QSR Sector Q2 Results Preview: Weakness likely to persist in demand, margins; SSSG to turn flat
- While QSR companies remain committed to their long-term target of rapid store expansion, brokerage firm HDFC Securities expects near-term moderation in the number of new store openings.
The quick-service restaurant (QSR) companies have seen sustained demand deceleration over the past few quarters. While demand normalisation and deteriorating consumer sentiment have caused same store sales growth (SSSG) to turn from flat to negative, analysts expect a further slowdown in growth metrics in the quarter ended September 2023.
The gap between dine-in and delivery is likely to get narrower. While QSR companies remain committed to their long-term target of rapid store expansion, brokerage firm HDFC Securities expects near-term moderation in the number of new store openings.
“Demand recovery in Q3FY24 will be key monitorable, with the festive season and the World Cup benefits around the corner. On a relative basis, we expect better revenue metrics for McDonald's and KFC and weaker revenue metrics for Domino’s and Pizza Hut. We expect QSR companies under our coverage to report 10% YoY growth in revenues (primarily driven by store addition),” HDFC Securities said in a report.
Meanwhile, stable raw material prices are expected to aid gross margins, while negative operating leverage may put operating margins under pressure.
Here’s how these QSR companies are expected to perform in Q2FY24:
Jubilant FoodWorks
With sustained weakness in demand for QSR, SSSG is expected to decline 7% for Jubilant FoodWorks. The company is likely to see 3.8% YoY revenue growth at ₹1,340 crore and a net profit decline of 33% YoY to ₹80 crore.
“We model gross margins of 75.8%, down 45 bps YoY and down 20 bps QoQ. EBITDA margin is expected to fall 330 bps YoY to 21%. EBITDA is expected to fall by 10% YoY,” HDFC Securities said.
Going ahead, the company’s commentary on demand trends during world cup, demand for delivery or dine-in, outlook on demand and store addition in FY24, competitive intensity, pricing strategy and outlook on sustainable SSG will be key monitorable.
Westlife Foodworld
The brokerage expects Westlife Foodworld to report SSSG of 3% and models 10.8% YoY revenue growth to ₹630 crore. The company is expected to report a net profit of 30 crore, up 12.5% QoQ and up 2.7% YoY.
EBITDA is expected to grow by 9% YoY, while EBITDA margin is expected to fall 29 bps YoY to 17%.
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Devyani International
Devyani International, the Pizza Hut, KFC and Costa Coffee chain operator, is expected to see weak earnings during the second quarter of FY24. The company’s net profit is likely to fall 40.2% YoY to ₹40 crore, while revenue may rise 15.1% YoY to ₹860 crore.
“We expect KFC to report 20% YoY growth in revenues aided by store openings. SSSG is likely to fall by 1% YoY. Pizza Hut is expected to report 4% growth in revenues with weak SSSG of -9%,” HDFC Securities said.
EBITDA is estimated to increase 0.3% YoY, while EBITDA margin is expected to fall 285 bps YoY to 19.3%.
Sapphire Foods India
As per HDFC Securities, Sapphire Foods India’s Q2FY24 net profit is expected to decline 41.5% YoY to ₹20 crore, while its revenue is estimated to rise 13.8% YoY to ₹640 crore.
“We expect KFC to report 18% YoY growth in revenues aided by store openings. SSSG is likely to be flat YoY. Pizza Hut is expected to report 3% growth in revenues with SSSG of -15%,” said the brokerage.
EBITDA margin is expected to fall 165 bps YoY to 16.7% and EBITDA is expected to grow by 4% YoY.
Read all Q2 Results here
Disclaimer: The promoters of HT Media Ltd, which publishes Mint, and Jubilant Foodworks are closely related. There are, however, no promoter cross-holdings.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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First Published:12 Oct 2023, 03:47 PM IST
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