DMart retail chain slumps nearly by 5% on profit miss, margin drop

(Reuters) -Shares of Avenue Supermarts Ltd, which operates the DMart retail chain, fell 4.7% on Monday after the company's fourth-quarter profit missed estimates and core profit margin contracted as consumers curbed discretionary spending.

DMart, which faces intense competition from Reliance Industries Ltd and is known for discounts on everything from pulses to clothes, has seen inflation-weary consumers tighten spending on non-essential purchases.

Shares of the company slumped the most in more than a month and have dropped 9.6% so far this year, as of last close.

The retailer said in a regulatory filing on Saturday its earnings before interest, taxes, depreciation and amortization (EBITDA) margin fell to 7.3% in the quarter from 8.4% in the year-ago period.

"Lower consumer spending in General Merchandise and Apparel continues and has impacted the margin mix downward," CEO Neville Noronha said in a statement.

DMart's General Merchandise and Apparel segment, which sells products including toys, crockery and garments, accounts for around 23% of the company's revenue.

Stubborn inflation has delayed a complete recovery in the category from a COVID-induced downturn, analysts said.

DMart's profit rose nearly 8% to 4.60 billion rupees year-on-year, but missed analysts' estimate of 5.21 billion rupees, according to Refinitiv IBES data, as expenses climbed 22% to 100.02 billion rupees.

India's retail market is dominated mostly by unorganized stores, but organized retail is gaining market share and e-commerce is accelerating.

Bernstein estimates Reliance Retail, the retail arm of Reliance, has expanded market share from 1.8% in fiscal 2018 to around 2.5%-3% in fiscal 2023, and is 2.5 times the combined size of the DMart, Titan, and Aditya Birla Fashion and Retail.

DMart's revenue grew 20.6% to 105.94 billion rupees in the reported quarter.

(Reporting by Aleef Jahan in Bengaluru; Editing by Sherry Jacob-Phillips)