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Jubilant FoodWorks: Same store sales growth disappoints

The subdued discretionary spending may have a bearing on margins

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Priya Kansara Pandya Mumbai
Last Updated : Feb 06 2013 | 11:06 AM IST

Jubilant FoodWorks’ stock fell 5.23 per cent after posting disappointing results for December 2012 quarter. The company’s same store sales growth (SSSG), which reflects like-to-like performance of stores present last year as well, came at 16.1 per cent. This is not only below the 20 per cent expected by analysts, but the lowest ever despite the festive season and year-end. The management attributes it to higher base (30 per cent in year-ago quarter), cannibalisation of sales due to aggressive store addition (37 stores added in 118 cities; highest in the past five quarters), price hikes (six per cent in nine months of FY13) and subdued consumer spending. 

Revenues at Rs 385 crore also grew at a lower-than-expected rate of 39 per cent. Against expectations of flat to marginal decline, operating profit margins saw highest-ever decline of 152 basis points year-on-year to 17.4 per cent. Costs jumped across the board, especially rent (Dunkin’ Donuts was not there last year) and other expenses (includes ad spends, which is up year-on year and sequentially).

Consumer sentiment is still not upbeat, hence, any meaningful pickup in SSSG looks unlikely for some time. While the company does not plan to hike prices further in FY13, ad spends are likely to remain high. Also, the management continues to be focussed on expanding stores and entering new cities. Dunkin’ Donuts will continue to remain a drag on profitability being in the initial phase, while increasing penetration of Dominos in newer cities will keep costs high, thereby offsetting potential gains from some easing of food prices seen recently.

After significantly outperforming in 2012 (up 72 per cent), the Jubilant stock is down 12 per cent in 2013 on concerns of slowing growth. One-year forward valuation has also slipped from 39 times at the start of 2013 to 34 times recently. But, to sustain such high levels, it’s imperative for Jubilant to maintain high SSSG. Says Manish Jain, analyst, Nomura Equity Research, “If the company can deliver SSSG in the 18-20 per cent range, we would expect the stock to continue to trade at higher-than-sector-average valuations.”

Rikesh Parikh, vice-president -markets strategy and equities, Motilal Oswal Securities, shares a similar view saying SSSG of 20 per cent plus is critical for Jubilant to justify high price earning multiple. In the current environment, this seems a bit difficult.

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First Published: Feb 05 2013 | 12:20 AM IST

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