Domino’s India operator Jubilant’s Q1 profit falls 74% as costs bite

By Praveen Paramasivam

CHENNAI (Reuters) -Jubilant FoodWorks reported a 74% fall in quarterly profit on Tuesday as the Indian franchisee of Domino’s Pizza (NYSE:) grappled with higher costs while also spending heavily to expand in the country.

Consolidated profit fell to 289.2 million rupees ($3.53 million) in the first quarter ended June 30, from 1.13 billion rupees, a year earlier.

Key input costs are holding firm in a challenging inflationary environment, Jubilant said in a statement.

Total expenses climbed 13% to 12.49 billion rupees, with standalone gross margin contracting 69 basis points to 76%.

Restaurants in India have been struggling with higher prices of essential items ranging from vegetables to packaging material, forcing them to introduce new strategies to protect their bottomline.

Jubilant’s cost-saving initiatives included removing lids from boxes of pizzas sold at stores and trying to secure rent rebates from store landlords by offering upfront payments. It also launched cheaper pizzas this year to attract inflation-hit customers.

The franchisee, however, continued to open stores in India to capture a bigger slice of the burgeoning middle-class population’s spending in the long run.

Jubilant opened 23 Domino’s stores in India during the quarter, with its total store count at 1,838. It aims to add 200-225 stores in the year ending March 2024.

The store-opening spree helped overall revenue rise 6% to 13.35 billion rupees, although Domino’s India’s like-for-like sales – a key same-store sales metric – slipped 1.3%.

Shares still closed 2% higher after the results.

“The issues are bottoming out,” said Elara Capital analyst Karan Taurani, adding that there is a reasonable amount of optimism on the company’s future profitability, as raw material prices are expected to ease in the second half of this fiscal year.

Jubilant is the first listed restaurant operator to report, with McDonald’s (NYSE:) franchisee Westlife Foodworld posting its results later this week.

($1 = 81.8250 Indian rupees)