We (Morgan Stanley) retain our 'equal weight' rating on Jubilant Foodworks Ltd shares. The company reported same-store sales growth (SSG) of 6.3% for Q1FY14, lower than our estimates (7-8%), with an Ebitda margin that declined by 140 bps (including impact of Dunkin Donuts).
Jubilant Foodworks reported earnings 4% below our estimates, largely on account of higher depreciation — investment in commissaries to support store expansion. Following a ~20% cut in consensus earnings year-to-date, the Q1 results will likely catalyse another round of earnings cut on the stock.
Jubilant Foodworks reported revenue, Ebitda and adjusted PAT growth of 26%, 16% and 5% against our expectations of 28%, 16% and 10%, respectively. We believe management has revised its SSG guidance to 8-10% for F14 verses earlier estimate of ‘at least’ 10% and an ebitda margin of 16.5% for F14e.
The company opened 26 new stores for the quarter. There are now 602 Domino's stores in 128 cities in India. Management guidance for FY14 remains unchanged at 125 stores versus Morgan Stanley estimates of 135.
Gross margin up 70bps (versus our estimates of -40 bps) was the key positive of the result. This margin expansion must be viewed in context of delayed pricing action during the quarter and likely increased promotional activity.