Jubilant Foodworks - Tasty Bite; Result Update Q3FY15 ::Edelweiss, report

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Jubilant Foodworks’ (JFL) Q3FY15 revenue and PAT were slightly above expectations. Key highlight was 1.9% YoY surge in same stores sales (SSG) on a low base of 2.6% YoY decline. The company reported positive SSG after 4 consecutive quarters of decline. In sharp contrast, SSG of Yum! Brands, which operates Pizza Hut and KFC, fell 10% YoY on a favourable base of 4% YoY decline. JFL’s gross margin catapulted 147bps YoY to 74.8% due to reclassification of cost line items (55bps YoY impact) and moderation in raw material prices. However, due to higher staff costs (owing to increments and rapid expansion) and losses in Dunkin Donuts, EBITDA margin plummeted 163bps YoY to 13.1%. The company has been seeding growth drivers to tap potential recovery via sharper expansion and innovations. Even though it would be premature to term this a recovery, we remain enthused by Domino’s market share gains (JFL’s SSG has outperformed Yum! after 3 quarters).

Expansion on track; online delivery contribution remains strong

41 Domino’s stores and 9 new Dunkin Donuts stores were opened in Q3FY15. As on date, Domino’s has 844 stores across 185 cities and 50 Dunkin Donuts stores across 18 cities. JFL has maintained its target of opening 150 Domino’s and 30 Dunkin’ Donuts stores in FY15. Online contribution to delivery sales was ~27%. Mobile ordering sales contributed ~21% to overall sales.

Q3FY15 conference call: Key takeaways

The reported SSG in Q3FY15 is cosmetic due to low base as consumer sentiment is yet to improve. It will take 3-6 quarters for Domino’s to report a high single digit SSG number. The company may look at a change in its pricing policy of 6% YoY hike each year if inflation continues to remain moderate. Gross margin will continue to be in the 74-76% range. 90-95% of new stores are profitable in the first month itself. There will be 150-160bps YoY negative impact on EBITDA margin in FY15 due to Dunkin’ Donuts; it will breakeven when it has 125-150 stores (in ~2-3 years).

LINK
https://www.edelweiss.in/research/Jubilant-Foodworks--Tasty-Bite;-Result-Update-Q3FY15/28260.html