United Foodbrands Limited (UFBL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Barbeque-Nation's Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Bijay Sharma. Thank you, and over to you, sir.

Thank you, Anuska. Welcome, everyone, to Barbeque-Nation Hospitality Limited's Q1 FY '26 Earnings Conference Call. For today's call, I have with me Mr. Kayum Dhanani, Managing Director; Mr. Rahul Agarwal, CEO and Whole Time Director; and Mr. Amit Betala, CFO. Before we begin the call -- before we begin the presentation, I would like to remind that some of the statements mentioned in today's conference call may be forward-looking in nature and may involve risks and uncertainties. Kindly refer to earnings presentation for the detailed disclaimer. We will start the call with Mr. Kayum Dhanani sharing his perspective and overall demand scenario and key highlights for the quarter. This will be followed by a detailed discussion on business and performance by Mr. Rahul Agarwal. Post that, we'll open the forum for a Q&A session. I will now hand over the conference to Mr. Kayum Dhanani. Thank you, and over to you, sir.

Good evening and thank you for joining us. This past quarter, we operated through a softer dine-out cycle. Yet our resilient business model allowed us to maintain satisfactory performance. We added 7 new restaurants during the quarter and remain firmly on track to achieve our FY '27 network target of 300 to 325 restaurants. We expect the pace of new ongoing opening to accelerate in the second half, moving from 4 to 5 per quarter last year to 7 to 10 per quarter. Our portfolio is strategically diversified across 3 business segments: Barbeque-Nation India, International and Premium CDR. In India, while negative SSSG continues to weigh on revenue, we have safeguarded profitability through tighter cost controls and continued investments in guest experience. We are rightsizing our new restaurants prototype to be 20% to 25% smaller, which will reduce capital expenditure and protect unit economics. International remains a strong profit engine with 23% plus restaurant operating margin. We plan to open 4 to 6 restaurants this year across the Middle East and Southeast Asia. Premium CDR is growing rapidly with 19% year-on-year revenue growth, mature restaurant margins of 20% and expanding presence in Delhi, Mumbai and Hyderabad. Dine-in remains the core of our business, accounting for 85% of revenues. And we continue to refresh the experience through culinary innovation, design upgrades and value-driven promotions. Delivery, which contributes 15% of our revenues, is seeing positive SSSG in barbeque grills and Dum Safar Biryani, while BBQ is in the process of recovering from an impact due to brand repositioning across platforms. Across all 3 segments, we are prioritizing operational rigor and consistent guest engagement to review same-store sales growth as the cycle normalizes. In short, our focus is clear: deliver best-in-class guest experience, grow network, scale where unit economics are proven, build scalable brands and maintain industry-leading margins with strong cash flow generation. With the disciplined cost control, a sharper new restaurant playbook and a robust pipeline, we are confident in our ability to deliver sustainable growth and margin resilience on the path to 300 to 325 restaurants in FY '27. Thank you. I will now hand over to Rahul to walk you through the operating performance in detail.

