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DMART 1QFY23 pre-quarter – weak revenue trends

Revenue trends continue to remain weak – LTL revenues declined by 13% (11% below our estimate) | Store additions at 21, above our estimate

Revenue growth 70% over pre-COVID levels, but declined on a LTL basis

* DMART reported a weak revenue for 1QFY23, continuing the trend in the last two-to-three quarters.

* Standalone revenue grew by ~2x YoY to INR98.1b, 70% over 1QFY20 (or pre-COVID) levels and 11% below our estimate. While overall growth looks strong, adjusted for the store addition, estimated LTL revenue declined by 13% in 1QFY23 (the company doesn’t provide quarterly SSSG)

* Decline in calculated same-store sales: Blended revenue/sq. ft. stood at INR33,521, 13% lower from pre-COVID levels and down 4% QoQ. In the last two years, the average store size has increased by 22% to 40.8k sq. ft., which may not have fully translated into revenue. The management had previously indicated that higher size stores take longer to reach a stable revenue/sq. ft.

* Our channel checks indicate that DMART’s soft store performance can be attributed to the high consumer traction on online platforms as its higher revenue contribution stores are largely based in metros and Tier I cities.

Store additions remain strong

* DMART added 10 stores in 1QFY23, taking its total store count to 294. We factor in 40 store additions, or 18% of total stores, in FY23. In the last three years, it has added 60% stores and 95% area, despite the COVIDled lockdowns.

* This is higher than our expectation of four stores additions in 1QFY23 and its typical heavy store additions in the second half of the fiscal.

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