DMART Q2 FY26 Results: Why a 15% Revenue Jump Hides a Deeper Margin Problem
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DMART Q2 FY26 Results: Solid Growth, But a Closer Look at the Margins Tells a Deeper Story
Avenue Supermarts, the operator of the popular retail chain DMART, recently unveiled its results for the second quarter of FY26. On the surface, the numbers paint a picture of steady expansion and robust revenue growth, a familiar story for this retail powerhouse. The company continues to widen its footprint, adding new stores and growing its top line at a healthy clip.
However, as any seasoned analyst knows, the headline numbers often hide the more nuanced details. While revenue grew, profitability didn’t quite keep pace, and a closer look at operational metrics reveals a few emerging trends that investors should watch closely. Let’s dive deep into the numbers and unpack what they mean for DMART’s future. 📈
Business at a Glance
For those new to the story, DMART operates on a simple yet powerful business model: “Everyday Low Cost - Everyday Low Price (EDLC-EDLP)”. By focusing on operational efficiency and passing the benefits to customers, it has carved out a dominant position in India’s retail landscape.
- Business Segments: Its revenue is primarily split across three categories:
- Foods: Groceries, staples, dairy, fruits & vegetables.
- Non-Foods (FMCG): Home care, personal care, etc.
- General Merchandise & Apparel: Higher-margin products like clothing, toys, and home goods.
- Geographic Footprint: As of September 2025, DMART operates 432 stores, primarily concentrated in Western and Southern India, with a cluster-based approach to expansion.
Sales Performance: The Tale of Two Growths
DMART reported a standalone revenue of ₹16,219 Crore for Q2 FY26, a healthy 15.4% increase year-on-year. This consistency is one of the key reasons the market loves this stock. The growth is primarily fueled by its relentless store expansion.
| Performance Snapshot (Standalone) | Q2 FY26 | Q1 FY26 | Q4 FY25 | Q3 FY25 | Q2 FY25 |
|---|---|---|---|---|---|
| Revenue (₹ Cr) | 16,219 | 15,932 | 14,462 | 15,565 | 14,050 |
| YoY Growth | 15.4% | 16.2% | 18.6% | 21.1% | 24.6% |
While the overall revenue growth is impressive, the story gets more interesting when we look at Like-for-Like (LFL) growth, which measures the performance of stores that have been open for more than two years.
| Key Operational Metrics | Q2 FY26 | Q1 FY26 | Q4 FY25 | Q3 FY25 | Q2 FY25 |
|---|---|---|---|---|---|
| LFL Growth | 6.8% | 7.1% | 8.1% | 8.3% | 5.5% |
| Revenue/sq ft (₹) | 8,692 | 8,779 | 8,313 | 9,317 | 8,582 |
LFL growth stood at 6.8% in Q2. While still positive, it represents a slight moderation from the 7.1% seen in the previous quarter. This indicates that while new stores are adding to the top line, the growth from mature stores is slowing down. This is a critical metric to monitor, as it signals the underlying demand and efficiency of its existing assets.
The Growth Engine: Store Expansion & Strategy Shifts
DMART’s primary growth lever remains its aggressive, yet calibrated, store expansion. The company added 8 new stores in Q2, taking its total for the first half of the year to 17. This puts it on a solid trajectory to add around 40-50 stores for the full year, consistent with its historical pace.
| Store Expansion | H1 FY26 | FY25 | FY24 | FY23 |
|---|---|---|---|---|
| Stores Added | 17 | 50 | 41 | 40 |
| Total Stores (at end) | 432 | 415 | 365 | 324 |
Interestingly, the strategy for its e-commerce arm, DMart Ready, is seeing a significant shift. Instead of expanding its geographic reach, the company is focusing on deepening its presence in existing large metro cities. It ceased operations in 5 cities this quarter, reducing its footprint from 24 to 19 cities. This suggests a strategic pivot towards profitability and operational density over rapid, and potentially costly, expansion in the highly competitive e-commerce space.
