Nykaa, Honasa, Trent: Q2 trends show consumers opening up their wallets ahead of festive season

Consumer-focused companies like FSN E-Commerce, Honasa Consumer and Trent reported strong quarterly business updates at the end of September quarter indicating towards a broader improvement in demand across discretionary categories and organised retail ahead of the festive season, analysts noted.

Analysts said the performance indicates that consumers are becoming more comfortable spending on discretionary products, with higher basket sizes, premiumisation and repeat purchases emerging as key growth drivers.

“Q2 appears to mark a meaningful improvement in consumer sentiment. The important change is not only that consumers are buying more, but that they are becoming more comfortable spending on discretionary categories and, in several formats, spending more per transaction,” Sanyam Dhoka, analyst at Front Wave Research said.

Nykaa sees strong momentum across beauty and fashion

FSN E-Commerce, the parent of Nykaa, the country's leading specialty beauty, fashion, and lifestyle retail chain, said that its consolidated gross merchandise value (GMV) is expected to be close to thirties and net sales value (NSV) growth is expected to be higher in early thirties.

"The business strengthened across both verticals, supported by the increasing scale of the fashion vertical and steady growth in the beauty vertical. With this, the Consolidated Net Revenue growth is expected to be in late twenties, marking yet another quarter of solid growth for Nykaa," the company said in an exchange filing.

The company added 14 new stores taking the total store count to 338.

The company's same store sales growth was in the early twenties, the highest in the last six quarters. House of Nykaa continued to grow ahead of the overall beauty vertical, supported by healthy performance across both core and emerging brands, the company added.

Global investment firm Nomura said Nykaa sustained strong revenue growth during the quarter, led by its beauty and personal care segment, while fashion revenue growth accelerated. It expects the company's EBITDA margin to be around 8.7%.

Honasa boasts strong growth

Honasa Consumer, which owns brands such as Mamaearth, BBLUNT, and The Derma Company among others also said that it expects another robust quarter for the company. The company expects NSV growth in early thirties underpinned by broad-based traction in our focus categories, across brands.

The company said that Mamaearth sustained its growth momentum over the last few quarters and is expected to deliver high-teens year-on-year (YoY) growth during the quarter, supported by rising brand affinity and a widening offline footprint.

"Our younger brands continue to scale on strong traction and are expected to accelerate their YoY growth to around mid-forties," Honasa said in an exchange filing.

Trent adds stores as Zudio crosses 1,000

Tata Group's retail arm Trent also reported strong second quarter business update. The company said that its standalone revenue rose 23% annually to ₹5,788 crore from ₹4,724 crore a year earlier. In the first half of current financial year, its revenue jumped 21% to ₹11,454 crore.

The company opened 17 Zudio stores in the second quarter taking the total count to 1,000 stores.

Distribution and premiumisation add to consumption recovery

The strength across these companies suggests that the improvement in consumption may be broader than a temporary festive-season boost.

“This is particularly visible across beauty, fashion and personal care. Nykaa is seeing strong momentum in beauty, Trent continues to see robust demand across its formats, while Honasa is benefiting from improving traction beyond Mamaearth and deeper offline distribution,” Dhoka said.

“In our view, this suggests the consumer is becoming less value constrained and more willing to trade up when the product, brand and value proposition justify it,” he added.

According to Dhoka, distribution is another important factor. Organised retailers have expanded their physical and digital presence significantly over the past few years, allowing improving consumer sentiment to translate into higher sales across a much larger customer base.

“Therefore, we would read the Q2 updates as a combination of improving consumer confidence, higher ticket sizes, premiumisation and distribution gains, rather than attributing the strength purely to the festive season,” he said.

The key monitorable going forward will be whether higher demand and premiumisation sustain through the October-November festive period and translate into stronger like-for-like sales and profitability, he said.