GuruFocus -
- Consolidated Restaurant Sales: INR 694 crores, grew by 8% year on year.
- Consolidated EBITDA: INR 115 crores at 16.6%, declined by 1% year on year.
- Restaurant EBITDA Margin: 13.7%, down by 240 basis points.
- Consolidated Adjusted EBITDA: INR 59 crores, declined by 13% or 210 basis points.
- Consolidated PBT Before Exceptional Items: INR 5.3 million or 0.8%.
- Adjusted PBT Before Exceptional Items: INR 14 crores or 2.1%.
- Exceptional Items Impairment: INR 11.4 crores due to Maldives business.
- KFC Same-Store Sales Growth (SSSG): Negative 8%.
- KFC Restaurant EBITDA: 16.5%, down 270 basis points year on year.
- Store Openings: 19 new stores in the quarter.
- Pizza Hut Average Daily Sales (ADS): 47, stable from previous quarter.
- Pizza Hut Restaurant Sales Growth: 3% increase, SSSG at minus 3%.
- Pizza Hut EBITDA: 4.1% impacted by additional marketing investments.
- Sri Lanka Restaurant Sales Growth: 10% in LKR terms, 19% in INR terms.
- Sri Lanka SSSG: 9% with healthy transaction growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sapphire Foods India Ltd (BOM:543397) reported a 9% overall revenue growth, with gross margin improving by 40 basis points year on year.
- The company opened 19 new stores in the quarter, aiming to double its store count by the end of the calendar year.
- Sri Lanka business showed strong recovery with a 19% increase in restaurant sales in rupee terms and the best restaurant EBITDA margin in the last 45 quarters.
- Pizza Hut saw a 17% sequential uplift in average daily sales, indicating stabilization in sales performance.
- The company is focusing on product innovations and marketing investments to drive sales, such as the launch of the Momo Mia range of appetizers and pizzas.
- Consolidated restaurant EBITDA declined by 8% year on year, with restaurant margin down by 240 basis points.
- KFC's same-store sales growth (SSSG) was negative 8%, impacted by vegetarian festival days and muted demand conditions.
- The Maldives business faced significant challenges, with sales down by nearly 60% year on year, leading to a non-cash impairment of INR 11.4 crores.
- The company is experiencing a shift towards delivery, which impacts margins due to higher delivery costs.
- Competitive intensity in the QSR sector is high, with increased competition from both traditional and digital channels affecting sales.
A: Sanjay Purohit, Group CEO, explained that the expansion strategy involves opening new stores in cities with populations over 1 million, with a significant focus on top metros. About 20% of new stores are in virgin markets. The company plans to double its store count by December 2024, reaching approximately 500 stores.
Q: How is Sapphire Foods addressing competition and innovation for Pizza Hut, especially with aggressive moves by competitors like Domino's?
A: Sanjay Purohit emphasized that innovation should not compromise core products. The company is focusing on product innovations like the Momo Mia range and maintaining a steady pace of innovation to ensure consumer engagement. The target ADS for achieving low double-digit margins is around 55,000.
Q: What is the impact of the shift towards delivery on financials, and how is it affecting margins?
A: Vijay Jain, CFO, noted that the shift towards delivery is partly due to the opening of late-night delivery options and reduced footfall in malls. The financial impact is a 10 to 15 basis point margin reduction for every 1% shift from dining to delivery, although this is mitigated by better gross margins on delivery platforms.
Q: How is the Sri Lanka business performing, and what are the growth prospects?
A: Sanjay Purohit stated that the Sri Lanka business is recovering well, with a 10% growth in restaurant sales in local currency terms and a 19% increase in rupee terms. The company plans to open 7 to 10 stores annually in Sri Lanka, but remains cautious in the short term.
Q: Given the current demand environment, how is Sapphire Foods approaching store expansion for KFC and Pizza Hut in India?
A: Sanjay Purohit mentioned that while the company will be more cautious with KFC expansion compared to the past three years, it still plans healthy additions. For Pizza Hut, the expansion target has been adjusted to 20-25 stores this year, down from the previous 50-60 stores.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.