Thank you, Kayum. Good evening, everyone. As highlighted earlier, we have resumed our focus on network expansion, opening 7 new restaurants during the quarter and remain committed to our target of 300 to 325 restaurants by FY '27. Our current portfolio comprises of 236 restaurants, which includes 193 Barbeque-Nation India restaurant, 11 International restaurants and 32 Premium CDR restaurants. During the quarter, we reported consolidated revenues of INR 297 crores, lower by 2.8% year-on-year, primarily due to negative SSSG of 3.4%. Gross margin for the quarter was 67.7%, which was lower by 40 basis points versus quarter 1 of FY '25. We expect the gross margin to remain at around 68% on an annual basis. Pre-Ind AS restaurant operating margins were 11.5%, temporarily impacted by higher marketing spend, operating deleverage and ramp-up of new restaurants. Mature restaurants reported pre-Ind AS restaurant operating margins of 13.3%. Consolidated reported EBITDA margin for the quarter was INR 46 crores with reported margins of 15.5%. Our adjusted operating EBITDA was INR 13.6 crores with a margin of 4.6%. Barbeque-Nation India recorded revenues of INR 229 crores, a year-on-year decline of 7%, primarily due to negative SSSG of 5.2%. This business segment is currently facing short-term SSSG challenges due to a shorter buyout cycle. While revenues were impacted, we maintain our focus on profitability through tighter cost controls in existing units, while we continue to invest in for future growth. We have redefined our new store -- new restaurant prototypes, enabling us to reduce capital expenditure and improve unit economics. We remain focused on opening 20 to 25 Barbeque-Nation restaurants annually to meet overall network targets. In our existing network of 193 restaurants, we continue to drive operational rigor to enhance guest experience through culinary offerings and guest engagement activities. During the quarter, we launched the Kukkad Carnival Festival, featuring 16 new chicken dishes, and expanded our menu variety by introducing 10 vegetarian and 10 non-vegetarian starters across all restaurants. We also continued group-focused value promotions like Sizzling 7@777, which was very well received. These initiatives help deliver value to our guests through engaging offerings and at a pocket-friendly prices. We also increased marketing spend by almost 1% of sales during the quarter with a focus in driving volume growth. While this has a short-term impact on margins, we are confident that these investments will deliver results in the coming quarters with operating leverage helping to restore margins. Barbeque-Nation International recorded revenues of INR 26.3 crores, an increase of 10% year-on-year, supported by strong SSSG of 8.5%. Gross margin for the segment was 73% and pre-Ind AS restaurant operating margin was strong at 23% with mature restaurants delivering restaurant operating margins of over 27%. Built on strong foundations, this business has been consistently profitable over the last 4 years. During the quarter, we launched our second restaurant in Kuala Lumpur and third Sharjah. With this experience, we are well positioned to further penetrate Middle East and Southeast Asia. We plan to open around 5 to 6 new restaurants this year, maintaining a network expansion growth rate of 30% plus while focusing on same-store sales growth and operating discipline. Premium CDR recorded revenues of INR 43.1 crores, up 19% year-on-year. Gross margin for the segment was 74%, while pre-Ind AS restaurant operating margin was 14.5%. Margins were impacted due to yet-to-mature restaurants, while the mature network continued to deliver 20% restaurant operating margins. This business continues to expand rapidly with 2 new restaurants added in Mumbai and Bangalore during the quarter. Again, we plan to drive 30% network expansion growth by scaling Toscano in Delhi, Mumbai and Hyderabad, while also expanding Salt into additional metro markets. As we grow, we will sustain guest experience through continuous culinary and service innovations and preserve operating margins. We also completed the acquisition of 51% stake in Omm Nom Nomm, which now has presence across 6 locations in Bangalore and more under fit-out. Our operating thesis remains unchanged. We'll define and refresh the core experience through culinary innovations, design upgrades and service discipline to recover SSSG. We'll build the high-margin international business with a repeatable playbook and attractive paybacks, ensuring expansion remains margin accretive. And we'll thoughtfully scale up the Premium CDR business, leveraging mature restaurant performance of 20% plus and our success in new metals to build deeper penetrations. Thank you. With this, we can now open the session for Q&A.

[Operator Instructions] The first question is from the line of Viraj from Enigma.

My first question is, we basically recorded a 5.2% negative SSSG on Barbeque India after recording an 8.8% negative SSSG in the same quarter last year. If I have to basically combine these 2 numbers, we are looking at almost a 13%, 14% negative SSSG over a 24-month period. That is alarming. No real outlet can survive that kind of negative SSSG. And this is our major business. We can focus on other businesses, but this is doing very badly. What are we doing to arrest this growth?

So you're right about this. Last year it was 8.8% and this time it is 5.2%. Like I mentioned in my opening remarks, we are continuing to focus on our guest experience. We are coming up with new food festivals and giving the guest offering variety in the stores and also coming up with value offers, like I mentioned, Sizzling 7@777. So these initiatives are being undertaken across all restaurants in our portfolio.

