Avenue Supermarts DMart , the parent company of DMart, has released its financial results for the first quarter, revealing a challenging period for the retail giant. The company's performance fell short of market expectations, with flat profit growth and margin pressures due to increased competition and deflationary trends in key product categories.

Financial Highlights

• Revenue Growth: DMart reported a consolidated revenue of ₹16,359.70 crore for Q1, marking a 16.3% increase from ₹14,069.14 crore in the same quarter last year.
• Net Profit: The company's consolidated net profit remained nearly flat at ₹772.81 crore, compared to ₹773.68 crore in the corresponding quarter of the previous year.
• EBITDA: Earnings before interest, tax, depreciation, and amortization (EBITDA) grew by 6.4% to ₹1,299.00 crore, up from ₹1,221.00 crore in the corresponding quarter of the previous year.
• Margin Pressure: EBITDA margin declined to 7.9% from 8.7% in the same quarter last year, reflecting the challenges faced by the company.

Operational Performance

• Store Expansion: DMart added 9 new stores during the quarter, bringing its total store count to 424.
• Same-Store Growth: Two years and older DMart stores grew by 7.1% compared to the same quarter last year.

Factors Affecting Performance

1. High Deflation: The company experienced significant deflation in staples and non-food products, impacting revenue growth by approximately 100-150 basis points.
2. Competitive Pressures: Increased competition in the FMCG space led to lower gross margins compared to the same period in the previous year.
3. Rising Operating Costs: DMart reported higher operating costs due to efforts to improve service levels, capacity building, and inflation in entry-level wages.

Management Commentary

Neville Noronha, CEO & Managing Director of Avenue Supermarts Limited, commented on the company's performance: "Our revenue grew by 16.2% over the previous year. Profit after tax (PAT) grew by 2.1% over the previous year. Revenue growth impact of approximately 100-150 bps was primarily due to high deflation in many staples and non-food products. Gross margins are lower as compared to the same period in the previous year, due to continued competitive intensity within the FMCG space."

Market Reaction and Analyst Views

The results have prompted caution among brokerages, with many expressing concerns about margin pressures and intensifying competition in the retail sector. Investors and analysts will be closely monitoring DMart's strategies to navigate these challenges and maintain its growth trajectory in the coming quarters.

Conclusion

DMart's Q1 results highlight the challenges faced by the retail sector, including inflationary pressures, intense competition, and changing consumer behaviors. While the company continues to expand its store network and drive revenue growth, the focus will likely remain on improving operational efficiencies and maintaining market share in an increasingly competitive landscape.

As DMart adapts to these market dynamics, stakeholders will be keen to see how the company balances its expansion plans with profitability in the quarters ahead.

Avenue Supermarts DMart , the parent company of DMart retail chain, has reported a 16.2% year-on-year increase in total revenue for the first quarter, despite facing challenges from price reductions in essential items.

Revenue Growth and Profit

The company's total revenue stood at ₹15,932.00 crore for Q1, up from ₹13,712.00 crore in the same period last year. However, the net profit saw a modest increase of 2.1%, reaching ₹830.00 crore compared to ₹812.00 crore in the corresponding quarter of the previous year.

Impact of Price Reductions

DMart disclosed that its revenue growth was affected by approximately 1-1.5% due to significant price reductions in many essential and non-food items. This move reflects the challenging market environment where the company had to lower prices, potentially impacting its profit margins.

Store Expansion

During the quarter, DMart continued its expansion strategy by adding 9 new stores, bringing the total store count to 424.

Financial Highlights

• EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization) grew by 7.6% to ₹1,313.00 crore.
• EBITDA margin stood at 8.2%, compared to 8.9% in the corresponding quarter of the previous year.
• Basic Earnings Per Share (EPS) increased to ₹12.75 from ₹12.49 in the corresponding quarter of the previous year.

Consolidated Performance

On a consolidated basis, which includes the performance of its subsidiaries, Avenue Supermarts reported:

• Total revenue of ₹16,360.00 crore, a 16.3% increase from ₹14,069.00 crore in the corresponding quarter of the previous year.
• Net profit of ₹773.00 crore, remaining relatively flat compared to ₹774.00 crore in the same quarter last year.

Management Commentary

Neville Noronha, CEO & Managing Director of Avenue Supermarts Limited, stated, "Our revenue grew by 16.2% over the previous year. Two years and older DMart stores grew by 7.1% during the quarter as compared to the corresponding quarter of the previous year." He also noted that the revenue growth impact of approximately 100-150 bps was primarily due to high deflation in many staples and non-food products.

Noronha added, "Gross margins are lower as compared to the same period in the previous year, due to continued competitive intensity within the FMCG space. Operating costs are higher due to our efforts on improving service levels, capacity building and inflation at entry level wages."

Conclusion

While DMart continues to show strong revenue growth and expand its store network, the company faces challenges in maintaining profit margins due to competitive pressures and price reductions in key product categories. The management's focus on improving service levels and capacity building may help in sustaining long-term growth, but it may impact short-term profitability.