Jubilant Foodworks -Quarterly Result Update

Sector Outlook – Neutral

In the second quarter of FY24, Jubilant Foodworks posted revenue growth of 2.6% compared to the previous quarter and by 5.2% compared to the same period last year, reaching Rs 1,368.6 crores. This growth was mainly driven by more orders in the delivery channel and improved sales from its advertising and delivery services. It slightly exceeded the expected revenue of Rs 1,362.4 crores. However, there was a decline in comparable sales (LFL) by 1.3%, which means that dine-in stores didn’t perform well, and some customers chose lower-priced pizzas. This suggests that the demand for their products wasn’t very strong.

On the other hand, EBITDA decreased by 11.1% compared to the same period last year, totalling 277.1 crores in Q2FY24. This decline was mainly due to increased personnel expenses caused by price hikes and investments in front-line teams. During the quarter, the company added 63 new stores across all its brands and markets, bringing the total number of stores to 2,022. These new stores include 50 Domino’s outlets, 5 Popeyes stores, 4 new Hong’s Kitchen outlets, and 1 Dunkin’ store, along with 3 new stores in Bangladesh.

Key Concall Highlights

Store Expansion:

• The company opened 63 new stores in the second quarter of FY24, bringing the total to 2,022 stores across all their brands and markets.
• Among these, 50 new Domino’s stores were opened, entering three new cities. In the first half of FY24, they added a total of 73 Domino’s stores, slightly below their target of 200-225 stores for the fiscal year. However, they are confident about their goal of reaching 3,000 Domino’s stores in the medium term.
• In the Popeyes brand, five new stores were added, entering two new cities, making a total of 22 restaurants. The plan is to open 13 more Popeyes stores this fiscal year and eventually have 250 stores in the medium term. They also plan to open larger stores to increase brand recognition.
• Additionally, four new Hong’s Kitchen stores and one Dunkin’ store (in a new city) were opened. Now, 11 out of 21 Dunkin’ stores align with the brand’s coffee-first identity.
• In Bangladesh, three new Domino’s stores were opened, totaling 23 stores, and 50 stores are now operational in Sri Lanka.

Demand Outlook:

• The company’s revenue grew by 5.2% compared to the previous year, which was slightly below their expectations. Positive growth was seen in delivery channels, especially with 20-minute delivery in Tier 1 towns. However, comparable sales (LFL) remained negative at 1.3% during the quarter.
• Dine-in sales continued to underperform due to smaller orders and temporary closures for reimaging. Currently, 33 stores are undergoing reimaging, with the goal of completing 100 stores in the fiscal year. New reimagined stores have shown strong growth.
• Customers are choosing lower-priced pizzas, but the overall volume of orders and calorie consumption has remained consistent.
• In the medium term, the company expects LFL growth to be around 5-6% with a 12% network expansion, aiming for a 15% CAGR (Compound Annual Growth Rate) for Domino’s.
• The Domino’s Cheesy Rewards membership increased to 19.5 million, helping retain existing customers. Monthly Active Users (MAU) grew to 10.8 million but were slightly lower than the previous year.

Margin Scenario:

• Gross profit margins improved due to Project Vijay, which helped control raw material costs. They are focusing on data and technology, promoting combo offerings to increase sales, and sourcing commodities at reasonable prices.
• EBITDA margins decreased by approximately 370 basis points due to increased payroll and other expenses. Wage hikes in response to rising inflation and investments in frontline teams led to higher operating expenses.

Valuation and Outlook

On a positive note, the company managed to increase their gross profit margins by keeping a close eye on costs, even though the prices of vegetables and cheese went up. However, their overall profit margins (EBITDA) dropped by 370 basis points compared to the previous year. This happened because they spent more on staff and manufacturing, and they invested more in their front-line teams.

The company is hopeful for the upcoming quarter because of the excitement around the World Cup. However, we didn’t see any clear signs of a big improvement in demand. So, it’s important for us to keep an eye on what the management says about demand in the future, and how their investments help them achieve a 15% annual revenue growth.

Key Takeaway

• Project Vijay, increased focus on data & technology and higher penetration rate of its combo offerings aided the business to maintain its margins.
• Better order-led growth in Tier 1 cities through its 20-minute delivery initiative.
• Over the medium term, the business expects LFL growth to be in the 5-6% range with 12% network expansion, enabling the business to grow at a 15% CAGR for Domino’s.