Trent Jumps Nearly 7% as Q2 Gross Margin Widens to 44.5% Despite Raw Material Inflation

Trent was the standout stock on Dalal Street on Friday morning. Shares of the Tata Group retailer rose as much as 6.9% to Rs 3,060 on the NSE in early trade, making it the biggest gainer among Sensex constituents and the main reason the benchmark opened in the green on a day when the Nifty Midcap 100 and Smallcap 100 were both down between 0.5% and 0.9%.

The move followed the company's September-quarter results, announced after market hours on Thursday.

The numbers behind the rally

Consolidated revenue from operations rose 22% year on year to Rs 5,873 crore, while operating EBITDA climbed 37% to Rs 785 crore. Consolidated net profit rose 25% to Rs 468 crore.

The standalone picture, which covers Westside and Zudio directly, looked more modest at the bottom line. Standalone revenue grew 23% to Rs 5,788 crore, but net profit rose only about 9% to Rs 490 crore. Two factors held it back: the year-ago quarter included pre-tax gains of Rs 96 crore from asset sales that did not recur, and other income fell sharply, by about 71% according to Citi.

What investors chose to focus on was the operating line. Operating EBIT margin improved to 11.6% from 10.5% a year earlier, and gross margin expanded by about 121 basis points to 44.5%, a notable result at a time when consumer companies across the board are complaining of raw material inflation.

Why the margin number stood out

That contrast is visible on the same trading screen. Godrej Consumer Products, which also reported on Thursday, slid on Friday after a 300-basis-point drop in its gross margin. Trent's ability to widen margins in the same cost environment, helped by premiumisation and better product mix, is what turned a mixed profit print into a rally.

Like-for-like growth in the fashion business, which strips out new store openings, also recovered to the mid-single digits from low single digits in the June quarter, according to brokerages. That was a key concern after a sluggish first quarter. We covered the company's early-October business update, which flagged the 1,000th Zudio store, in our earlier report.

What brokerages are watching

The reaction from analysts was positive but not unconditional. HSBC said EBITDA beat its estimate by about 2% and raised its FY28 EBITDA forecast. Jefferies expects the results to improve sentiment but warned that higher input prices could weigh on margins and demand.

The sharpest caution came on store productivity. Retail area expanded about 26% year on year, faster than revenue, and Citi calculated that revenue per square foot fell about 8.4%. Bernstein also flagged slower new store additions at both Zudio and Westside. Citi said it would prefer to wait for a better valuation or a successful scale-up of Trent's newer formats before turning more positive.

The bigger picture

The stock had been lagging before this month's business update. The quarter suggests the core business is holding up on pricing power. Whether the rally sticks will depend on whether the company can hold a 44%-plus gross margin through the second half, when management and analysts both expect cost pressures to intensify.

This is an original summary based on public reporting. See our editorial policy for how we source, write, and correct our stories.