Is the worst behind for DMart?

livemint.com:

₹1,001.8 crore, coming in lower than analysts’ expectations as gross margin fell year-on-year and staff costs remained elevated. According to DMart, for the half year ended September, contribution from the general merchandise and apparel segment stood at 23.2%, down from 24.8% in the same period last year. A good part of this drop was offset by an increase in contribution from the foods segment.

It is this unfavourable combination that is hurting margins. Recall that the contribution from the general merchandise and apparel segment had stood at 28.3% before the pandemic (FY19). What is causing this segment to be bogged down? There seem to be two main reasons.

One, rising competition in apparels from formats such as Reliance Trends and Zudio (Trent Ltd’s value fashion concept). Two, inflationary pressures are curbing consumers’ ability to spend on discretionary items. Moreover, DMart’s retail space grew 12% year-on-year to 13.9 million sq.

ft in Q2. But the revenue throughput, which is trailing 12-month sales per average square foot, remained flat. To be sure, there are some bright spots.

In the first half of FY24, like-for-like sales growth was healthy at 8.6%. For DMart, like-for-like growth refers to revenue growth from sales of the same stores that have been operational for at least 24 months at the end of the reporting period. Moreover, revenue growth has inched up marginally in Q2 to 18.5% year-on-year from 18.1% in Q1.

For perspective, before Q2, year-on-year revenue growth had decelerated for four quarters continuously. Footfalls are also improving. Plus, while DMart’s 12 new store additions in the first half of FY24 are not enough, the bulk of additions is expected in the second half.