Westlife Foodworld Ltd Q1 FY2025 Concall Summary

Key Takeaways

• SSG fell 6.7% on a tough base: Same-store sales declined on a base of +7.4% last year, driven by on-premises pressure and a cohort of stores still impacted by external issues that have persisted longer than expected.
• Sequential recovery is underway: Sales rose ~10% QoQ, the exit month was better, and week-on-week performance has improved from the steep decline seen since last October; management expects H2 to be stronger.
• Margins compressed 400 bps YoY: Restaurant EBITDA fell on operating deleverage, higher royalty, and elevated marketing spend that will continue for one to two more quarters; gross margin at 70.8% continued its upward trend.
• Vision 2027 margin target reaffirmed: Management sees a clear roadmap to 19-20% EBITDA margins and insists nothing structural has changed, though FY25 margins will stay near current levels before H2 strength kicks in.
• What to watch next quarter: Whether the cohort of underperforming stores shows any recovery, the pace of SSG improvement as the base eases, and the early traction of the new McSavers Plus value platform and Chicken Surprise burger.

Same-Store Sales & Demand Recovery

• On-premises drag: Dining faced significant pressure from climate and consumption headwinds; off-premises remained stable but could not offset the dine-in weakness.
• External issues linger: A specific cohort of stores impacted by community-related issues has not shown the expected improvement; management considers the impact transitory but acknowledges it has lasted longer than initially anticipated.
• Sequential green shoots: Sales improved ~10% over Q4, the exit month outperformed the first two months, and week-on-week trends are better than the steep decline from October onwards; January through March was worse than the October-December period, making the April-June uptick a genuine sequential recovery.
• Eating-out frequency close to last year: Frequency is higher sequentially and near last year's level, though management declined to clarify whether this implies flattish SSG in volume terms.
• H2 optimism: Management expects SSG to progressively improve as the year goes by, with higher average unit volume in the second half, supported by moderating retail inflation and higher incomes.

Saurabh Kalra: "There was significant amount of pressures on dining. While there was pressure in terms of consumption, climate or whatever you want to call it, I can't quantify it."

Margin Structure & Profitability

• 400 bps YoY EBITDA decline: Restaurant operating margins and EBITDA fell largely due to unfavourable operating leverage and higher royalty; other operating expenses rose on elevated marketing spend.
• Gross margin resilience: Gross margin reached 70.8% and continued its upward trajectory despite the value platform play, supported by a strong supply-chain governance framework that gives bandwidth for guest-count driver initiatives.
• Marketing spend elevated: Spend will stay high for the next one to two quarters, running roughly around 5% for the full year; management declined to break out the quarterly impact.
• Depreciation normalizing: Depreciation at 7.9% is likely to decline further with better volumes.
• Operating leverage debate: An analyst noted per-store sales are ~20% higher than Q1 FY20 but margins are the same, and Q3 FY22 had 16.6% margin on lower per-store sales vs ~13% now. Management responded that FY22 is not representative due to COVID cost cuts, inflation shifts benchmarks annually, and offered to follow up offline.
• FY25 margin trajectory: Margins will stay around current levels for the year; H2 should be strong, and the long-term goal remains 19-20% EBITDA under Vision 2027 with a clear roadmap.

Saurabh Kalra: "I do not think structurally anything has changed for us where we are not committed to that number. We are committed to that number. We see a very clear roadmap to it also."

Value Strategy & Product Innovation

• McSavers Plus platform launched: The ₹69 1+1 snacking combo, described as reheating a similar past concept, was introduced at the end of June/early July to strengthen the value proposition.
• Entry-level Chicken Surprise burger: Launched in June to accelerate and differentiate the value offering at the bottom of the pricing ladder.
• Pricing ladder leadership: Management frames value as leading across both the pricing ladder and category ladder, spanning burger, chicken, coffee, premium formats like EOTF and McCafe, and core value platforms.
• Price increase ahead: The company anticipates a 3-5% price increase in the coming year, typically staying at the lower end of that range.
• McCrispy Chicken platform: A new chicken platform is planned for launch over the next quarter or two.

Akshay Jatia: "So Nihal how we look at it is as a brand that's a leader in this space we need to lead across the pricing ladder as well as the category ladder, which is why we've done burger chicken, coffee. We've done premium stuff like EOTF, McCafe and also value is what we stand for."

Store Network & Competitive Position

• 400th restaurant milestone: The company crossed 400 McDonald's restaurants this quarter, opening 6 new stores, and targets 45-50 new stores in FY25 with a focus on South, smaller towns, and drive-thrus.
• New store AUV: New store AUV is similar to or slightly lower than existing stores, which management says has always been the case; new stores partly cover growth when SSG is negative but are not at system average.
• Market share holding: The company has not lost share among Western fast-food players and is marginally gaining within the category; AUV is almost double that of any competitor.
• McCafe expansion: McCafe is now across the entire network, with a target of 15-18% contribution to store AUV by 2027.
• Bone-in chicken stays regional: The offering remains in South, where fried chicken is essential to win the meal daypart, and in select West stores; there is no plan to expand it to the full 400-store network.

Saurabh Kalra: "So from us as far as we are concerned you would have seen that our real competition is actually us because our average unit volume is almost double of the competitors."

Cost Environment & Inputs

• Vegetable costs normal: Seasonality on vegetables is within normal range; a minor lettuce availability issue last quarter was managed well by the supply chain, and no major changes are expected on vegetable cost hitting the P&L beyond what has already been done.
• Inflation steady: Management cites 2-3% annual inflation on utilities and rental increases every five years as structural cost pressures; cost-saving programs and gross margin improvements are expected to offset these.
• Budget impact minimal: A preliminary assessment of recent budget announcements shows no major impact flowing into the company's financials.

Guidance & Commitments

Key Metrics