DMart Q4 Results Review – It’s Not Just Tough Macros In General Merchandise, Apparel; It’s Competition (Zudio, Max): ICICI Securities

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Avenue Supermarts Ltd.’s Q4 revenue performance has been decent (20% YoY versus 17% retail area expansion). However, same store (more than two-year-old stores) revenue performance in H2 FY23 at 11% is underwhelming.

This was largely impacted by continued underperformance in general merchandise and apparel which also negatively impacted the margin mix. As per our channel checks, in apparel segment (~50% share of retail area in general merchandise and apparel), DMart is facing strong competition from specialist retailers like Zudio, Max etc.

Consequently, revenue per square feet remains ~9% below pre-Covid (versus Q4 FY19). However, we believe other than weak sales mix, large size stores also had an impact on lower sales per sqft calculation.

Now ~60% of total retail area represent large size stores (45,000-50,000 sqft stores versus 30,000-35,000 sqft pre-Covid).

Outperformance in food and non-food is comforting. Geographical expansion in brick and mortar business has been conservative given ~58% store addition was concentrated in top-three states only (versus 42% during FY18-22) while in e-commerce business it has been aggressive: ventured into 22 cites (versus 11 cities in FY22).

Profitability remained subdued due to weak mix and retail expansion during the quarter (added 18 stores in Q4 compared to 40 stores in FY23).

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