Same-store sales fire up Jubilant FoodWorks' Q1 numbers; revenue up 26%

Led by robust same store sales (SSS) growth, Jubilant FoodWorks reported a better than expected performance in the June quarter, with a 26 per cent rise in sales over the same period a year before to Rs 8.6 billion. Profit rose over threefold to Rs 746.8 million. The consensus estimate had pegged sales and profit at Rs 8.2 billion and Rs 663.4 million.

Strategies such as extension of its Every Day Value (EDV) strategies, improving product quality and a new online ordering app all clicked. Beside a positive demand environment, with a lower goods and services tax (five per cent), good response to the EDV with addition of regular pizzas, and events such as IPL cricket and sponsorship of the Royal Challengers team all boosted SSS. The extension of EDV enabled the company to acquire more new customers and increase the frequency of existing ones.

While the SSS performance was supported by both dine-in and delivery sales, the latter rose at a faster pace during the quarter. Higher contribution of the digital channel to delivery sales (up to 65 per cent, from 51 per cent a year before) drove this metric. Of this, 83 per cent was through mobile ordering, driven by a new Android app.

Online growth is likely to accelerate, propelling delivery sales further. Also, given the current store-level capacity utilisation, there is room for existing stores to grow.

Higher share of the digital channel also helped in a sharp 489 basis points (bps) expansion to 16.6 per cent in operating profit margin, despite gross margin pressure (down 183 bps year-on-year due to, raw material inflation).

Barring other expenses (though contracted year-on-year, as a per cent of sales, increased sequentially  due to advertising spending, likely to normalise going ahead), rent and employee expenses as a proportion of sales contracted by 180-360 bps, year-on-year. The management said operating leverage, amid sturdy volumes and cost management, lifted the operating margin. The company indicated there could be some price hikes, without disturbing its EDV, to protect its gross margin amid high input cost pressure.

Growth in Dunkin’ Donuts also supported the company's margins. Operating losses fell by a third in the quarter. The management is confident of achieving break-even in this segment by FY19. “Dunkin’ Donuts made good progress towards profitability, on the back of successful innovations and disciplined cost management,” says Pratik Pota, chief executive of Jubilant.

Though the stock, which ran up 30 per cent in the past six months, fell 2.5 per cent on Wednesday, analysts are bullish. “Overall positive consumer trends, success of EDV, improved product quality and efficiencies through digital investments will continue to drive SSS growth. This and the management’s confidence about aggressive store expansion will increase the penetration and eating-out frequency for the pizza category. Also, Jubilant’s strong focus on cost management, coupled with leverage benefit, will boost operating profit margin,” says Abhishek Navalgund, analyst at Nirmal Bang Securities.


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