Shares of Vishal Mega Mart dropped to a 52-week low of ₹86.63 on Thursday. This marks a decline of over 7% in just two trading sessions after the company released its Q2FY27 earnings report. The retailer's consolidated EBITDA rose 4.4% year-on-year to ₹412 crore. Revenue increased by 14% to ₹3,727 crore. However, profitability was affected by shrinking gross margins and rising employee costs.
Earnings and Growth Challenges
The revenue growth mainly came from new store openings. Same-store sales growth (SSSG) was reported at a modest 5.4%. Management noted that some of the sales shortfall was due to an 18-day shift in the festive calendar. This shift is expected to help Q3 performance. The company aims for an SSSG target of over 10% for FY27, up from 7.7% in the first half. In Q2, Vishal Mega Mart opened 26 large-format stores. This brings its total to 844 across 582 cities. The company plans to expand to about 3,000 stores in the future.
Margin Pressures and Strategic Moves
Gross margins fell by 32 basis points year-on-year due to inflation and a lower share of high-margin apparel sales. To address these pressures, the company has frozen prices in its entry-level segment. It has also selectively raised prices on mid-priced merchandise. Management stated that further price hikes may not be needed at this time. Additionally, the company has tested a new premium clothing format called 'Belong & Co.' Initial results are promising, with over 50% of foot traffic converting into purchases.
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The drop in Vishal Mega Mart's shares may affect investor sentiment in the retail sector. This is especially true for companies facing similar margin pressures. Stocks in the broader retail market may react to these developments as investors evaluate the impact on profitability and growth prospects.
Investors will be looking for the upcoming Q3 results. These results are expected to show the effects of the festive calendar shift and the company's strategic initiatives.
Based on reporting by: livemint.com