Updated January 30th, 2024 at 10:39 IST
Burger King likely to see 2-3% same store sales growth in March quarter
Despite tepid demand and the Shradh period affecting sales in October, Burger King managed to expand gross margins by 76 basis points year-on-year to 67.1%.
Burger King Q3: Restaurant Brands Asia (RBA), the operator of Burger king stores in the country, revealed a mixed set of results for third quarter of December quarter earnings, marked by missed revenues but a beat on margin by approximately 290 basis points. The company faced challenges in Indonesia, where negative sentiments impacted sales growth, while the Indian business showed resilience with a sustained focus on value meals and innovations.
Despite tepid demand and the Shradh period affecting sales in October, Burger King managed to expand gross margins by 76 basis points year-on-year to 67.1 per cent. The growth in profitability was supported by a reduction in ad spends, cost-cutting measures, and overhead controls. However, the regulatory ban on certain lending instruments in Indonesia, coupled with higher operating costs and new store openings, is expected to exert pressure on profitability in the coming quarters, brokerage firm Prabhudas Lilladher said in a report.
“In India, the long-term outlook appears positive, driven by improvements in store traffic, sustained benefits from value meals, and innovations. The company's focus on smaller towns is showing promising results. Meanwhile, Indonesia aims for recovery post-FY24, anticipating improvements in sentiments, new chicken offerings, scalability in desserts, and sustained traction with higher Average Daily Sales (ADS) in Popeyes,” the Mumbai-based brokerage added.
The company added 37 stores in December quarter, contributing to the overall growth strategy. With a strong Same Store Sales Growth (SSSG) outlook, India is projected to report FY26 profit before tax (PBT) from operations of Rs 14.9 crore. The company's valuation has been revised to Rs 151, considering its long-term potential.
In Q3, India business revenues grew by 20.5% annually to Rs 450 crore, driven by a 2.6 per cent SSSG. Gross margins expanded to 67.1 per cent, and EBITDA increased by 47.9 per cent. In Indonesia, business revenues grew by 1.4 per cent annually to Rs 160 crore, while gross margins contracted.
Key takeaways from the earnings call included the emphasis on strong traffic growth in dine-in channels, continuous innovation, and the completion of the target store count. Despite challenges in Indonesia, the company remains optimistic about the long-term growth potential in both India and Indonesia, backed by a strategic focus on value propositions and digital experiences, Prabhudas Lilladher said.
The revised FY24 SSSG guidance for Burger King India stands at 3 per cent, reflecting the company's commitment to sustained growth despite ongoing challenges.
Published January 30th, 2024 at 10:39 IST