Trent's Q2 Shock: Profit Drops, Brokerages Slash Targets! Is Your Investment Safe?

Trent Limited announced its September quarter (Q2 FY26) financial results, showing a mixed performance. Operating EBITDA grew by a healthy 14% year-on-year, however, the company reported a decline in profit after tax, primarily due to increased depreciation expenses. Management indicated that overall sales momentum was impacted by subdued consumer sentiment and unfavorable unseasonal weather conditions during the quarter.

In line with its growth strategy, Trent continued to expand its retail footprint. It opened 19 new Westside stores and added 44 new Zudio stores, while also closing a few underperforming outlets.

Following the results, several financial analysts have expressed caution. Citi downgraded Trent to a 'Sell' rating, drastically slashing its price target from ₹7,150 to ₹4,350. This downgrade was driven by concerns over moderating growth trends, rising competition, potential cannibalisation from aggressive expansion in Tier-2 and Tier-3 markets, and reduced earnings estimates. Goldman Sachs maintained a 'Neutral' rating but lowered its price target to ₹4,920, citing operating EBIT growth below expectations and external factors affecting sales. Jefferies retained a 'Hold' rating but reduced its price target to ₹5,000, noting a deceleration in revenue growth to 17%, a multi-quarter low, and modest like-for-like growth in fashion.

Impact: The news of mixed results, combined with significant analyst downgrades and price target revisions, is likely to exert downward pressure on Trent's stock price. It may also influence investor sentiment towards other retail stocks in the market, potentially leading to increased scrutiny of their growth strategies and profitability metrics. Impact Rating: 7

Definitions: EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): A key profitability metric that measures a company's operating performance before accounting for financing costs, taxes, and non-cash expenses like depreciation and amortization. Operating EBITDA: An adjusted form of EBITDA that aims to provide a clearer picture of core business profitability by potentially excluding certain non-operational gains or losses. Profit After Tax (PAT): The net profit remaining after all expenses, interest, and taxes have been deducted from a company's total revenue. Depreciation: The accounting process of allocating the cost of a tangible asset over its useful life. It represents the reduction in the value of assets like buildings or machinery over time. Consumer Sentiment: A measure reflecting the general attitude and confidence of consumers regarding the economy and their personal financial situations, influencing their spending habits. Cannibalisation: Occurs when a company's new product or service reduces the sales revenue of its existing products or services. EV/EBITDA Multiple: A valuation ratio that compares a company's enterprise value (market capitalization plus debt minus cash) to its EBITDA. It is used to determine if a company is overvalued or undervalued. Like-for-Like (LFL) Growth: A metric used to assess the growth of a business by comparing sales in a given period to sales in the same period of the previous year, only for stores that have been operational for at least one full year. This excludes the impact of new store openings or closures. Gross Margins: Calculated as (Revenue - Cost of Goods Sold) / Revenue, it indicates the percentage of revenue that remains after accounting for the direct costs of producing goods sold. Productivity: A measure of the efficiency with which a company converts inputs (like labor, capital) into outputs (goods, services).