Key Financial and Operational Highlights
- Revenue: Reached Rs. 6.54 billion, marking a 9% year-on-year (Y-o-Y) growth.
- Same-Store Sales Growth (SSSG): Improved to +3% Y-o-Y from -6.5% in the previous quarter, driven by increased guest counts rather than average check increases.
- Profitability: Gross margin rose sequentially by 40 basis points to 70.1%, despite inflation in commodities like oil and coffee. However, restaurant operating margin and operating EBITDA declined by ~200 bps Y-o-Y due to operating deleverage and higher advertising spends. Cash profit after tax was Rs. 520 million (8% of sales).
- Network Expansion: Added 15 new restaurants in Q3, bringing the total to 421 across 67 cities. A record 46 stores were opened in CY 2024, aligning with the FY25 target of 45-50 new stores.
- Digital Growth: Digital sales accounted for ~70% of topline, with over 3 million monthly active users on the mobile app and increased adoption of self-ordering kiosks.
Growth Strategy
Westlife emphasized a multi-pronged growth strategy focused on three key pillars:
- Value Leadership: Initiatives like Everyday McSaver Meals and McSaver Combos have boosted affordability perception and footfall, reinforcing Westlife’s position as a value leader in the quick-service restaurant (QSR) sector. Value is defined broadly across entry-level, core, and premium price points to cater to diverse consumer needs.
- Product Innovation: New launches like the McCrispy platform (tagged “Shordaar Crunch”) and enhancements to the chicken portfolio (e.g., McSpicy range, wings) aim to drive premium segment growth and increase customer excitement. The McCafe proposition continues to expand, targeting rising coffee consumption trends.
- Network Expansion: The company remains committed to its Vision 2027 plan, aiming to open 45-50 stores annually in FY25 and beyond, focusing on long-term market penetration across key cities and regions like the South, where chicken offerings are a growth lever.
Future Outlook
- Vision 2027 Goals: Westlife targets Rs. 40-45 billion in sales by FY28, requiring an average unit volume (AUV) increase from Rs. 60 million to ~Rs. 70 million. Management remains optimistic about achieving this range despite near-term demand challenges, citing historical resilience (e.g., post-COVID recovery).
- Profitability Trajectory: Sequential margin improvements are expected as AUVs recover, supported by cost governance and a stable gross margin (~70%). The company aims to restore pre-IndAS EBITDA margins closer to Vision 2027 targets (implied at ~15-16%) over the next few years.
- Digital and Omni-Channel: Continued investment in digital infrastructure (loyalty programs, kiosks, app) is expected to enhance customer retention, frequency, and predictability, driving long-term sales growth.
Market Situation
- Consumption Environment: Management noted a challenging macro environment with muted informal eating-out (IEO) growth and no significant recovery in dine-in trends. Retail inflation and consumer spending pressures persist, though western fast food remains relatively resilient.
- Competitive Landscape: While peers have intensified value offerings, Westlife maintains its leadership in affordability perception and brand trust, focusing on sustainable growth rather than aggressive price wars.
- External Stimulus: Stability in inflation and potential budgetary measures to boost disposable income could catalyze consumption recovery in the near term.
Detailed Question-and-Answer Session (Minimum 10 Questions)
Below are detailed excerpts from the Q&A session, reflecting analyst queries and management responses:
- Devanshu Bansal (Emkay Global): Impact of Digital Sales Growth
- Question: With digital sales now at 70% (up from 50%), what positive impacts on topline and margins can we expect once demand normalizes?
- Answer (Akshay Jatia): Digital touchpoints enhance customer understanding, enabling personalized offerings and increasing frequency. This improves predictability and loyalty, potentially boosting average ticket size via cross-selling, though the focus is on throughput rather than direct margin gains.
- Answer (Saurabh Kalra): It’s a “phygital” journey integrating self-ordering kiosks and apps. Long-term dividends include predictable sales and a loyal customer base, with throughput as the primary benefit over immediate cost savings.
- Devanshu Bansal: Vision 2027 Sales Target
- Question: Given weak demand in FY24-25, is the lower end (Rs. 40 billion) of the FY28 sales guidance more likely than the upper end (Rs. 45 billion)?
- Answer (Akshay Jatia): The range accounts for volatility. Despite challenges, momentum is returning faster than historical downturns (e.g., post-2004 recovery). Demand could shift in a year, so the company remains committed to the full range, avoiding premature adjustments.
- Devanshu Bansal: One-Off Investments in FY25
- Question: What one-off investments in FY25 (e.g., marketing) won’t repeat in FY26, given the projected 13.5% post-IndAS EBITDA margin?