Profitability: The Margin Squeeze is Real
This is where the plot thickens. While revenue grew by 15.4%, Net Profit (PAT) grew by a much slower 5.1% to ₹747 Crore. This disconnect is a direct result of margin compression.
| Margin Analysis (Standalone) | Q2 FY26 | Q1 FY26 | Q2 FY25 |
|---|---|---|---|
| EBITDA Margin | 7.6% | 8.2% | 7.9% |
| PAT Margin | 4.6% | 5.2% | 5.0% |
Both EBITDA and PAT margins have contracted, not just year-on-year but also sequentially. So, what’s causing this pressure?
- Passing on GST Benefits: The management commentary explicitly states they passed on the benefit of reduced GST rates to customers. This is core to their EDLP strategy but directly hits the margins in the short term.
- Changing Sales Mix: A subtle but important shift is happening in what customers are buying.
| Revenue Mix (H1 FY26 vs H1 FY25) | H1 FY26 | H1 FY25 | Change |
|---|---|---|---|
| Foods | 57.01% | 56.40% | 🔼 Increased contribution |
| General Merchandise & Apparel | 23.34% | 23.45% | 🔽 Slightly lower contribution, higher margin |
The contribution from the lower-margin ‘Foods’ category has increased, while the share of the higher-margin ‘General Merchandise & Apparel’ has slightly decreased. In a business of this scale, even small changes in the sales mix can have a noticeable impact on overall profitability.
Based on this performance—strong revenue growth but with margin pressure and moderating LFL—DMART continues to perform like a Fast Grower, but one that is facing headwinds common in a competitive market. The focus seems to be on maintaining market share and customer loyalty, even at the cost of short-term profitability.
A Look at the Balance Sheet Health
An efficient business like DMART is expected to manage its working capital impeccably. However, the latest data points to a slight deterioration.
- Inventory Days: Increased from 32.6 days in H1 FY25 to 33.9 days in H1 FY26.
- Payable Days: Decreased from 8.3 days to 6.8 days over the same period.
Simply put, inventory is sitting on the shelves for a longer period, and the company is paying its suppliers faster. Both these factors lock up more cash in the business, worsening the cash conversion cycle. While not alarming yet, this is a deviation from their usual efficiency and warrants attention in the coming quarters.
On the financing front, total debt has more than doubled from the end of FY25, standing at ₹1,476 Crore. However, a large part of this is likely lease liabilities for new stores, as per Ind AS 116 accounting. The Debt-to-Equity ratio remains extremely comfortable at 0.06, indicating a very healthy balance sheet with ample room for future expansion.
Final Takeaways: What’s the Verdict?
DMART’s Q2 performance was a mixed bag, reinforcing its status as a resilient, domestic consumption story while also highlighting some emerging challenges.
The Positives 👍
- Consistent Revenue Growth: A 15.4% YoY revenue growth is solid, driven by disciplined store expansion.
- Strong Domestic Focus: Insulated from global headwinds, DMART is a direct beneficiary of India’s strong consumption story and easing inflation.
- Healthy Balance Sheet: Negligible debt provides a strong foundation for future growth.
The Points to Watch 🧐
- Margin Pressure: The contraction in margins is the key story of this quarter. The company is prioritizing volume growth and customer loyalty over short-term profitability.
- Slowing LFL Growth: The moderation in same-store sales growth needs to be watched. Is this a temporary blip or the beginning of a trend?
- Working Capital Efficiency: The slight increase in inventory days and decrease in payable days is a metric to track for a business that prides itself on efficiency.
Overall, DMART remains a formidable player in the Indian retail sector. The current strategy appears to be focused on navigating a competitive environment by reinforcing its core value proposition of low prices. While this is putting pressure on margins now, it could pay off in the long run by solidifying its market leadership. Investors will be keenly watching if the company can return to its path of profitable growth once these near-term pressures subside.
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