Same-store sales can grow 18% in FY13: Jubilant Food

Jubilant Foodworks that operates Domino’s Pizza and Dunkin' Donuts chain in India reported a 36 percent rise in its net profit to Rs 32.3 crore for the quarter ended September 30, 2012 on the back of robust sales.

In an interview to CNBC-TV18, Ravi Gupta, CFO of Jubilant Foodworks spoke about the sluggishness in the same-store sales growth and why they are fairly confident to beat 18 percent of their guidance in the quarters ahead. Gupta also spoke about the additional ten stores and how they are going to place them in different cities. “Today we are present in 112 cities. The rest of the stores also include some new cities and will be added. So historically, we have been adding about 15-20 cities every year,” he added.

Below is an edited transcript of Ravi Gupta’s interview on CNBC-TV18.

Q: Some sluggishness creeping into your same store sales growth, do you see that getting aggravated over the next few quarters?

A: With respect to same store growth, this is the seventh year where on an average basis we have grown around 20 percent. So the base is consistently getting higher. Second factor, we have increased our guidance for opening new stores. So having opened 87 stores, we have to give guidance for 90 initially, then 100 and further 210. This is leading to more number of split stores; when we split the store then the base becomes the older store which has higher sales and the sale too have been split. So that again puts a pressure on the same store growth.

So one is base becoming higher, second is the splitting impact and third is the economy. If you understand that the economy in the first half has not been great, when you look at the competition all the numbers are not probably growing, they have been growing in single digit numbers.

So looking at all those aspects, the growth we have in the first half or in the quarter is about 19.8 -20 percent and in the first half 21 percent is fairly exciting. Our guidance for the full year has been around 18 percent. We are not changing the guidance and are fairly confident to beat it of 18 percent.

Q: In the second half, do you expect the same store growth to slowdown further?

A: I am not saying so. It becomes difficult to exactly predict what will be the same store growth, because there is no formula per se where you can predict. We are fairly confident that 18 percent same store guidance will definitely be able to beat. Exactly how much it will be, whether 19-20 or 18 is difficult to predict.

Q: Why have your margins come off a bit in the current quarter?

A: First, I will take you to the last financial year. First quarter last financial year, our margins were 19.1 percent and second quarter was 18.1 percent. There were various factors so there was a dip of about 100 bps. This year our Q1 margins were about 18.2 percent and Q2 about 17.2 percent. So, it is a similar kind of a dip.

There are two factors primarily which are responsible for those dip in the margins; first, we started reporting Dunkin' Donuts expenses merged with EBITDA. So all the operating expenses which were reported earlier as exceptional items are now reported under the EBITDA itself, because the brand has become operational. Second, service tax rate and excise duty got revised with effect from April.

It had an additional impact of about 50 bps on margins. So these two factors, had we allowed them to give full impact would have given about 130 bps but actual impact is about 90 bps. So, despite this impact we have been able to grow the margins. That is why we are fairly confident for the full year and also our margin should be slightly below 18 percent.

Q: You are going to add 110 stores. Where will the remaining ten extra stores go?

A: We have seen the trend for the last four-five years. About half of the stores which are opening get open in the metro cities which are top ten cities and the rest of the stores, approximately 55-60 stores will get open in the rest of the cities. Today we are present in 112 cities.

The rest of the stores also include some new cities and will be added. So historically, we have been adding about 15-20 cities every year. So, looking past couple of years, we may add about 12-15 cities more this year.