Okay. Because Rahul, my understanding was whatever were the restaurants which were not doing well, which were recording negative SSSG, a majority of them were closed last year. So even after closing them over the last 17, 16 months, we are still recording negative SSSG presumably in the restaurants which are doing well. So I'm not able to understand this.

So the portfolio that we closed were largely loss-making restaurants. You don't close restaurants if they have negative SSSG. You close restaurants if they are bleeding and we believe that the bleed will not sort of come to a profitable number. At the entire portfolio level, even though the restaurants that we have in Barbeque India are at 5.2% negative SSSG, the overall restaurant operating margin is close to around 10%, right? So the closed restaurants were the one which were not doing well and which are bleeding money. So that we have closed.

Okay. And my last question is, when we look at the numbers of other, I wouldn't say, dine-in restaurants, but are basically quick QSR, they basically suffered negative SSSGs far later than us, and they are reviving far before us. So this quarter also, almost everybody reported positive SSSG and it's out there in the public domain. But we are recording negative record SSSG, even though we started diving in negative SSSG before then, and we are not recovering even after they are recovering. So is this a business model problem? Or is this a Barbeque problem?

I think both businesses are different. We only have listed Western QSRs. The business model in terms of mix of dine-in delivery are different. So very difficult to comment on how they have fared and how we have fared. In our business, if you look at this scale, the dine-in business definitely has some stress, which we are -- which was reported and which we are trying to recover through our guest experience and through our offers. Other than that, Viraj, it's very difficult to make a like-to-like comparison between QSRs and us, right? The mix of 2 segments are different, the price points are different. One is largely planned purchase, other is interest purchase. So very difficult to just make a like-to-like comparison between the 2.

Right, sir. You understand -- like just the last thing, sir, is if the negative SSSG continues at this rate, you are seeing tremendous impact on your restaurant operating margins also where they have dropped for the Barbeque India. Like if this continues at restaurant level, it will be like really problematic. That's my only concern as a shareholder.

No, absolutely. Yes. You're right about that. But if you look at the discipline that the team has shown on the cost side, even though we have a long period of SSSG negative period, we have been able to at least sustain a good amount of restaurant operating margins and try to minimize the impact of operating deleverage. But I agree with you that in future, the margin expansion will largely be driven by positive SSSG.

Is there any improvement in July you have seen or nothing?

No, it's similar to quarter 1 right now. But July is slightly not also comparable because last year in July, the impact of Shravan started towards the end of July, but this year, it started much earlier. So quarter 2 always there is a lot of vegetarian days, which impacts the performance across months.

[Operator Instructions] The next question is from the line of Dhaval Dama from Enigma Small Opportunities Fund.

So just continuing the same on the question, specifically on Barbeque India. Now if you look at it, our average restaurant revenue has dropped down to roughly INR 5 crores per annum, what we have reported in our quarterly presentation also. And obviously, we have seen a tremendous decline over the last 3 to 4 years over here in terms of the average revenue per restaurant. So basically, first wanted to understand what's your take on this. And second, like, say, you mentioned that you are taking initiatives in terms of giving value offers to consumers, trying to enhance guest experience and everything. I guess that we have been trying that since the last 12 to 15 months. So -- but do you feel that, honestly, we have seen any traction over there? Or are we getting any benefits out of it?

So the numbers were minus 9 earlier, which is now around minus 5.

Yes. But that's on minus 9.

