Jubilant Food falls 10% as same-store sales decline

A decline of 3.2 per cent is the lowest in seven quarters for the food service major.

Jubilant FoodWorks’ stock crashed 10 per cent on Tuesday on the BSE as investors reacted sharply to the food service major’s poor same-store sales growth (SSG) numbers for the three months ended June 2016. Jubilant had declared its June quarter earnings last week, reporting a 3.2 per cent year-on-year decline in SSG, its lowest in seven quarters.

In a report dated September 3, Abneesh Roy, senior vice-president, institutional equities (research) at Edelweiss, said SSG came below his estimates of a four per cent year-on-year growth, indicating the pressure that food service majors were in. “SSG dipped due to constrained consumption environment. The scenario remains challenging for quick-service restaurants, prompting players to dole out new offers and product innovations,” Roy added.

This strategy, according to experts, is putting pressure on margins. Jubilant, for instance, saw operating margins shrink 230 basis points (bps) for the June quarter as staff, rental and allied costs increased between 10 and 19 per cent during the period under review.

 

Westlife Development, which runs McDonald’s restaurants in the southern and western parts of India, also saw operating margins narrow to about 30 bps as total costs increased 10.6 per cent, while revenue (including net sales and other operating income) increased 10.9 per cent for the June quarter.

While Westlife’s strategy of new product launches during the June quarter ensured that SSG was 3.4 per cent, it was lower than the 8.4 per cent the firm saw in the March 2016 quarter. Amit Jatia, vice-chairman, Westlife Development, has repeatedly highlighted that discretionary spends will take time to recover as consumers apportion spends for more pressing needs.

Religare Institutional Research analysts Varun Lohchab and Manish Poddar said in a reported released on Tuesday that consumer sentiment could show signs of improvement in the September quarter as the festive season kicks in.

In the same report, Lohchab and Poddar say about Jubilant FoodWorks, “We believe rapid market fragmentation, high fixed costs from 130 to 140 new store editions, a lack of pricing power and lower Dunkin’ Donuts profitability remain risks to growth and margins.”