Avenue Supermarts Q1: More of the same amid clouds of competition and high costs

Introduction

Avenue Supermarts Ltd., the operator of the D-Mart retail chain, released its Q1 FY2025 earnings, which show modest revenue growth and stable profitability. However, rising competitive pressure from quick-commerce platforms and escalating operational costs continue to cast a shadow over the retail giant’s performance. While D-Mart remains a formidable player in India’s organized retail sector, its growth trajectory suggests a cautious road ahead.

Steady Revenue Growth but Margin Concerns Persist

For the quarter ended June 30, 2025, Avenue Supermarts reported a consolidated revenue of ₹13,989 crore, reflecting a 7.4% YoY increase from ₹13,028 crore in Q1 FY24. While the top line remained on an upward slope, net profit grew by only 2.2% YoY to ₹709 crore, compared to ₹694 crore in the same quarter last year.

EBITDA for the quarter came in at ₹1,146 crore, with an EBITDA margin of 8.2%, marginally lower than the 8.5% reported in Q1 FY24. The company attributed the slight dip in margin to higher input costs and increased store expansion expenses.

Same-Store Sales Growth (SSSG) Slows Down

Avenue Supermarts’ SSSG – a key retail performance metric – was muted at 3.5%, indicating slower growth in footfall and transaction value at existing stores. This is notably lower compared to the high-single-digit growth figures reported in previous years. Analysts attribute this decline to increased price sensitivity among consumers, coupled with fierce discounting by e-commerce and quick-commerce rivals like Blinkit, JioMart, and Amazon Fresh.

Competition Heats Up in Grocery Retail

The Indian grocery retail landscape is undergoing rapid transformation. With Zomato-backed Blinkit aggressively expanding its 10-minute delivery footprint and Reliance Retail enhancing the reach of its JioMart stores, D-Mart’s traditional business model of large-format offline stores is facing new headwinds.

“D-Mart’s value proposition remains strong, but urban consumers are being drawn to the convenience of instant deliveries. The company may need to rethink its digital strategy if it wants to maintain market share in metro cities,” said Siddharth Shah, Senior Analyst at ICICI Securities.

Despite this, Avenue Supermarts has remained cautious about scaling its e-commerce platform – Dmart Ready – which still contributes a minimal share to the company’s overall revenues.

Store Expansion Continues, But With Risks

The company added 12 new stores in Q1, taking the total count to 379 stores across India. However, the pace of expansion remains deliberate, with a clear focus on Tier-II and Tier-III cities where competition is less intense and real estate is relatively affordable.

But store additions come with associated capital expenditures and higher maintenance costs, which continue to put pressure on profitability.

“Physical expansion is critical for Avenue Supermarts, but it must be balanced against cost efficiency. The rent-to-sales ratio is rising, and energy costs have also gone up. Without a digital offset, margins could remain under stress,” noted Ritika Mehta, Retail Sector Analyst at JM Financial.

Inventory Management and Cost Control Measures

Inventory turnover remained efficient during the quarter, with the company managing to maintain its core focus on value retailing and limited SKUs per category. D-Mart’s strict vendor negotiation practices helped buffer some inflationary pressures, particularly in staples and FMCG items.

However, discretionary categories like apparel and general merchandise continued to underperform, affected by sluggish demand and elevated price tags. This has led the company to recalibrate its product mix in newer locations.

Investor Sentiment: Cautiously Optimistic

Shares of Avenue Supermarts have been relatively flat over the past six months. On the day following the Q1 results, the stock closed marginally lower at ₹3,945 on the NSE, reflecting investor concerns around growth stagnation and margin compression.

“D-Mart’s long-term fundamentals remain intact, but investors are looking for new levers of growth. A ramp-up in online operations or partnerships with logistics players could be potential catalysts,” said Ajay Bhargava, Portfolio Manager at GreenEdge Capital.

The company’s valuation remains premium, trading at a PE multiple of 98x FY26 earnings, which continues to limit upside potential unless revenue and margin growth reaccelerate.

Outlook: Challenges Remain, But Core Model Is Resilient

Going forward, Avenue Supermarts will need to address the dual challenge of competitive disruption and cost escalation. While its efficient inventory and store model continue to deliver consistent results, the evolving preferences of urban consumers and the rising dominance of online-first grocery models cannot be ignored.

In the short term, the company is likely to maintain its store-led strategy while experimenting cautiously with digital initiatives. However, more aggressive innovation may be required to stay relevant in a dynamic retail environment.

Avenue Supermarts’ Q1 performance reflects a business staying the course amid emerging challenges. While its operational discipline and consumer trust keep it ahead of many traditional peers, the lack of a robust digital strategy and rising costs pose risks that could dilute long-term profitability. Investors and analysts alike will be watching the company’s next steps closely to assess its adaptability in an evolving Indian retail market.