- 13 May 2023
- ICICI Securities
Avenue Supermarts Q4 Results 2023: Subdued operational performance amid weak discretionary spending
Avenue Supermarts Ltd | CMP: 4774 | Market Cap: 310,650.17
Subdued operational performance amid weak discretionary spending
D-Mart reported a subdued operational performance with profitability coming below our estimates in Q4FY23. Discretionary non-FMCG business (general merchandise & apparel), which yields better margins continued to perform below expectations owing to lower consumer spending in the segment and led to moderation of profitability.
Q4FY23 Earnings Summary
View: The revenue growth was broadly in line with our estimates and company has maintained its trajectory of 19-20% CAGR witnessed in the previous 4-5 quarters. Revenue growth has been lower than the space addition over the last 5 years with total retail space increasing by 23% , whereas the revenues have grown at a CAGR of 20%. Lower than expected gross margin owing to unfavourable product mix continues to subdue profitability. The share of General merchandise and Apparel declined by 40 bps in FY23 to 23% and continues to be below pre-covid levels. Enhancement of gross margins would be the critical factor to watch out for. Over the last three years, the company has expanded its square feet addition by an impressive three-year CAGR of ~ 22% with average size of new stores being bigger (~55000+ vs. average 35000 sq ft). The new larger stores which were designed to provide more space for discretionary products have not been able to deliver higher growth of discretionary products in spite of the operating business scenario normalising in the last few quarters. Hence, the revenue throughput per square ft has remained below pre-Covid levels. The critical factors for an improved operational performance would be increase in revenue per square feet and enhancement in the gross margin.
Impact: Negative