Q1FY24 Review: Westlife Foodworld: Outperformance vs industry continues

Westlife delivered in-line performance in Q1 with sales growing by 14% YoY driven by SSSG of 7%. Store addition of 4 was muted and the company needs to accelerate openings to meet FY24 guidance of 40-45 new stores. As per the company, launch of value meals will not dilute gross margins as it took price hikes in other menu items and uptrading from burgers to meals will increase AOV. WLDL’s execution is good, but valuation at 34x FY25 EV/adj. Ebitda is expensive, and analysts of IIFL Capital Services maintain REDUCE, TP of Rs890. 

In line with estimates: 

Westlife reported Q1FY24 results in line with estimates. Sales grew by 14.2% YoY, driven by robust SSSG growth of 7%. Store addition was muted at 4 but was in line with historical trends in Q1. Pre-IndAS margin of 12.7% expanded by 64bps YoY supported by 234bps expansion in gross margin, which was aided by stable input prices, earlier pricing actions and cost efficiencies. 

Value meals launched to drive footfalls: 

Westlife launched McSaver meals in dine-in and value meal for 2 in delivery channel to drive higher footfall/orders with an estimated discount of 25% over similar meals earlier. As per the company, it has taken price hikes on other menu items to offset any impact on margins. The company also highlighted that McSaver meals resulted in higher salience of meals in the quarter. Further, this strategy will also drive higher footfalls giving leverage benefit to the company. It also launched Jain-friendly menu that saw good response in Indore and Gujarat. 

Maintain REDUCE: 

Analysts of IIFL Capital Services keep their estimates unchanged. The company needs to accelerate store addition, in order to meet its FY24 guidance of 40-45 stores. QSR industry is still not out of woods and near term is expected to be challenging for the sector. Moreover, while execution is best-in-class, royalty increases over time and higher capex vs peers are key constraints for the valuation multiple. At 34x FY25 EV/adj. Ebitda, valuation does not provide room for upside; analysts of IIFL Capital Services maintain REDUCE with price target Rs890.