Westlife Foodworld Ltd. - Q2FY24 Result Update

Sector Outlook - Neutral

Westlife Foodworld Ltd. (WFL) reported a 7.4% year-on-year increase in revenue, reaching Rs 614.7 crores in Q2FY24. However, this fell short of market expectations, which were around Rs 648.0 crores. The growth was driven by a 1% year-on-year increase in Same Store Sales Growth (SSSG) and an improvement in Average Daily Sales (ADS), which rose to Rs 6.65 crores in Q2FY24 from Rs. 6.19 crores in the same quarter last year.

The company’s focus on premiumization and innovation in desserts and beverages, as well as strong growth in the McSpicy range in the South, contributed to its positive performance. Gross profit margins expanded by 93 basis points year-on-year to 70.1% due to stabilised input costs, cost-saving efforts, and a better product mix. However, EBITDA margins contracted by 105 basis points year-on-year to 16.2% in the quarter. This was primarily due to higher payroll and royalty expenses, falling below the company’s sustainable range of 18-20% EBITDA margin.

PAT experienced a decline of 22.4% quarter-on-quarter and 29.1% year-on-year, reaching Rs 22.4 crores. This figure was significantly lower than market estimates of Rs 33.5 crores, leading to a PAT margin decrease to 3.6% in Q2FY24 from 5.5% in Q2FY23.

Key Concall Highlights

In Q2FY24, WFL added 9 stores, taking its total store count to 370 stores across 59 cities with 88% of these restaurants having McCafes, 74% of them being EOTF stores and 19% being drive-thrus.
The company aims to grow its drive-thrus mix to about 25-30% of its total stores by FY27 as the model enjoys an inherently higher throughput leading to better brand penetration.
The business remained committed to adding a total of 40-45 stores (the majority expected in the south) by the end of FY24.
Average sales per store increased to Rs 6.65 crores in Q2FY24, registering a 7% YoY growth as compared to Rs. 6.19 crores in Q2FY23.
The company launched a Shravan special menu which saw good traction in key markets during July-August.
Capex requirements for FY24 continue to remain in the given range of Rs 200-250 crores for the opening of new stores in the year and 30-35 stores going under reinvestment.

Key Takeaway

The company already has emerged as the leader in the western markets and is now targeting to achieve this position in the Southern markets.
Gross margins are expected to remain broadly in the range of 70.1% recorded this quarter for the year.
Same-store sales growth remained positive at 1%/3% in Q2FY24/H2FY24 despite overall weak consumer sentiment in the informal eating-out space.