Avenue Supermarts: Another quarter, another disappointment

livemint.com:

Avenue Supermarts Ltd has served investors pretty much the same story, every quarter. Avenue runs the DMart supermarket retail chain. The June quarter (Q1FY24) results announced on Saturday were far from inspiring.

Standalone year-on-year revenue growth tapered for the third time in a row last quarter. On profit margins, too, the less said, the better. The upshot is that DMart’s profit missed the Street’s estimates.

Unsurprisingly, analysts have now pared future earnings estimates. For instance, Kotak Institutional Equities has revised down FY2024-26 revenue estimates by 1-4% resulting in earnings per share cut of 2-6%. As a result, shares of DMart were about 2% lower in morning deals on Monday.

Who is the culprit, though? DMart identified reduced sales contribution from apparel and general merchandise as key factors impacting gross margin. However, the company has pointed out that general merchandise contribution is slowly regaining pre-pandemic levels, a potentially encouraging sign. To provide context, in FY19 and FY20, general merchandise and apparel contributions were 28.3% and 27.3% respectively.

Despite the optimism, several analysts suggested that stiffening competition could be undermining revenue growth and margins. In Q1FY24, DMart registered a YoY revenue growth of 18% to ₹1,1584 crore. While this figure represents a significant sum, it continues the trend of diminishing quarterly revenue growth.

For perspective, in Q4FY23, Q3FY23 and Q2FY23, revenue growth was around 20%, 25% and 36%, respectively. Meanwhile, DMart opened three new stores in the last quarter, taking the total count to 327. “Average sales per store grew 4.9% - tad better than that seen in the recent few quarters (normalised) but still not at