For the March 2015 quarter, sales growth for Jubilant FoodWorks came in at 25 per cent over the year-ago period. Growth in net profit was similarly healthy at 26.4 per cent.
The numbers are a strong improvement from the poor performance in the earlier quarters. The stock of the pizza maker is up 11.2 per cent in trade so far, with the results having been announced after market hours yesterday.
The other positive was the same store sales growth or growth in sales of stores open for a year or more. The figure indicates how well existing stores are faring and how much the company is dependent on expansion to drive growth.
For Jubilant FoodWorks, the figure was negative for the quarters between September 2014 and 2015, and was a low 1.9 per cent in the December 2014 quarter. This has now improved to 6.6 per cent for the March 2015 quarter. Product price increases taken in November last year was an important factor that aided this improvement.
Expansion drive
The company has always been on a rapid expansion drive, with store count at 876 for Dominos Pizza at end-March 2015 against 726 at end-March 2014. The Dunkin’ Donuts chain numbers more than doubled in the 2014-15 fiscal to 54. The quick expansion also helped keep the growth up.
On the flip side, for Tier I cities that are already well-penetrated, expansion can result in new stores cannibalising the existing ones.
Margins flat
On the raw material front, slowing food prices kept the costs in check. Raw material to sales ratio for the March 2015 quarter dropped slightly to 25 per cent compared to the year-ago quarter. But higher rent paid as well as staff costs on an expanded employee base swallowed these savings. Operating profit margins, therefore, stayed put at 12.9 per cent for the March 2015 quarter compared to the year-ago quarter.
But the uncertainty over the direction food prices will take due to monsoon vagaries can impact the cost picture. Consumer discretionary spending has not yet picked up in full swing either, and the company’s ability to hike product prices further may be limited especially with the rising competition.
The expansion drive for Dunkin’ Donuts can also keep a lid on margin improvement. The stock trades currently at 92.6 times its trailing 12-month earnings, well above its three-year average of 63 times.