Avenue Supermarts Ltd., the operator of the popular retail chain DMart, reported a seemingly robust 15.4% year-on-year (YoY) revenue growth for the second quarter of fiscal year 2026. However, a deeper look into the numbers reveals a more challenging picture, with net profit growth slowing to a crawl and key profitability margins coming under pressure, signalling potential "momentum fatigue" for the retail giant.
For the quarter ending 30 September 2025, DMart's consolidated revenue from operations stood at Rs. 16,676 crore. However, its consolidated net profit saw a muted increase of just 3.9% YoY to Rs. 685 crore. On a sequential basis, the profit actually declined by 11.4%, raising concerns among investors about the company's near-term growth trajectory.
Table of Contents
- Why Did DMart's Profit Growth Slow Down?
- DMart's Q2 Financial Performance: A Deep Dive
- Operational Updates: Store Expansion and E-commerce
- The Investor's Bottom Line: Adjusting to a New Growth Reality
- Frequently Asked Questions (FAQs)
Several factors contributed to the subdued performance and pressure on profitability:
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Rising Costs: Total expenses for the quarter increased by 16% YoY, outpacing revenue growth. A significant driver was a 32% YoY jump in employee costs, which diluted profitability.
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Changing Product Mix: The share of the lower-margin 'Foods' segment has been increasing and now constitutes about 57% of total revenue. This shift away from higher-margin General Merchandise and Apparel is naturally putting pressure on overall margins.
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Slowing Like-for-Like (LFL) Growth: The LFL growth for stores that are two years or older stood at 6.8%. While positive, this indicates a moderation from the high growth levels seen in previous years, suggesting that mature stores are seeing slower growth.
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GST Rate Changes: The company passed on the benefits of recent GST rate reductions to its customers. While a positive move for consumers, it had a deflationary effect on the reported revenue figures for the quarter.
While the top line continued to expand, the pressure was clearly visible on the profitability front.
Key Financial Highlights for Q2 FY26
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The key takeaway for investors is the contraction in margins. The EBITDA margin squeezed by 30 basis points to 7.3% (7.6% on a standalone basis), while the Net Profit Margin saw a more significant 50 basis point drop to 4.1%.
For a deeper look at DMart’s latest financial performance, share price trends, and valuation ratios, visit the DMart share price page.
DMart continued its steady, albeit not aggressive, store expansion, adding 8 new stores in Q2 FY26. This brought the total store count to 432 across the country.
The company's e-commerce arm, DMart Ready, is also undergoing a strategic consolidation. While it expanded its network by adding 10 new fulfilment centres in existing markets, it also ceased operations in five cities, including Chandigarh and Ghaziabad, to likely focus on deepening its presence in large metro cities where the model has found better traction.
Curious how other FMCG giants performed this quarter? Check the HUL Q2FY26 Results Analysis for insights into volume growth and profit trends across the sector.
DMart has long been a market favourite, lauded for its exceptional execution. However, the Q2 results suggest the company is entering a more mature phase where the blistering pace of growth is naturally moderating.
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Key Concerns: The persistent pressure on margins, slowing same-store growth, and the company's historically premium valuation are primary concerns for investors. If growth continues to slow, the stock may be vulnerable to a valuation de-rating.
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The Verdict: DMart remains a best-in-class retailer. However, investors need to temper their expectations. The era of exponential growth may be giving way to a period of more stable, albeit slower, expansion. The stock is transitioning from a high-growth play into a compounder that needs to be evaluated on its ability to sustain reasonable growth while protecting its margins. For new investors, this moderation might offer a more reasonable entry point, but the premium valuation still warrants caution.
Watch the Markets by Zerodha Hindi video on YouTube to understand whether DMart’s business model is still working in today’s market dynamics.
1. What was DMart's revenue and profit in Q2 FY26?
DMart reported a consolidated revenue of Rs. 16,676 crore (up 15.4% YoY) and a net profit of Rs. 685 crore (up 3.9% YoY) for the second quarter of FY26.
2. Why did DMart's profit margins decline?
The margins declined due to a combination of rising employee costs, a shift in sales mix towards lower-margin food products, and the impact of passing on GST rate cuts to customers.
3. How many new stores did DMart open?
DMart added 8 new stores in Q2 FY26, taking its total store count to 432.
4. What is LFL (Like-for-Like) growth and why is it important?
LFL growth measures the sales growth from stores that have been open for a certain period (in this case, two years). It is a key metric to assess the underlying demand and health of a retail business, excluding the impact of new store openings. DMart's LFL growth slowed to 6.8% in Q2.
5. Is DMart still a good stock to invest in?
DMart is a fundamentally strong company, but its high-growth phase appears to be moderating. It is transitioning into a more stable compounder. Investors should consider its premium valuation and slowing growth before investing.