No, I agree with you, absolutely. There is absolutely no joy in reporting this. But on the ground, the effort that you can put is only on increasing your operational rigor. And that is what we are driving. I think like we also said in the previous call, out of this 193 restaurants, there are approximately 60, 70 restaurants which are in positive territory. There are under 50 restaurants which will be in a territory of minus 1 to minus 2, and there are some which are dragging in double digits, right? And largely, South market is dragging overall. We're also seeing some stress in outlets, which are high dependency on IT businesses. We're also seeing some stress on outlets where the competition is very high. There has been a response. And it's not that in the category there is a clear winner and people are absolutely making it. We are seeing some drop in prices by competition at the numbers which doesn't sustain at a margin level. So we are seeing some of these, and we are navigating through these challenges by just maintaining our operational rigor, our value offering and just increasing the overall guest experience elements, right? To some extent, we're also impacted by the service charge rule. Earlier, we used to charge 5% service charge, which is now band, and we don't charge that anymore. We have taken price hikes. Normally, we used to take almost 1.5% to 2% price hike on an annual basis. This quarter versus previous year first quarter, there is a negative impact of 0.5% because of service charge. We will -- that also impacted our marginally gross margin and also came through in our overall sales number, right? So these are some of the factors that are there that we are grappling with right now. But as I said, we have also taken some efforts to increase the offerings and offers and also increased our efforts on marketing. In terms of team, we have further strengthened the operating team. We have recently hired a Chief Operating Officer just for Barbeque-Nation India business. So the focus across all the points that I'm mentioning is just only doubling down on this business. Obviously, we realize that the other 2 businesses are doing good, and we'll continue to grow those businesses, but a lot of effort needs to go further on ensuring that the Barbeque India business comes back on track. And today, I think the big challenge is same store, which will also further drive our margins.

So Rahul, again, continuing like on what you mentioned. So basically, you mentioned that there would be quite a few stores, at least in South India, which would be seeing a double-digit drag currently on our SSSG. So basically, would it be fair to assume that those restaurants would be basically at somewhere close to breakeven today at an EBITDA level?

No. In our entire South territory, we would be around mid-single-digit EBITDA margin at restaurant level. So we are not losing money there, no. So I think in the entire portfolio, restaurants which lose, I think, a lot of money will hardly be 3, 4. And like I said earlier, at the entire annual basis, we'll keep rebalancing the portfolio by closing 1 restaurant every quarter. But we don't have a -- we are in a problem of in Barbeque India business, some stores losing a lot of money.

So just one last thing from my end. So basically, I wanted to understand what do you think? So like, say, over the last 5, 6 quarters, looking at the efforts that the team has been trying to make at least in trying to enhance the guest experience, obviously, which is -- which hasn't resulted in the kind of footfall that the team would have been anticipating. So do you think that a menu revamp or something like that sort would be much better as compared to just focusing on guest experience enhancement is one last thing that I would understand would want to understand or what's the thought process on that?

So menu innovations are happening. Like I mentioned about the Kukkad Carnival festival, I think our guest scores in that period was very high. If I look at our NPS score between the start of the quarter versus end of the quarter, we have seen good improvements there. So some of these festivals that we are running, some of the other 10% start-up things that we're running is translating into good guest satisfaction scores and our NPS scores. Just that it has not led to the volume growth that we had expected in the business.

[Operator Instructions] The next question is from the line of Naitik Mutha from NV Alpha Fund.

I just wanted to understand what exactly is leading to such high negative SSSG in the South portfolio? I mean what exactly is going wrong in the South portfolio, which is leading to such pressure on the SSSG? And if you could also give the number of stores that the portfolio has because it is weighing down our company level SSSG so heavily. So that would also be very helpful.

So in South, we have around 50 restaurants and in South, if I look at the 3 large metro markets, which is 2 large metro markets is Bangalore and Chennai, the competition players in the all-you-can eat Barbeque category are also among the highest. I would also like to mention that the competitive intensity has not increased as such, right, in terms of the number of restaurants that competition had or we had. I'm seeing that number to be at least stable. But overall, in these markets, there is some larger stress than we are seeing in some of the other markets. There is also a pressure on pricing in these markets. which is taking away some business. And especially in Bangalore, for example, the number of trade area, newer a la carte options that we are seeing is slightly higher than what we are anecdotally noticing in some of the other trade areas that we operate in like Delhi or Bombay.

