Why Trent Share Price is Falling

The retail and fashion sector in India has been growing rapidly. As consumer demand rises, companies are expanding their offerings and modernising stores to attract more customers.

The sector is highly competitive, with both domestic and international players vying for a share in this dynamic market. Retailers in India are also focusing on online sales to meet the demands of a digitally inclined customer base.

Trent, a Tata Group company, operates in the retail and fashion sector. It owns well-known brands such as Westside and Zudio, catering to diverse customer segments. The company focuses on providing trendy and affordable fashion through its stores and online channels.

Recently, Trent has been under investor focus after a noticeable drop in its share price. This decline came after the company reported its latest quarterly results.

Let's take a closer look at these results to understand what led to the drop in Trent's share price.

Lower Than Expected Quarterly Results

On Thursday this week, Trent reported its Q2 FY25 results. Although the company showed growth across certain metrics, the results fell slightly short of elevated market expectations, leading to a decline in its share price.

Revenue for the quarter rose by 39% to Rs 41.6 billion (bn), compared to Rs 29.8 bn in the same period last year.

This increase reflects Trent's expansion efforts and a strong demand for its retail offerings. However, revenue still fell short of a projected expectations dampening investor sentiment.

Trent's net profit reached Rs 3.4 bn, showing a 47% growth year-on-year (YoY). Despite this gain, the reported profit missed the market estimates.

The drop in other income to Rs 480 million (m) from Rs 800 m last year contributed to this miss, limiting overall profitability. Increased costs also impacted Trent's bottom line.

Depreciation expenses rose to Rs 2 bn from Rs 1.5 bn last year, adding financial strain due to the company's ongoing expansion activities.

Meanwhile, the share of profits from joint ventures fell significantly to Rs 57 m from Rs 250 m, further affecting profit margins. Additionally, Trent's tax expenses increased to Rs 1.3 bn from Rs 860 m, adding to overall costs.

The company's earnings before interest, tax, depreciation, and amortisation (EBITDA) was Rs 6.4 bn. Margins remained stable, recorded at 15.5%, slightly higher than the previous year's 15.3%.

Trent's management noted that the retail business faced challenges due to subdued consumer sentiment and seasonality effects, which limited sales growth.

Despite Trent's positive results, the shortfall in meeting ambitious market expectations on revenue and net profit contributed to the decline in its share price. Investors reacted negatively to these factors, causing a dip.

What Next?

Trent's future strategy is focused on sustained growth and expanding its market reach. The company plans to consistently add 30 to 40 new stores annually, each carefully chosen based on market potential and location.

These stores will meet high standards, to create a significant impact in local markets. Additionally, Trent's strong performance in tier 2 and tier 3 cities shows that its appeal is growing beyond just major urban areas, and the company will continue to identify opportunities in these regions.

Looking ahead, Trent's strategy includes a strong push for an integrated approach, blending its physical store expansion with a growing online presence.

Westside, the company's flagship brand, will be the sole focus for Trent's online retail expansion. This strategy is expected to enhance customer accessibility and bolster overall growth.

Despite facing weak consumer sentiment and struggling market conditions, Trent has shown impressive year-on-year improvements in revenue and margins.

However, the company's elevated valuation means that market expectations are high, which can lead to short-term volatility in the stock price. In fact, Trent is one of the top 5 overvalued companies in India at present.

Trent will need to ensure that it delivers consistent results to meet market expectations while managing its high valuation.

The future looks promising, with expansion plans and a balanced retail strategy, but it will be crucial for the company to continue executing its vision to support its growth trajectory.

How Trent Share Price has Performed Recently

In the past five days, Trent share price tumbled 10.9%. In the last month, it is down 21.9%.

In 2024, so far it is up 109.1%. Additionally, it has rallied 156% in the past year.

The stock touched its 52-week high of Rs 8,345.9 on 14 October 2024 and a 52-week low of Rs 2,440 on 9 November 2023.

About Trent

Trent is part of the Tata Group and is engaged in business of retailing. In the year 1998 Tatas acquired Littlewoods - a London-based retail chain. Later Tata group established Trent and renamed the Littlewoods as Westside.

Trent operates 61 Westside department stores and a dozen hypermarkets under the Star Bazaar brand. It also runs Landmark book-stores and stores of Spanish brand Zara.

As a part of their retail expansion plans, the company plans to touch the 100 store mark in Westside in the next four years.

It also wants to take the Star Bazaar count to 50 in the next couple years, which is expected to help it achieve scale and profitability.

Today, Westside is one of India's largest and fastest growing chains of retail stores.

For more details, see the Trent company fact sheet and quarterly results.

For a sector overview, read our retailing sector report.

You can also compare Trent with its peers.

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