Trent shares jump 7% after Q2 results: Margin resilience, LFL recovery in focus; what are the risks?

Trent Ltd, the Tata Group's retail company that operates popular brands such as Westside and Zudio, was in the spotlight on Friday, October 30, after announcing its Q2 FY27 results on Thursday, post-market hours.

The stock jumped as much as 6.92% to ₹3,060 on the NSE in early trade following the earnings announcement.

According to the company's press release, the retail major reported a 25% year-on-year (YoY) increase in consolidated net profit to ₹468 crore for the September quarter (Q2 FY27), as revenue growth and operating leverage supported earnings amid an inflationary environment.

Consolidated revenue from operations rose 22% to ₹5,873 crore, while operating earnings before interest, tax, depreciation and amortisation (EBITDA) increased 37% to ₹785 crore.

For the first half of FY27, consolidated revenue grew 20% to ₹11,628 crore, and net profit rose 24% to ₹986 crore. Operating EBITDA increased 35% to ₹1,633 crore.

On a standalone basis, revenue from operations climbed 23% to ₹5,788 crore in the September quarter, while operating EBITDA rose 37% to ₹791 crore. Net profit increased 9% to ₹490 crore.

The relatively slower growth in standalone net profit compared with operating earnings partly reflects a higher base in the year-earlier period, which included non-operating gains from asset sales.

Trent reported pre-tax gains on asset sales of ₹96 crore in Q2 FY26 and ₹109 crore in H1 FY26, with no material corresponding gains in the current-year periods.

Trent's operating EBIT margin improved to 11.6% in the September quarter from 10.5% a year earlier, according to the company.

What analysts say on Trent

Analysts have highlighted several positives in Trent's Q2 performance, including better-than-expected gross margin resilience and a recovery in like-for-like (LFL) growth. However, concerns around input-cost inflation, revenue productivity and the sustainability of margins in the second half of FY27 remain key monitorables.

Jefferies

Jefferies said margin expansion helped Trent deliver 37% YoY growth in pre-Ind AS EBITDA, although the metric came in below its estimates.

Fashion LFL growth also improved to mid-single digits (MSD), despite the shift in seasonality. The financial services firm believes the results could improve investor sentiment and support the stock in the near term.

However, higher input prices could cloud the near-term margin outlook and potentially weigh on demand.

HSBC

HSBC highlighted an approximately 2% beat in Q2 EBITDA, driven by resilience in gross margins, which held up better than expected despite concerns over raw material cost pressures.

Trent also reported a recovery in LFL growth to mid-single digits from low single digits in Q1 FY27, despite the shift in the festive calendar.

HSBC raised its FY28 EBITDA estimates by 2%, while marginally lowering its earnings per share (EPS) estimates due to changes in its other income assumptions.

CITI

Citi said Trent's revenue and EBITDA grew 23% and 30% YoY, respectively, coming in 4% and 1% above its estimates. However, a 71% decline in other income restricted profit growth to 9%, which was 3% below the investment firm's estimates.

A key positive surprise was the 121-basis-point YoY expansion in gross margin to 44.5%, despite raw material inflation.

The financial services company also noted that pre-Ind AS rent and operating expenses per square foot declined 8% and 11%, respectively, while employee costs per square foot increased 5%.

Although LFL growth improved to mid-single digits, revenue productivity per square foot declined 8.4% YoY.

CITI believes the sustainability of margins amid raw material and operating-cost inflation in the second half will be crucial for the stock's performance.

While it continues to like Trent's business model and execution track record, it prefers to wait for a more attractive valuation or a successful scale-up of newer pilot formats before turning more constructive.

Bernstein

Bernstein highlighted Trent's 22% YoY growth in standalone revenue in Q2, alongside a 26% expansion in retail area. Gross margin improved 120 basis points YoY to 44.5%, supported by premiumisation and product elevation.

However, the investment firm flagged slower store additions at Zudio and Westside, along with a 3% decline in revenue productivity per square foot, as areas to monitor.