Goldman Sachs downgrades Trent stock to Neutral on Zudio cannibalization concerns

Goldman Sachs downgraded Trent Ltd. to Neutral and reduced its price target to INR5,500 from INR6,970, citing increasing sales cannibalization among Zudio stores. This has led to moderating sales throughput and two consecutive quarters of missed expectations, prompting Goldman to cut FY26-28 sales and EPS estimates by 5-9% and 8-13% respectively. While Zudio continues rapid growth and Trent remains Goldman's fastest-growing consumer discretionary coverage, the firm anticipates range-bound trading until cannibalization impacts show signs of improvement, despite a positive long-term outlook for market share capture.

Analysis

Goldman Sachs has downgraded Trent Ltd. to Neutral from Buy and reduced its price target by over 21% to INR 5,500 from INR 6,970, signaling a significant shift in its near-term outlook. The primary driver for this revision is higher-than-expected sales cannibalization among the company's Zudio stores, which has led to moderating sales throughput and missed expectations for two consecutive quarters. This concern has prompted Goldman Sachs to materially lower its financial projections, cutting FY26-28 sales estimates by 5-9% and earnings per share forecasts by 8-13%. Despite these headwinds, Trent's fundamental growth story remains exceptionally strong. It is still projected to be the fastest-growing company in Goldman's consumer discretionary coverage, with forecast FY25-28 sales and EBITDA compound annual growth rates of approximately 24% and 25%, respectively. Furthermore, Zudio's sales are still estimated to grow by approximately 60% in FY25, expanding Trent's market share from 1.1% to 1.5%. The analysis suggests the stock will likely be range-bound until the cannibalization effects show signs of improvement, creating a tension between near-term operational challenges and a compelling long-term market share capture strategy.

Key Decisions for Investors

• Investors should anticipate range-bound trading in the near term and monitor sales throughput metrics for evidence that the negative impact of store cannibalization is stabilizing.
• The significant cuts to FY26-28 earnings estimates warrant caution, suggesting it may be prudent to await further clarity on the moderation in sales growth before initiating new positions.
• For long-term holders, the downgrade reflects a valuation adjustment rather than a collapse of the growth thesis, as Trent is still forecast to deliver market-leading sales and EBITDA growth of 24-25% annually through FY28.