McDonald’s franchisee Westlife’s profit declines 88% even as revenues rise over 10% in Q2

Westlife Development Ltd (WDL), which runs the master franchisee for fast food chain McDonald’s in south and west India through a wholly owned subsidiary Hardcastle Restaurants Pvt. Ltd. (HRPL), reported a 88 per cent decline in net profit to Rs 1.04 crore for the quarter ended September 30, 2013 over the year-ago period.

This was led by sharp jump in depreciation expenses besides one-time expenses linked to an intra-group merger.

Sales of the company rose 10.6 per cent to 181.8 crore but declined 7.5 per cent sequentially over the first quarter ended June 30. Overall revenues were up 10.7 per cent at Rs 183.4 crore. The firm did not share separate numbers for HRPL, but derives almost all of its business from the unit.

The company’s EBITDA declined 13.4 per cent over the year-ago period but rose 14.2 per cent sequentially to Rs 13.53 crore.

Amit Jatia, vice chairman of Westlife Development Ltd said, “We have delivered another quarter of double-digit revenue growth of 10.7 per cent, despite a demanding market environment for some quarters now. We increased our restaurant footprint, with the launch of nine more restaurants, in the existing and new markets taking the total restaurant count to 174 at the end of second quarter as against 139  in same quarter of the previous year.”

The firm added three restaurants in Maharashtra and Gujarat and one each in Karnataka, Tamil Nadu and Kerala last quarter. The company also invested in McCafé at Mumbai. “McCafé is a major step in our beverage growth strategy and will enhance the company’s margin profile,” said Jatia.

Comparable same stores sales (SSS) remained under pressure due to the overall dampened economic scenario and declined 5.5 per cent as against 9.5 per cent growth in the same quarter of the previous year. Topline performance growth was driven by restaurant network expansion in the existing and new cities and by additions to menu.

In spite of accelerated openings of 36 new restaurants Y-o-Y, which initially open with lower margins and grow over time, the company’s restaurant operating margins saw a decline of 95 basis points Y-o-Y.

The company’s scrip declined 3.6 per cent to close at Rs 366.2 a share on the BSE in a weak Mumbai market on Friday. The results were announced after market closed for trading for the day.

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