DMART

's Muted Q2 Earnings and Margin Pressure Signal Challenges Ahead

Avenue Supermarts Ltd (

) reported muted Q2FY26 earnings growth, which is expected to keep its shares range-bound for the foreseeable future. Standalone EBITDA margin contracted by 28 basis points (bps) year-on-year (y-o-y) to 7.58%, primarily due to higher staff and other operating expenses (opex). → Despite the margin drop, Q2 EBITDA grew by 11% to ₹1,230 crore, an improvement over Q1's 7.6% growth, but still not considered encouraging by analysts. Revenue growth was the slowest in the past four quarters, rising by 15.4% y-o-y. Growth was partially affected by the company passing on the benefit of lower GST rates to consumers. → Like-for-like (LFL) growth for stores open for at least 24 months was 6.8% in Q2, against a favorable base. Margin pressure is exacerbated by a weaker sales mix: the share of the lower-margin foods segment in revenue rose to 57% in H1FY26, while the higher-margin general merchandise and apparel segment saw its share drop. → Store additions remain the primary driver for topline growth; DMart added 8 new stores in Q2, bringing the total count to 432. Higher capital work-in-progress (₹1,500 crore) suggests accelerated store additions are likely in H2, which could boost revenue but also lead to increased costs and higher depreciation/interest expenses. → Analysts have reduced FY26-28 profit after tax (PAT) forecasts due to elevated operating costs and increased store depreciation, resulting in a lower estimated PAT Compound Annual Growth Rate (CAGR) of 15% versus 18% revenue CAGR. The e-commerce arm, DMart Ready, opened 10 new fulfillment centers but exited five cities, and is now operational in 19 cities.