Jubilant Foodworks – Q1FY24 Results Update

A tepid near-term outlook persists Revenue rose 5.1% QoQ / 6.3% YoY on the back of robust growth performance of the Domino’s delivery channel mix (YoY basis) and an improvement in its LFL ADS on a sequential basis. However, a decline in ticket size, negative LFL growth and flat dine-in growth compared to the corresponding quarter of the previous fiscal year continued to reflect an overall weak consumer sentiment for the business. Through the company’s continued focus on cost management across all lines, the GP margin and EBITDA margin expanded to 76.4% and 20.7%, respectively, in Q1FY24 compared to 76.2% and 19.6% in Q4FY23, despite commodity prices remaining firm. 

The PAT rose 1.3% QoQ to Rs. 28.9 crores in Q1FY24 but was significantly

below market expectations of Rs. 80.5 crores. The company added 30 new stores in India, with a total store count of 1,891 which includes – 1,838 Domino’s stores, 17 Popeyes stores, 15 Hong’s Kitchen stores, and 21 Dunkin’ stores.

Key Concall Highlights

• The margins continued to remain under pressure, with input prices like cheese remaining firm and spike in vegetable prices hampering growth on the way ahead. The business appeared uncertain on future trends relating to gross margins as on one side cheese prices saw moderation on a sequential basis, while a spike in vegetable prices on the other side remains a cause of concern for the near-term scenario.
• The company’s state-of-the-art multi-brand commissary in Bengaluru will commence production in August which would be able to serve 750 plus stores at its optimum capacity. This will bring in higher operational efficiency for the company as the dependence on third-party sourcing will reduce significantly while additional depreciation charges will take place.
• The company opened 23 Dominos stores in Q1FY24, taking its total store count to 1,838 stores across 394 cities. Despite adding fewer stores this quarter, the company has maintained its guidance of opening 200-225 stores for the fiscal year.
• In Popeyes, the company added four new stores in the quarter and expanded its network to two new cities- Manipal and Coimbatore. The company also added Hyderabad to its network in July 2023 and going ahead, the management continues to remain focused on growing in the southern cities and maintaining its guidance of opening 30-35 stores for the year.
• Domino’s Cheesy Rewards membership base inched upwards to 16.8 million compared to 13.6 million members in Q4FY23, while the MAU (Monthly Active Users) decreased to 10.3 million in Q1FY24 compared to 11.1 million in Q4FY23.
• To enhance its ticket size and grow its ADS going forward, the company has introduced the Red Hot Spicy range at a price point of Rs. 179 to shift the customer’s focus from low-range pizzas to mid-range pizzas. Along with this, the company is also focusing more on combos to continue driving its order-led growth and improve its ticket size.
• The management stated that going forward, 23-24% would be more sustainable on the margin front while the 26% margin that it had achieved in the COVID-19 peak is not sustainable.
• In dine-in, the company mentioned that around 1,400 out of its 1,800+ stores were adopted in the new format (i.e. new ACE and Pizza Theatre Design). With stores modified in the reimagined format, the company noticed 12-20% growth in its dine-in sales. This year, the company targets around 100 stores to get in the new format in its efforts to revive its dine-in channel.

Valuation and Outlook

Jubilant Food works Ltd. reported subdued revenue growth this quarter owing to negative LFL growth and a drop in ADS compared to the corresponding quarter of last year. The near-term muddiness in the QSR space continues to show on the overall weak demand scenario for the pizza industry and makes us cautious of the business aim to get its LFL back in the 6-8% growth range. 

Moreover, the business decision to maintain its growth guidance of adding 200-225 Dominos stores despite tighter competition intensity in the market and negative LFL growth is expected to weigh on business performance. We also remain watchful over the future performance as a rise in vegetable prices adds to uncertainty in terms of the margin outlook, although EBITDA margins rose above market expectations to 20.7% in Q1FY24. 

Although the near-term outlook casts a dark shadow over the growth story, we expect a revival in the long term on the back of the business’s ability to execute – (1) Popeyes expansion plan (highly underpenetrated category); (2) focus on increasing its dine-in mix (still flat growth reported this quarter); and (3) enhancing delivery time (20-minutes delivery guarantee) to enhance its order led growth.