- Answer (Saurabh Kalra): Specifics weren’t detailed, but sequential EBITDA improvement is underway, targeting Vision 2027 goals. Multiple levers (product mix, pricing, cost governance) will drive consistent profitability growth over the next year.
- Saurabh Kundan (Goldman Sachs): SSSG Drivers for Vision 2027
- Question: To reach an AUV of Rs. 70 million (from Rs. 60 million), a high single-digit SSSG is needed over three years. How will this be achieved (e.g., transactions, footfall, new products)?
- Answer (Saurabh Kalra): Growth is transaction-driven, leveraging value platforms, with new stores maturing to system-level AUVs in 2-3 years. Momentum shifts take time, as seen historically (e.g., Happy Price Menu), but positive trends are emerging.
- Saurabh Kundan: Dine-In Recovery
- Question: You mentioned dine-in hasn’t fully recovered. Is this due to lower footfall in older stores, and do you expect a rebound?
- Answer (Saurabh Kalra): A new baseline was set last year; growth will be broad-based across channels. Regional variations exist, but the focus is on improving from this base rather than specific store recovery.
- Avi (Analyst): Macro Trends and SSSG
- Question: With gradual demand improvement and strong value initiatives, can we expect sequential SSSG gains, barring macro overhang?
- Answer (Saurabh Kalra): IEO growth is muted, and new consumer habits post-downturn require gradual rebuilding. Western fast food is resilient (9% growth), but recovery isn’t immediate; it’s about sustained effort from the new base.
- Avi: Competitive Intensity
- Question: Has weak demand increased competition from peers or aggregators?
- Answer (Saurabh Kalra): Competition focuses on value, but Westlife prioritizes sustainable offerings balancing consumer needs and profitability.
- Answer (Akshay Jatia): Value spans all price tiers, complemented by quality and experience, maintaining leadership without reactive price cuts.
- Jay Doshi (Kotak): Chicken Portfolio Progress
- Question: How has the chicken venture progressed in terms of store coverage and salience in ADS?
- Answer (Akshay Jatia): Available in all South stores (160 total) and select others, with a stabilized salience. The McCrispy launch enhances this lever, targeting leadership in chicken-heavy regions like the South, with growth potential ahead.
- Jay Doshi: Value Strategy Impact
- Question: How has doubling down on value affected transactions or mix, compared to peers seeing SSSG spikes from sharper pricing?
- Answer (Akshay Jatia): SSSG of 3% is guest count-led, with stable average checks, reflecting broad-based value. Unlike peers, Westlife avoids downgrading customers, aiming for profitable volume growth.
- Krishnan Sambamoorthy (Nirmal Bang): Value Market Share
- Question: Have peers’ value offerings eroded Westlife’s market share?
- Answer (Akshay Jatia): No loss; affordability scores and footfall have risen, reinforcing value leadership.
- Answer (Saurabh Kalra): Strategic value balances quality consumers, profitability, and sustainability, maintaining a high-quality intake.
- Krishnan Sambamoorthy: Pricing Details
- Question: When was the 50 bps price increase implemented, and was it focused on premium items like McCafe amid coffee price rises?
- Answer (Saurabh Kalra): Implemented in November on select underpriced items, not heavily premium-focused. It was subtle and market-aligned.
- Latika Chopra (JP Morgan): New Store Strategy
- Question: Will weaker demand or lower new store AUVs shift focus to smaller towns or bigger cities?
- Answer (Akshay Jatia): No change; site selection is multi-factored and long-term (25-30 years). The current pace (45-50 stores) remains profitable and on track.
- Latika Chopra: Coffee Salience
- Question: How is McCafe salience trending across geographies, and what’s the growth potential?
- Answer (Akshay Jatia): Salience is growing, especially in key cities, with McCafe in 400+ stores. Coffee consumption is nascent, offering significant future upside via trials and frequency.
- Prathamesh Dahake (Motilal Oswal): Festival Impact on SSSG
- Question: How much of Q3 SSSG (+3%) was festival-driven versus transactions, and will this fade?
- Answer (Akshay Jatia): Festivals are cyclical and built into the base; growth is guest count-led from value efforts, not event-specific.
- Harshad Gadekar (Elara Capital): 10-15 Minute Delivery Impact
- Question: How have fast delivery platforms (10-15 minutes) affected burger sales and online exposure?
- Answer (Saurabh Kalra): Not significant yet; pilots are expanding, but most orders already deliver in 20-25 minutes. It’s a potential marketing boost, not a game-changer currently.