Has Jubilant FoodWorks got its mojo back?

Same-store sales at 6.5% in Q1 is the best in the past 9 quarters, but analysts are cautiously optimistic

A steep single-day gain or a decline is nothing new for Jubilant FoodWorks’ stock. Such a sharp move was yet again witnessed on Monday’s trading session. The Jubilant stock, which until Monday’s early noon was trading flat, witnessed a spike of around 9 per cent after the company declared its June quarter (Q1) results.

While numbers, which came ahead of expectations, were partly the reason for the cheer, a big support was lent by the 6.5 per cent growth in same-store sales (SSS). SSS growth has been a problem area for the country’s largest pizza retailer for nine quarters. Q1 results broke that jinx. Yet, analysts say, it may still be too soon to say that things are back on track.

“Given how the management guidance has been back and forth on SSS growth, investors may wait for two to three quarters to see if Q1 performance on this front is maintained,” says a senior analyst at Reliance Securities.

Another analyst from a domestic brokerage says apart from monitoring SSS growth, it is important to see if operating profit margins and the overall operating parameters are sustained at Q1 level.

The company’s revenues were at ~682 crore, increased by 11.4 per cent, better than the Bloomberg estimates of ~655 crore. Net profit witnessed 25.5 per cent year-onyear jump to ~24 crore, again better than expectations.

The growth in SSS helped the firm absorb fixed costs, such as employee expenses and rent, better. This helped the operating profit margins to expand by 220 basis points year-on-year to 11.7 per cent in the June quarter. That said, with limited room for implementing a price hike, Jubilant seemed to be in a tough spot in terms of passing on raw material costs, particularly that of cheese, which has been on the rise for the past few quarters. Therefore, despite an increase in revenues, gross margins contracted by 40 basis points year-on-year to 76.5 per cent. Analysts say costs pressures, particularly on the raw material front, may stay for a while, until Jubilant sustains or marginally improves on the SSS parameter.

The other encouraging factor is the rationalisation of its non-Dominos business. For instance, the restaurant network of Dunkin’ Donuts declined from 63 stores in March ‘17 quarter to 55 stores in Q1. “This is a positive, as pruning the non-profitable businesses would protect the profitability of its core pizza operations,” says the analyst from Reliance Capital. According to him, if Jubilant maintains its SSS growth at 5-6 per cent in FY18, that should help sustain operating profit margin and net profit growth.

For investors, at a time when most consumeroriented stocks are trading near their 52-week high prices, the stock of Jubilant FoodWorks is a stark underperformer due to the unimpressive SSS growth in the past few quarters. Tall asking rate (51x FY19 earnings) is also a deterrent. Therefore, replicating Q1’s performance all through FY18 is extremely critical for Jubilant FoodWorks to rekindle investor appetite for the stock.