Retail Sector’s Performance Likely To Be Mixed Bag In Q2FY25

The performance of India's retail sector is expected to be a mixed bag in the second quarter of the current financial year (Q2FY25), according to the Centrum report. While segments like value retail, jewellery, and luggage are poised to deliver strong growth, the footwear and quick service restaurant (QSR) sectors faced significant demand challenges due to factors such as heavy rainfall and weaker out-of-home consumption.

Tapering inflation and recovering rural demand have been key drivers of growth for the value apparel retail segment, which is expected to post a 15 per cent same-store sales growth (SSSG). The jewellery segment is expected to see a robust 15 per cent SSSG, driven primarily by the reduction in customs duty from 15 per cent to 6 per cent.

However, fewer wedding days during the quarter tempered the sector's overall performance. Despite this, premiumisation and strong consumer demand have supported healthy footfalls. However, volatility in gold prices and aggressive promotional schemes are likely to put pressure on operating margins.

The luggage industry is expected to post strong growth in both volume and value, with projections of 15 to 18 per cent and 10 to 12 per cent, respectively. Ecommerce sales have been a significant driver, with online channels contributing to approximately 50 per cent of total sales for major players. Footwear companies are anticipated to report only low to mid-single-digit growth due to heavy rainfall and a slowdown in discretionary spending.

Metro Brands, driven by its store expansion strategy, is expected to perform better than its peers, while mass-market players like Bata and Relaxo are likely to experience revenue weakness. The QSR sector remains subdued, affected by a combination of aggressive store expansions, weaker out-of-home consumption, and heightened competition from local and online food delivery platforms.

Operating margins across the retail sector are likely to remain under pressure, primarily due to rising input costs, aggressive promotional spending, and store expansion leading to operating de-leverage. Centrum expects EBITDA margins for jewellery and luggage to be squeezed, while the QSR and footwear sectors will face similar challenges due to weaker sales and higher discounting.

Despite these challenges, the Indian retail sector continues to enjoy a favourable outlook, supported by long-term trends such as the shift from unorganised to organised retail, rising disposable incomes, and increasing consumer preferences for premium products. The sector is currently trading at a 5 per cent premium to its 10-year mean, with double-digit top-line growth expected over the next two to three years. (ANI)