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Aggressive store expansion, rising employee costs and lower sales have hurt profits and margins of Jubilant FoodWorks in the June quarter. Like several other consumer companies, India's largest food service company has seen sales of its pizzas, wraps and burgers from its stores (not including the new stores) decline for the third straight quarter. However, what has eroded profits is a sharp uptick in costs. With demand slowing, the company has not been able to pass on higher costs to consumers, which has hurt margins and profits.
Store expansion has come with its own price, claim analysts. The company's rentals and wage costs have gone through the roof during the quarter. Compared to the corresponding period last year, raw material costs have risen 18 per cent, employee costs are up 32 per cent, while manufacturing costs are up 30 per cent. Total expenses have risen by 26 per cent during the quarter. Consequently, operating margins have declined 440 basis points y-o-y to 12.4 per cent during the quarter. Operating profit during the quarter declined 12 per cent y-o-y to 59 crore. The company's adjusted profit after tax declined 18.5 per cent to Rs 27 crore. Emkay Global says this is the third consecutive quarter of same-store sales decline. The brokerage adds: "While gross margins were positive, negative SSG (same-store growth) and higher operating costs on account of store addition hit Ebitda margins."
