Trent's store expansion supports growth despite muted LFL and input-cost risks

Investment View and Valuation

ICICI Direct Research retained its BUY recommendation on Trent Ltd. following its August 7, 2026 result update. The broker values Trent on a sum-of-the-parts basis and has a target price of Rs 3,599, compared with a CMP of Rs 3,030.

Trent, a Tata Group company, operates the Westside fashion retail chain, the Zudio value-fashion brand and Trent Hypermarket's Star grocery business. The company delivered a good Q1 FY27 operating performance despite muted like-for-like growth, with store additions remaining the primary growth driver.

Q1 FY27 Operating Performance

Trent's standalone revenue grew 18.5 per cent year-on-year to Rs 5,666.3 crore in Q1 FY27, primarily supported by accelerated store additions over the preceding three to four quarters. Like-for-like growth was in the low single digits as geopolitical uncertainty kept consumers cautious and led them to calibrate discretionary spending.

Margins were ahead of ICICI Direct's expectations. Gross margin increased 149 basis points year-on-year to 46.6 per cent, supported by sourcing benefits. EBITDA margin rose 208 basis points to 19.6 per cent, its highest level in several quarters, helped by the improvement in gross margin and lower employee and rental costs per square foot.

Employee cost per square foot fell 14 per cent year-on-year, while rental cost per square foot declined 22 per cent. EBITDA increased 32.6 per cent year-on-year to Rs 1,110.6 crore. Lower other income and higher depreciation associated with new-store additions partly offset the operating performance; reported PAT nevertheless rose 25.8 per cent year-on-year to Rs 531.8 crore.

Store Expansion and Growth Outlook

Management retained its FY27 store-addition guidance of 50 Westside stores and 200 to 250 Zudio stores. Trent had 1,293 stores at the end of Q1 FY27, comprising 301 Westside stores and 982 Zudio stores.

Additions during the quarter were modest, at one Westside store and 19 Zudio stores. To meet its annual guidance, Trent needs to add about 49 Westside outlets and 210 to 220 Zudio outlets over the next nine months. ICICI Direct expects the company to achieve this guidance, citing its execution capability.

The broker expects caution to persist in Q2 FY27 amid inflation risk, leaving growth dependent largely on store additions. An improvement in global conditions and consumer sentiment could lift like-for-like growth to the mid-single digits and take revenue growth above 20 per cent in H2 FY27, aided by the festive season.

Margin Outlook

ICICI Direct flags near-term risks to margins from higher input costs and potential supply-chain disruptions linked to the West Asia conflict. The broker expects EBITDA-margin pressure in Q2 FY27.

Over the medium to long term, improving store fundamentals, a better mix and operating efficiencies are expected to support margins.

Earnings Estimates

ICICI Direct broadly maintained its FY27E and FY28E estimates. The broker forecasts revenue and PAT compound annual growth rates of 21.5 per cent and 23.8 per cent, respectively, over FY26 to FY28E.

Compared with prior estimates, FY27E revenue was revised by minus 0.5 per cent, EBITDA by plus 0.2 per cent and PAT by plus 0.3 per cent.

Key Investment Risks

• A slowdown in discretionary consumption could weaken like-for-like growth.
• Higher input costs and supply-chain disruptions related to the West Asia conflict could pressure near-term margins.
• Stronger competition from large domestic or international fast-fashion brands could affect performance.