Retail - Yum! Brands: Performance Continues to be Soft ::Edelweiss, report

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Yum! Brands, which operates Pizza Hut (431 stores), KFC (395 stores) and Taco Bell (7 stores) outlets in India, registered 10% YoY decline in same store sales (SSG) in Q4CY14 on a low base (versus 4% YoY dip in Q4CY13; Q3CY14 SSG fell 4% YoY on a base of flat YoY growth). During the quarter, the company witnessed sharp rise in store additions — added 45 Pizza Hut stores (18 in Q3CY14) and 50 KFC stores (4 in Q3CY14). We expect competitor, Jubilant Foodworks’ (JFL; Domino’s) to report a 2% YoY decline in SSG in Q3FY15 on a low base of 2.6% YoY decline. The company’s SSG fell by 5.3% YoY in Q2FY15 on a base of 6.6% YoY growth. In spite of Indian Nielsen Consumer Confidence Index inching up from 126 in Q3CY14 to 129 in Q4CY14, the QSR space has yet to witness any material improvement in demand. While we expect JFL’s SSG to remain under pressure over the medium term, it would gradually recover in FY16.

Sales growth dips in spite of store additions

Yum! Brands’ India division sales grew by mere 6% YoY (14% YoY in Q3CY14, 14% YoY in CY14), prior to foreign currency translation. The company added 156 new stores during the year, of which Q4CY14 alone contributed 106. Yum! Brands’ SSG declined by 5% YoY for CY14.

Heightened focus on delivery by Pizza Hut troubles Domino’s

Yum! has been focusing on enhancing its presence in the pizza home delivery segment, which has been JFL’s forte. The number of Yum! home service stores (delivery) spurted 40% YoY in Q4CY14, which indicates the company’s increased aggression in the delivery space (seen in one-on-one offer and 30 minutes delivery promise). In Q3CY14 too, there was a 55% YoY jump in the number of delivery stores of Yum!. This could pose a threat to JFL’s market share in the pizza delivery space.

LINK
https://www.edelweiss.in/research/EdelFlash-Retail--Yum-Brands-Performance-Continues-to-be-Soft/28253.html