Behind Trent’s trend-defying performance

But one business has defied this trend—Trent Ltd. This Tata group company, which caters to fashion and retail as well as food and grocery, has been rising from strength to strength. Even during the year plagued by sluggish consumption, the business’s financials remained robust. On cue, the stock delivered a 133% return in 2024, massively outperforming the modest 9% return delivered by the broad Nifty 50 index.

Trent’s enviable financials

Trent was conceived in 1998 with the brand Westside. After longstanding focus on this fashion and lifestyle brand, Trent diversified into food and grocery with Star Bazaar in 2014 before finally incepting the game-changing value-fashion brand ‘Zudio’ in 2016.

Initially, the Zudio brand was sold out of Star Bazaar. But with growing traction, Zudio was carved out as a separate store-format in FY18. Since then, there has been no looking back. As of Q2 FY25, Trent has a presence in more than 180 cities with about 875 stores. Trent’s quarterly topline has grown at a compound annual growth rate of 38%—from a little above ₹800 crore in FY20 to more than ₹4,000 crore in Q2 FY25.

Trent’s consistently impressive growth in revenue has come on the back of a sustained scale-up of stores. Considering only its fashion and lifestyle brand, the number of stores has gone up 3 times in 4 years—from around 250 in FY21 to more than 800 in FY25.

Even more impressive is that new stores have been quickly joining the grind and contributing to profits. This is reflective of the resilient and growing demand for the brands. 

Consequently, despite the additional expenditure in setting up new stores, Trent’s margins have improved. From a pre-pandemic operating profit margin of 6%, the quarter ended in September saw its margin improve to 11%. Of course, another contributing factor has been the breakeven and turn to profitability of its food and grocery segment.

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Zudio: Driving Trent’s growth

While Westside was Trent’s inceptive brand, the turnaround in Trent’s fortunes has come from its value-fashion brand, Zudio. While the fast-fashion segment in India was previously dominated by international brands like H&M, Zudio has cracked the code for India’s middle-class consumer with the perfect blend of strategy and execution.

With a focus on expanding in the underserved tier-2 and tier-3 cities, Zudio has been delivering trending designs which appeal to local fashion sensibilities. 

Trent’s bulk-manufacturing and focus on private-label sales, its sourcing and supply-chain magic built over the years with Westside, as well as the learnings from its partnership with Zara, have come in handy to enable quick inventory refresh (15 days versus competitors’ 45-60 days, as per reports), while limiting the cost of goods sold to 60-65%.

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In effect, Zudio has been delivering in-vogue designs in a timely fashion, and at affordable prices.

This focus on the bottom-of-the-pyramid during times when most industries were “premiumizing” has paid off beautifully for Trent. Buoyed by Zudio’s acceptance among the masses, the management has been doubling down on this fast-growing value-fashion brand. The number of Zudio stores has grown more than six-fold from less than 90 stores in FY21 to almost 600 stores so far in FY25. As a result, Zudio now contributes around 50% to Trent’s revenues, having surpassed Westside in FY24.

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While Westside’s relatively premium offerings yield higher gross margins, Zudio’s profitability has been supported by the faster inventory turnover of its fast-fashion products. Zudio’s marketing expenses are also controlled by going for influencer-driven marketing rather than the high-cost conventional marketing strategies. 

At the same time, Zudio’s smaller stores (average store size of 9,500 sq.ft. vs Westside’s 21,000 sq.ft. stores) also make for higher store productivity. Zudio’s revenue per sq.ft. stands at ₹16,300, which is double the industry average. This, along with its franchisee-owned model, enables lower capital costs, faster expansion of stores, and quicker breakeven of new stores.

A pessimism lacking conviction

Until early 2024, Trent was a flat to moderate-growth stock that experienced spikes after its quarterly earnings beat estimates. But after the earnings-spike, it would settle at the new high and return to being a flat to moderate-growth stock.

But since the results of the quarter-ended March 2024, the markets started expecting that Trent’s earnings would beat expectations. This exaggerated the stock’s momentum, and a sharp and clear uptrend emerged wherein erstwhile highs started acting as supports. 

Of course, expectations of consistent outperformance often lead to disappointments, which is what happened after Trent’s Q2 FY25 earnings-growth of 40% disappointed markets and led to a sharp 7% drop in its stock price in a single day.

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After Q2’s disappointment, the stock found support at the previous breakout level of ₹6,200 per share. And following a brief upswing, the stock is back at those levels. One saving grace is that the latest downswing has been accompanied by mellow volumes, which indicates that the pessimism lacks conviction.

Expansion risks and rising competition

After achieving phenomenal growth in domestic retail apparel sales, Zudio is testing international waters with its first store in Dubai. While Zudio’s Indian designs may appeal to Dubai’s Indian diaspora, the value-fashion aspect of the products may act as a dampener. 

Similarly, Zudio’s expansion into the already cluttered affordable beauty segment with Zudio Beauty may involve investments that yield very little returns. 

If these expansions turn out to be distractions, it could lead to slower than expected growth in the number of Zudio apparel stores. This, in turn, could lead to slower-than-expected revenue growth and possibly losing market share to competition.

India’s growing middle-class, an ongoing recovery in rural demand, and an inevitable eventual return of urban demand are tailwinds for the fast-fashion industry. Add to this Zudio’s enviable success, and we could have other players vying for a bigger slice of the seemingly ever-growing fast-fashion pie in India. We have already seen the entry of players such as Reliance Retail Ltd’s Yousta, Aditya Birla Fashion and Retail Ltd’s Style-Up, and Shoppers Stop Ltd’s InTune in this space. 

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Rising competition could make a dent on Zudio’s revenue-growth. In an increasingly competitive environment, margins could take a hit too, which could be further aggravated if input costs rise. The next checkpoint to assess these risks would be on 6th February when Trent announces its earnings for Q3 FY25.

Finally, after Trent’s steep stock-price rally in 2024, it was trading at a P/E of 139.77. It has moderated to 120.96 after the correction in 2025, which is significantly lower than the 5-year median P/E of 150.56. But given the above-mentioned risks and the risk-off scenario currently prevalent in global equity markets, the stock may experience some pressure over the medium term.

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Note: The objective of this article is to share insightful charts, data points, and thought-provoking opinions. It is NOT a recommendation to buy or sell any stocks. If you are considering an investment, please consult a professional financial advisor. This article is intended solely for educational purposes.

About the author: Ananya Roy is the founder of Credibull Capital, a Sebi-registered investment adviser. (X: @ananyaroycfa)

Views are personal and do not represent the stand of this publication.