Why Is Trent Stock Falling? Slower Q1 FY26 Growth and Analyst Downgrades Explained

Trent Ltd’s stock declined by nearly 12% after its management issued a softer-than-expected business outlook at the company’s AGM. At its recent AGM, Trent indicated that revenue growth for the first quarter of FY26 is expected to be around 20%. This is notably lower than the company’s five-year CAGR of 35%.

The figure was confirmed in its Q1 FY26 business update shared with the exchanges on Friday. Trent reported a standalone revenue of ₹5,061 crore for the quarter, up 20% year-on-year.

Analyst Downgrades and Earnings Revisions

Brokerages responded quickly to the updated guidance:

• Nuvama downgraded Trent to “Hold”, revising its target price from ₹6,627 to ₹5,884.
• Revenue forecasts were revised down by 5 percent (FY26E) and 6 percent (FY27E).
• EBITDA estimates were trimmed by 9 percent (FY26E) and 12 percent (FY27E).

These downward revisions reflect the market’s concern about the sustainability of Trent’s high growth trajectory, especially given the slowing trend in its core fashion business.

High Valuation Raises Questions

Trent’s current valuation has come under scrutiny. As of the latest update, the stock is trading at a P/E of approximately 140, significantly higher than the industry average of about 52.

In simple terms, for every ₹1 of earnings, investors are paying ₹140 for Trent compared to ₹52 for a comparable peer. At such levels, even a slight miss on growth expectations tends to trigger a sharp reaction in the stock price.

Many analysts now expect a valuation reset if the company cannot sustain its previous pace of expansion.

Key Business Highlights

Here are some of the key highlights of the business:

Diversified Retail Portfolio

Trent operates across several retail formats, targeting varied consumer segments:

• Westside: Mid-market apparel, accessories, and home products
• Zudio: Value-fashion chain known for fast expansion and in-house brands
• Star Hypermarket: Grocery and daily essentials; 78 stores as of March 2025
• Utsa, Misbu, Samoh: Brands focused on ethnic wear, beauty, and premium occasion wear
• Booker Wholesale: B2B cash-and-carry retail model
• E-commerce Channels: Active on Westside.com, Tata CliQ, Tata Neu, and StarQuik

Strong Financial Track Record

• Revenue grew from ₹4,498 crore in FY22 to ₹17,135 crore in FY25 (3.8 times increase)
• Net profit rose from ₹35 crore to ₹1,534 crore over the same period
• Return on Equity (ROE) stood at 30 percent in FY25, indicating efficient capital deployment
• The debt-to-equity ratio of 0.09, showing a conservative and healthy balance sheet

Aggressive Store Expansion

Trent is continuing with its aggressive store expansion strategy, with plans to open over 250 new stores in FY26 across its various retail formats. As of the first quarter of FY26, the company operates 248 Westside stores, 766 Zudio stores, and 29 lifestyle-format stores, including brands like Utsa and Misbu. This growth is supported by a comfortable financial position; the company had a net cash surplus of ₹974.5 crore at the end of the quarter. The planned capital expenditure of ₹1,200 to ₹1,300 crore for the year is expected to be fully funded through internal accruals and operating cash flows.

Critical Considerations for Investors

1. Slower Near-Term Growth: The downgrade from approximately 35 percent fashion CAGR to 20 percent growth in Q1 FY26 has caused profit revisions and triggered investor concerns about whether Trent can sustain high momentum in a maturing market.

2. High Valuation Risk: At a P/E of around 140, the margin for error is low. If growth slows, a valuation de-rating becomes more likely.

3. Competition and Market Saturation: Competition is intensifying, particularly from:

• Quick-commerce platforms
• Aditya Birla Fashion, V2 Retail, and other regional chains

The Star Hypermarket business could see margin pressure from entrenched players like D-Mart and Reliance Retail.

4. Macroeconomic Sensitivities: Trent's management has acknowledged seasonal headwinds and muted consumer sentiment, which could limit discretionary spending and affect short-term performance.

Conclusion

Trent’s recent share price correction was driven by a combination of slower Q1 FY26 guidance, analyst downgrades, high valuation, and rising competition. While the near-term outlook has softened, Trent’s strong retail portfolio, financial discipline, and continued store expansion make it a business with solid long-term potential.

However, given its elevated valuation and slowing growth, investors will need to monitor execution closely, particularly in terms of store profitability, consumer demand trends, and competitive response. 

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