Jubilant FoodWorks, the franchisee for Domino's Pizza and Dunkin' Donuts, witnessed a strong 40 percent on-year increase in first quarter net profit but a squeeze on margins due to higher expenses dampened sentiment for the stock.
Jubilant's CFO Ravi Gupta blamed weak consumer sentiment for the weak margins. In an interview with CNBC-TV18 he said the company deferred the price increase looking at the weak consumer sentiment. And secondly the company increased aggression on promotions which led to a little higher discounting.
Moreover, Jubilant's margins are also under pressure as it scales up Domino's and expand its new Dunkin' Donuts chain.
Another worrying factor was slower growth in same-store sales during April-June than earlier quarters, signalling that inflation and weak economic sentiments have begun to impact the eating-out segment.
Jubilant FoodWorks reported same-store sales growth of 22.3 percent for April-June, down from 36.7 percent in the year-ago quarter.
Kotak Institutional said gross margins fell 110 basis points in the April-June quarter from a year earlier, attributing it to "aggressive discounting." The brokerage reiterated its "sell" rating on the stock, citing expectations for "weak" consumer demand in urban areas and continued price discounting.
Even Emkay has a sell call on Jubilant FoodWorks with a target price of Rs 1,000, citing deterioration in volumes and below expectation sales growth. Also Dunkin Donuts' operational expenditure has halted the expansion in the company's earnings.And further risks have risen from a weak demand environment and rise in promotional activity.
The only positive for the company is that Dominos has increased its annual store addition from 90-100 stores for FY13 as opposed to 70-80 stores last year, which is why the brokerage downgraded the stock to sell.
However IDBI has an accumulate rating on Jubilant Foodworks due to the strong performance in the last quarter leading to projections of growth in revenue in future and also the management's positive outlook on a healthy SSG trend.
Though Dunkin Donuts is a nascent venture, the success of the venture could see support for the stock that has already given 45 percent return in the last one year, said a Firstpost article earlier.
Dunkin Donuts has opened three stores in India.
JFL plans to open 10 stores by FY13 in various formats to fine tune the model. The Indian unit of the US food chain is a joint venture between Dunkin' Brands Group and India's Jubilant Foodworks.
The JV which is branded as "Dunkin' Donuts and More",serves coffee and sandwiches here. The initial response to the three outlets in Delhi has been better than expected.
Post the first store opening in May 2012 CLSA said earnings for Jubilant were "strong" and it is optimistic about growth as the fast food chain operator expands its Domino's stores and plans to expand Dunkin' Donuts after opening its first store in New Delhi this week.
Updated Date: Dec 20, 2014 10:40:18 IST