Q2FY24 Review: Westlife Foodworld: Slowdown bites

27 Oct 2023 , 12:37 PM

Westlife Foodworld (WLDL) reported a subpar performance. The SSS growth moderated from 7% in the previous quarter to 1% in Q2FY24, driven by a broad consumption slowdown and an unfavourable base. WLDL has added 13 stores in H1, and has reiterated annual guidance of 40-45 additions for FY24. Analysts of IIFL Capital Services downgrade their adj. Ebitda estimates by 3-4% for FY24-26. The asking rate of sales growth in H2FY24 at 11%, implies a pick-up in SSS growth as well as store additions. Maintain REDUCE. 

Below estimates: 

WLDL’s Q2FY24 performance was below analysts of IIFL Capital Services estimates, with SSS growth moderating to 1% vs 7% in the previous quarter and their estimate of 3.5%. This drove a 4% miss in sales and 8% miss in adj. Ebitda. SSS growth was impacted by a broad consumer slowdown as well as an unfavourable base – sales per store had grown 5% QoQ in Q2FY23 vs usually a flat performance in Q2 vs Q1. Store additions were on track though, with WLDL adding nine stores during the quarter (13 added in H1). The mix of on-premise / off-premise was stable on a YoY basis, at 59%/41%. 

Hopeful of a pick-up in festive period: 

Consumption trends continue to be weak with eating-out frequency and western fast food category being under pressure. Demand remains weak at the entry level, while premium end continues to grow well. Management is hopeful of a pick-up during the upcoming festive season. While store additions at 13 in H1 are running behind schedule, WLDL is confident of meeting its annual store addition guidance of 40-45 store additions and reiterated its guidance on number of stores at 580-630 restaurants by FY28 (vs 370 currently). 

3-4% downgrade in adj. Ebitda: 

Analysts of IIFL Capital Services factor in the Q2 miss and also moderate their SSS growth assumptions for 2HFY24 to ~4%; primarily driving a ~2% cut in FY24-26 sales and a 4%/3%/3% downgrade in FY24/25/26 adj. Ebitda estimates. The required sales growth in H2FY24 is 11%, which implies an acceleration in both SSS growth as well as store additions from hereon. At 35x EV/ adj. Ebitda (FY25), valuations are on the expensive side); maintain REDUCE rating with a TP of Rs870.