Guidance raised; 100 new stores in FY13: Jubilant Foodworks

Jubilant Foodworks reported its first quarter results on Wednesday. Net profit rose 40% year-on-year to Rs 32.4 crore and net sales were up 45% from a year ago to Rs 314.4 crore in April-June.

Ravi Gupta, CFO, Jubilant Foodworks tells CNBC-TV18 that weak consumer sentiment is being witnessed across the country. “Discretionary consumer spending has reduced.”
Its EBITDA margin declined to 18.2% in April-June from 19.4% YoY. It had reported an EBITDA margin of 18.7% last financial year. Pressure on EBITDA is due to high food pricing, Gupta laments.
On same-store sales growth, the company will maintain its earlier guidance of 18% this fiscal. However, despite signs of a slowdown, Gupta says the guidance on opening new stores in FY13 has been raised to 100. Below is an edited transcript of his interview. Q: What kind of same-store sales growth are you witnessing now? Do you see the momentum continuing or are there signs of sluggishness creeping in?
A: In Q1 we have witnessed same-store growth of 22%, when you compare with last full year’s same-store growth which was 29.6%. So from last year definitely there is a decline in the same-store growth but when you look at an absolute level 22% same-store growth, it is kind of the best in the industry whether you look at India or maybe across countries.
When you look at stand-alone basis it is definitely lower because discrete spending is a little down from the consumer point of view. We desire higher same-store growth definitely and if the economy improves, if the GDP predictions improves, we can see an upside there. Q: In which geographies are you seeing any signs of softening of demand?
A: There is no particular geography within India which is downgrading. The weak sentiment is there practically all across India. There is no particular city or region I can ascribe to which is responsible for this slight below expectation same-store growth. But we had given guidance for the full year at 18% plus same-store growth and we are still on target and are still confident that for the full year we can achieve a same-store growth of 18%. Q: Your margins had cooled off a little bit by about a percentage point in the current quarter. Do you see yourself holding margins here at 18% plus or is that slightly unlikely?
A: For full year FY13, definitely we are expecting about 18% plus margin and when you look at Q4 to Q1, in Q4 our margins were 18.5% but when you reduce the Dunkin' Donuts initial expenses which were 0.6%, so our margins for Q4 last year was about less than 18%. In Q1, despite higher costs in terms of service tax increase, our margins have expanded 18.2%. We had pressure in Q1 on the food costs of about 100 bps food cost had increased and there are two reasons responsible for that.
First was that we deferred the price increase looking at the weak consumer sentiment. Typically we take price increases in the month of April. Now we have taken a price increase in the month of June. The second reason was that in view of the weak sentiment we had increased aggression of our promotions which led to a little higher discounting.
_PAGEBREAK_
So net-net, the food cost was 100 bps above last year Q4 numbers and that has been primarily responsible for the slightly lower EBITDA. But our full year expectation is still 18% plus and we are fully confident about achieving that. Q: Can you give us a little more color on the new store performance and also on the rollout plan for the current quarter and the next quarter for Domino’s?
A: As far as the new stores are concerned we are extremely happy with the new store performance. On the new store guidance also we have improved from 90 stores opening for the full year FY13 and have guided to 100 stores. We are fairly excited by the performance of the new stores.
We have internal benchmarks such as new stores need to have a payback of three years or less. We are consistently getting better payback in the new stores because as our same-store sales improve, new stores sales are also consistently improving which is the reason you will notice that our return on capital employed (ROCE) also has been consistently improving. In FY11, ROCE was close to 50%, now it has jumped to 60% in FY12. Q: What about Dunkin' Donuts? Are you on track to launch those 10 stores in the current year? Any early updates you can give us on that?
A: We have been positively surprised by the response we have received from the consumers from the three stores we have opened for Dunkin' Donuts in the Delhi region. The sales have been better than our expectations. The consumer feedback has been fairly positive. People like donuts, people like sandwiches and now the beverages, milkshakes, and the smoothies we have. So, early signs are very positive.
We are on track to open 10 stores. Earlier we have indicated that we will be opening stores of all kinds. We will have high street stores. We will have signature stores. There could be mall stores, express stores or food court stores. In the first year, by opening all kind of stores in terms of sizes and formats we are testing out which format is best from the consumer point of view and which is best for us in terms of profitability.
Then finally we will decide saying that this format will work in India the best in terms of the consumer and for us and accordingly our future expansion will be on those formats and those models. Q: What is the reasonable expectation that you have of same-store sales growth going forward? 22% is a respectable number. The base is also higher, but it’s lower than what you and market’s got used to. Do you think 20% plus is sustainable?
A: As earlier indicated our guidance is still 18% plus same-store growth for the full year. Exactly predicting same-store growth you know their nuances are associated with them and on top of it we are sitting on higher base because in FY11 our same-store growth was 37% and last year 30%. So we are looking on a very high base of same-store sales and on top of it we are confident of reaching 18% same-store growth for the FY13.