DMart needs a wardrobe upgrade
₹11,584 crore. However, here too, the growth rate has been declining and Q1 marks the fifth consecutive instance of drop.On profit margins too, there is not much comfort. So, who is the culprit? Primarily, lower sales contribution of general merchandise and apparel has weighed on gross margin, said DMart.
Elevated inflation levels are impacting demand in the mass discretionary segment. The company clocked a gross margin of 14.6% in Q1, down by 125 basis points year-on-year. One basis point is 0.01%.
Investors are visibly upset. DMart’s shares fell by more than 3% on Monday. Note that the stock performance has been muted post results in the previous three quarters as well.
The silver lining, however, is that the general merchandise contribution is recovering and inching towards pre-pandemic levels, said DMart. General merchandise & apparel contribution stood at 28.3% in FY19 versus 23% in FY23. Of course, a recovery is helpful, particularly in the apparel category.
“DMart needs to restructure its apparel business given new threat perception, which will take a few quarters for turnaround," analysts at Prabhudas Lilladher said in a 15 July report. The broking firm also notes that structural competitive pressures from mass market apparel companies such as Zudio and Reliance Trends weighed on Q1 margin performance. Zudio is Trent Ltd’s value fashion concept.
For now, given this backdrop, analysts have slashed their earnings estimates for DMart. For instance, ICICI Securities has cut earnings estimates by 6.5%/8.4% for FY24/25. Apart from the muted financial performance, store addition in Q1 was lower than expected, too.
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