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Westlife’s sales growth not satiating but expansion engines in place


Westlife Foodworld Ltd shares have plunged 12% since the end of last week after announcing poor same-store sales growth (SSSG) of just 1% for the September quarter (Q2FY24). This is the fifth consecutive quarter of decline in the measure. A high base and weak consumer sentiment as well as elevated levels of inflation played a major role. Accordingly, net income increased by 7% year on year 615 crores.

Westlife believes that the near-term challenges are temporary and that some recovery is likely during the festive season. The quick-service restaurant (QSR) operator has guided for high single-digit SSSG in FY24.

That said, it helps that Westlife’s expansion strategy is on track. In Q2, it opened nine restaurants, taking the total count to 370 as at the end of September. It remains committed to adding 40-45 new stores in FY24 with most of them in the South.

The company is a leader in the West and is on the way to becoming a company in the South. To this end, operator McDonald’s is expanding its reach and menu with items such as McSpicy Fried Chicken and McSpicy Chicken Wings, while launching multilingual campaigns to attract regional audiences. Average unit volume is growing at a faster rate in the South compared to the West, according to Westlife. In addition, profitability in the South is good because the economic structure of units is even better in smaller towns in the South, the company said.

While demand is weak in the QSR space, Westlife is in high growth areas like burgers and fried chicken which are growing fast compared to pizza, said Preeyam Tolia, analyst at Axis Securities.

With the focus now on the South, Westlife could gain more market share in the future. As part of its vision, Westlife aims to reach 580-630 restaurants by 2027. Although increased fixed costs from rolling out new stores could affect profitability.

Meanwhile, the results so far in 2023 are flat due to the recent fall in the stock. Some analysts expect the company to outperform its peers, while others are cautious. According to Kotak Institutional Equity, Westlife’s Ebitda margin is up 325 basis points (bps) versus H1FY20, led by a gross margin expansion of 225 bps and modest operating leverage benefit of 100 bps despite a strong 30% increase in average daily sales. Ebitda is earnings before interest, tax, depreciation and amortisation. On a pre-IND-AS basis, Westlife’s Ebitda margin in H1FY24 was 12.2%. “There is ample scope for leverage-led margin expansion and we will keep an eye on Westlife’s execution,” Kotak analysts said in a report on 27 October.

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