Avenue Supermarts’ Q2 earnings-revenue mismatch is a problem

“Store expansion remained modest, but productivity softened, as evidenced by a multi-quarter low unit Ebitda for Q2,” said Jefferies India’s analysts in a report on 11 October, adding Ebitda per store/sqft declined by about 4% year-on-year. The brokerage has cut its earnings per share (EPS) estimates by 2-3% to factor in the Q2 earnings miss, and revised its price target for the stock lower to ₹4,000. Avenue’s shares fell by about 4% on Monday to ₹3,384, further extending last week’s 7.8% drop.

Margin pressure

Gross margin contracted 10 bps to 14.15%, adding to Ebitda pressure. The company said wage inflation at entry-level has led to a marginal increase in operating expenses. Staff costs and other expenses in Q2 rose 20% and 22.5% year-on-year, respectively. Both increases exceeded revenue growth of 18.4%, a notable improvement from Q1’s 15.1%, which had declined from the 19% growth seen in Q4FY26.

Two-year-old and older DMart stores grew by 9.5% in Q2FY27, which looks good compared with 5.5% in Q1 and 6.8% in Q2FY26. However, some analysts point out that new stores are likely seeing a slower ramp-up. The company opened 15 new stores last quarter, versus three in Q1, taking the total count to 518.

Avenue’s store additions in Q2FY27 imply around 19% year-on-year addition in retail area, compared with 13-14% before Q4FY26, reckons Emkay Global Financial Services. “However, both accelerated store expansion and inflationary trends have not contributed to a commensurate increase in growth so far,” it pointed out in an 11 October report.

Profitability squeeze

Avenue’s Q2FY27 net profit growth was even slower, at 7.6% to ₹804 crore, driven by lower other income and a sharp 87% rise in interest expenses to ₹59.6 crore following debt issuances in recent quarters. Depreciation costs rose 26% to ₹287 crore. Total debt increased to ₹4,079 crore as of September-end from ₹2,267 crore six months ago.

Meanwhile, Avenue is focused on improving operational efficiencies and strengthening customer experience across existing markets in its e-commerce business, DMart Ready. It was present in 11 cities in H1FY27, versus 19 in H1FY26.

Overall store additions are expected to pick up in the second half of FY27, which could support revenue growth. To be sure, Avenue is navigating a difficult growth and earnings path as quick-commerce companies widen their reach. “Dark-store network densities in metros/tier-1 cities and an expanding delivery portfolio in non-grocery categories continue to weigh on store footfalls and planned purchases,” said ICICI Securities.

Against this backdrop, Avenue’s shares have fallen 22% over the past year. Valuations have moderated to nearly 54 times estimated FY27 earnings, as per Bloomberg. The stock lacks meaningful triggers for outperformance in the immediate future. Investors would cheer consistently improved like-for-like growth performance ahead.

Pallavi Pengonda

Pallavi Pengonda is a Senior Editor at Mint, where she leads the Mark to Market team. With over a decade of experience at the publication, she is the authority on breaking down complex financial reports and tracing how big economic shifts actually ripple through the business world. From deep-dives into the oil and gas sector to the latest trends in retail and tech, she covers giants like Reliance Industries and Hindustan Unilever with a sharp, analytical eye. Her path to journalism was a bit of a pivot. After earning her Master’s degree in Finance from Mumbai’s Welingkar Institute, an internship at the DNA newspaper changed everything. An editor there gave her some classic advice: "You’ll learn a ton, even if the pay doesn’t match." She took the leap, spent three years at DNA, and never looked back. When she isn’t decoding the stock market to help readers make smarter investment moves, Pallavi keeps things low-key. You’ll likely find her recharging over the weekend with a good book, heading out for a long walk, or spending time at her easel painting.