On Wednesday, Sapphire Foods India, the company responsible for operating KFC and Pizza Hut restaurants domestically, announced a first-quarter profit that fell below expectations. The increase in expenses surpassed the growth in revenue, leading to the lower-than-anticipated financial results.
According to an exchange filing, the net profit of the company for the quarter ended June 30 was 249.4 million rupees ($3.02 million). This figure represents a decline from the net profit of 382.7 million rupees recorded in the same quarter of the previous year. The franchisee of Yum Brands, based in the U.S., provided this financial information.
According to Refinitiv IBES data, analysts had an average expectation that the company would report a profit of 273.8 million rupees.
Expenses witnessed a notable increase of 21.6%. The cost of materials consumed rose by 17.4%, reaching 2.06 billion rupees, while employee costs surged by 24.3%.
Due to disruptions in supplies caused by monsoon rains, India is grappling with soaring prices of essential goods. In response to this inflationary pressure, companies like Domino’s are “re-engineering” their flagship products, such as the 49-rupee pizza, by reducing the price and using fewer tomatoes compared to its earlier cheapest offering priced at 59 rupees.
Sneha Poddar, Associate Vice President at Motilal Oswal Financial Services, pointed out that raw material prices have reached their lowest point and are now contributing to an improvement in margins. She also expressed her optimistic view on the long-term potential for quick-service restaurants, seeing strong opportunities ahead.
During the quarter, Sapphire Foods’ Pizza Hut restaurants experienced a decline of 9% in same-store sales. In contrast, the company’s KFC business reported a flat growth in same-store sales.
Jubilant Foodworks, the operator of rival Domino’s Pizza, faced a significant 74% drop in quarterly profit due to the challenge of higher costs. On the other hand, Westlife Foodworld, responsible for operating McDonald’s stores in West and South India, reported a rise in profit that was smaller than anticipated.
Following the release of the results, shares of Sapphire, which manages a network of more than 700 restaurants spanning India, Sri Lanka, and Maldives, experienced a decline of up to 3.5%.
