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.

Trent shares have extended their post-update decline, falling over 8% as investors continue to price in slower growth expectations and rising competitive pressure in the value fashion segment. According to Karan Taurani, Executive Vice President at Elara Securities, the sharp correction reflects valuation de-rating rather than just earnings downgrades.

Trent Faces Growth Moderation and Competitive Pressure

Speaking to ET Now, Taurani highlighted that Trent's expected revenue growth has moderated significantly, creating concerns among investors about the company's near-term prospects.

While store additions, particularly for Zudio, remain on track, throughput in newer non-metro stores has been lower than expected, hurting overall performance. Taurani noted that intensifying competition in fast fashion is eroding Zudio's market share, with multiple new entrants and existing players expanding aggressively. The acceptance of the category in smaller towns has also been slower than anticipated, putting additional pressure on same-store sales.

Margin Risks Remain Key Concern

Trent's EBITDA margins have remained stable at around 16-16.5%, but Taurani warned of potential downside risks. If the company decides to invest in improving product quality to counter competitors, margins could decline by 100-150 basis points over the next few quarters. Any margin compression could trigger further earnings downgrades and make valuations appear stretched again.

DMart Shows Relative Stability Despite Digital Challenges

Regarding Avenue Supermarts (DMart), Taurani indicated that performance has been relatively better compared to other retail players, with no major negative surprises reported.

However, like-for-like growth has slowed to around 5% due to the rapid expansion of quick commerce and online grocery platforms. Store additions remain DMart's key growth driver, and competitive intensity is lower than in fashion retail. Taurani believes margin risks for DMart are largely behind the company, but structural challenges from digital channels could cap long-term growth below 20%.

Nykaa and Jubilant Emerge as Preferred Picks

In the beauty and personal care segment, FSN E-Commerce Ventures (Nykaa) continues to demonstrate strong performance metrics that make it an attractive investment option.

Nykaa's growth of over 25% is aided by limited competition in online beauty and personal care. Fashion losses are narrowing, and the segment is expected to reach breakeven over the next few quarters, though margin risks from quick commerce and faster e-commerce deliveries remain a consideration.

Within the QSR space, Taurani reiterated a positive view on Jubilant FoodWorks, citing stable like-for-like growth, strong delivery exposure, and improving margins. He noted that valuation re-rating would depend on EBITDA margins rising towards the 21-22% range.

Sector Outlook and Investment Strategy

Taurani concluded that investors may find better risk-reward opportunities in select value retail, QSR, and platform-led consumption plays, while large format fashion retailers face near-term headwinds from competition, margin pressure, and changing consumer behavior. The retail landscape continues to evolve rapidly, with digital transformation and competitive dynamics reshaping traditional business models across different segments.