For the third straight quarter, pizza maker Jubilant FoodWorks saw its net profits reduce. Growth in sales from outlets around for a year or more, known as same-store sales growth, also posted a decline for the third quarter in a row. The stock is down 5.8 per cent in trade so far.
From a 6.6 per cent growth in the September 2013 quarter, same-store sales fell to 2.4 per cent in the June quarter. The figure is a measure of how well-established outlets manage growth and how dependent the company is on new stores to drive growth.
So while sales have grown about 19-20 per cent in the past three quarters, it has come entirely from additions to outlets. Any let up in the expansion could impact sales growth.
With inflation showing no signs of abating for consumers, dining out has taken a blow. Speciality Restaurants, the other listed player operating in this space, though at the opposite end of the price spectrum, has similarly seen profits suffer in the past couple of quarters.
Jubilant FoodWorks splurged on advertising and promotions to drive customer purchases, besides overhauling the menu offering. As a proportion of sales, promotional expenses accounted for 9.8 per cent of sales from the 8.8 per cent in the June 2013 quarter. Staff costs also spiked, up 32 per cent in the June 2014 quarter over the year ago.
Therefore, though stable input prices such as vegetables and wheat kept raw material costs in check, operating profits dropped 11.5 per cent. This carried on through to the net level, with net profits declining 18.4 per cent in the June 2014 quarter over the year ago. The two preceding March and December quarters too saw net profits dipping 23.7 and 10.9 per cent.
Despite the sustained fall in earnings, the Jubilant FoodWorks stock is now trading at about 61 times trailing 12-month earnings, only a shade below the three-year average of 66 times. While some premium can be accorded to the stock on account of the absence of listed peers, current valuations demand a level of growth Jubilant may find hard to match.