last 12 months. However SSSG, a key metric indicates that consumer demand is saturating in India.
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