Right, right. So it is a combination of pricing pressure and competition?

So there's some reduction in corporate business in South. South also depends a lot on the corporate business. We have seen some of our weekday numbers being lower in South, which was earlier driven by the IT demand being lower at least in this quarter.

Is our competition also facing sort of similar problem in terms of corporate demand being weak, et cetera? Or it is just us issue?

Look, our informal channel checks believe that that they too are facing that. But obviously, the numbers are not out in the public. So very difficult to comment from here.

Right. But this South portfolio issue, we have been facing since a couple of quarters, right? This is not a 1-, 2- or 3-quarter phenomenon. So I mean how do we plan to change this again?

Yes, the efforts taken in this market is pretty much similar to what we have done for pan-India, just that some of the -- at least on the pricing side, these markets you will see more aggressive offers than you will see in other parts of India. Apart from that, our focus on guest experience is one of the highest across all markets.

The next question is from the line of Madhur Rathi from Counter Cyclical Investments.

Sir, I wanted to understand on the other expenses part of our P&L. So if I look at a stand-alone, it is flat on a quarter-on-quarter basis. But if I look at on a consolidated basis, it has increased. So is this because of our new restaurant opening, this has increased? Or -- because I understand that the INR 75 crores, INR 76 crores was -- like we had done our cost reduction and it was going to be stable going forward.

So this will all come because of new store expansion.

Got it. And sir, is there any additional possibility of reducing our cost on our businesses like over the next 3, 4 quarters?

No, not really. So I think whatever cost reduction exercise that needs to be done, we have largely sort of done that. But we obviously keep looking at our existing cost structures and keep evaluating that. But I think the focus today is largely revenues per restaurant, and that is why you will see we have increased our marketing spend by 1% of sales in the current quarter. But on the structural side, I think we are fairly optimized in terms of operating this. Despite 2 years of sequential SSSG decline, we're still at double-digit restaurant operating margin in our core Barbeque India business. So just that I think with SSSG recovery, the margins will now be driven by that.

Got it. And sir, like what gives us the confidence that -- sir, what I'm trying to understand this negative 13%, 14% SSSG that we have experienced over the 24 months and our prices have been flat. So it is mostly volume growth has declined. Sir, so is there an issue with our product market fit or something else? And what gives us the confidence that whenever spending resumes, we will be one of the beneficiary of this uptrend?

I think I don't think there's a product market fit problem. We stand for group dining. We stand for celebrations. Our guest scores there are very good and some of the internal study that we have done vis-a-vis brand performance versus competition, our numbers there are also very good. I don't think this is a product sort of problem. I understand that on a '24 basis, we are down from, say, 100 to 87, 86. But I think this is something that we understand well, and this is something that we'll keep investing on and keep getting better at. I don't think there is something that needs to drastically change at the core offering. We will not change our experience offering, which is live grill. We obviously keep innovating on our product. We have added almost 7, 8 new starters or kabab in the menu when we launched 10+10 as offering. We have continuously been doing fruit festivals in the past. And we are also seeing that in our guest course, but that is not reflected back in our cover numbers.

Got it. Sir, do we have any idea like on ground, sir, whom are we losing these volumes to? Is that other restaurants? Is it like other buffet kind of store formats? Or is it like something else other than this?

So overall, as a segment, the other players, they may have been in some trade areas, but it is -- we have not seen any trade area wherein we are struggling and competition is thriving -- similar format competition is thriving. In fact, we have seen certain trade areas where we are doing well, and we have seen competition beating that market. So I don't think it's a competition problem at all, at least in the same trade areas that we're working at.

Okay. So it's basically some alternate form of eating out kind of where we are losing share is that understanding, correct?

Yes, I would guess so, yes.

The next question is from the line of [ Harish ] from [ Avner Capital ].

What would be the blended price hikes at the Barbeque India level on a Y-o-Y basis?