Macquarie has reduced its target price on Trent by a substantial 18% to ₹4,900 while maintaining its Outperform rating, citing cyclical rather than structural challenges facing the fashion retailer. The brokerage expects the current slowdown to ease in the second half of CY26, driven by supportive government measures and demand normalization.

Target Price Revision Details

The sharp target price cut from ₹6,000 to ₹4,900 reflects Macquarie's more cautious near-term outlook and revised valuation methodology. The brokerage has incorporated slower demand recovery expectations, resulting in earnings cuts across multiple fiscal years.

Cyclical Slowdown Factors

Macquarie identified several short-term factors contributing to Trent's growth moderation over recent quarters. These include softer discretionary demand across small-ticket categories, store additions in proximity to existing locations, and intensifying competition from value-focused fashion players. Despite these headwinds, the company delivered 17% sales growth over the last two quarters, continuing to outperform most industry peers.

The brokerage emphasized that the proposed Zudio store revamp could strengthen Trent's competitive positioning once demand conditions normalize. Additionally, investments in technology infrastructure, particularly RFID systems and warehouse automation, are expected to support long-term EBIT growth despite potential near-term earnings impact.

Recovery Timeline and Catalysts

Macquarie projects sales growth recovery in the second half of CY26, supported by several potential government initiatives:

• Potential GST reductions
• Personal tax cuts
• Government employee pay hikes

The brokerage draws confidence from Trent's historical success in recalibrating retail formats like Westside, suggesting management's capability to execute the Zudio revamp without significantly impacting margins.

Margin Management Strategies

Several operational levers are available to manage profitability during the transition period:

• Higher store salience with rentals linked to sales performance
• Freight cost optimization through increased store density
• Normalization of depreciation costs following warehousing investment phase

Valuation Methodology

The 18% target price reduction stems from a higher segment discount rate and more conservative fashion-sector growth assumptions in Macquarie's DCF-based valuation model. Despite the reduction, the implied EV/EBITDA multiple remains around 45x, indicating sustained confidence in Trent's long-term growth trajectory.

Potential re-rating catalysts include sharper-than-expected fashion demand recovery and improvements in loss-making business segments. Macquarie maintains that patience is warranted as the current weakness represents cyclical challenges rather than fundamental business deterioration, with the critical test being demand recovery in H2 CY26.

Trent reported disappointing Q3FY26 business results, with standalone revenue declining 17% year-on-year, missing analyst expectations and continuing the retailer's struggle with moderating sales growth amid challenging market conditions.

Q3FY26 Performance Overview

The December quarter results showed revenue growth remaining steady compared to Q2, marking the fifth consecutive quarter of revenue decline. However, the 17% decline fell short of market expectations, with analysts having projected stronger performance.

Analyst Expectations and Market Response

Bernstein analysts noted in their January 6 report that Trent's Q3 growth was lower than expectations, though they acknowledged that "revenue growth seems to have found bottom." The brokerage highlighted that Trent would need to achieve 33% revenue growth in Q4 to meet FY26 projections, which "looks highly unlikely as of now."

Motilal Oswal Financial Services had estimated 20% year-on-year growth, making the actual 17% decline significantly weaker than projections. The firm noted that revenue growth was primarily driven by store expansion rather than same-store sales improvement.

Store Expansion and Cannibalization Concerns

Despite revenue challenges, Trent continued its aggressive expansion strategy during Q3FY26. The company added 65 new stores on a net basis, representing a 28% year-on-year increase in store count.

However, this expansion came with continued cannibalization issues. Revenue per store declined approximately 11% year-on-year, compared to a 9% year-on-year fall in H1FY26, indicating worsening store-level performance despite the growing footprint.

Market Challenges and Outlook

The retailer faces ongoing headwinds from muted consumer demand and increasing competitive intensity in the fashion retail sector. These factors have contributed to moderating sales growth on a higher base, creating challenges for the company's growth trajectory.

Analysts expect that weaker-than-expected Q3 growth may lead to continued earnings downgrades in the near term. Margins will be closely watched when full Q3 results are announced, as investors seek clarity on the company's profitability amid revenue pressures.

The stock's future performance remains closely tied to the company's ability to demonstrate sustainable growth recovery, with store expansion strategy and same-store sales improvement being key factors for investor confidence going forward.