Losses from American hamburger chain Smashburger and one-off expenses related to Red Ribbon’s transition to a new factory gnawed on the second quarter earnings of fast-food chain Jollibee Foods Corp.
Jollibee’s net profit slid by 50.2 percent year-on-year to P1.1 billion in the second quarter. This brought attributable net profit for the first semester to P2.66 billion, down 34.4 percent from a year ago.
Six-month revenue rose by 9.8 percent year-on-year to P79.52 billion, driven by system-wide sales which rose by 13.8 percent to P59.43 billion. However, revenue growth was outpaced by the 12.8-percent year-on-year rise in direct costs to P70.86 billion alongside general and administrative expenses and advertising expenses which were up 12.7 percent year-on-year to P10.26 billion.
Six-month net interest expenses doubled to P651.34 million.
“Our profit challenges are short term, mainly Red Ribbon in the Philippines and Smashburger in the United States. Red Ribbon products will be in complete supply in September,” Jollibee chief financial officer Ysmael Baysa said in a disclosure to the Philippine Stock Exchange.
Red Ribbon grappled with product supply shortage as it transferred its main production facility to a new commissary located south of Metro Manila.
On Smashburger, Baysa said the group had introduced major changes that created short-term disruption in sales and profit but these would “drive sustainable sales growth and strengthen the brand health.”
These changes include permanent price reduction to replace temporary discounts and major product improvements. Product stock keeping units (SKUs) were also reduced to simplify the menu and improve kitchen operations.
“To accelerate sales and profit growth, Smashburger is re-building and strengthening its leadership team.”
Baysa said same-store sales growth in the Philippines continued to improve as consumers gradually regained their purchasing power with increasing wages and lower inflation rate. In June, same-store sales in the Philippines reached 5.7 percent, including Red Ribbon, or 6.8 percent excluding Red Ribbon.
Operating profit in the Philippines, excluding Red Ribbon, grew by 14.2 percent year-on-year in the first quarter and by 15.3 percent in the second quarter. Baysa said this momentum would likely continue in the months ahead.
Sales from foreign business were up by 8.6 percent, with EMEAA (Europe, Middle East and Asia) growing by 20.9 percent and North America growing by 11.3 percent. System wide sales in China rose by 2.3 percent but in peso terms, there was a 5.2-percent decline due to changes in currency exchange rates.
Meanwhile, Baysa said the acquisition of Coffee Bean and Tea Leaf (CBTL), when completed, would start contributing to group-wide profit within 12-18 months of acquisition.
“We continue to aim to achieve the profit level in 2020 and in the years ahead that we set two years ago despite the profit challenges in 2019,” he said.
This is amid concerns that Jollibee’s earnings would continue to deteriorate now that it was making a $350-million acquisition while it is still digesting the consolidation of Smashburger into its books.
Jollibee is banking on its track record in turning around its acquisitions into profitable brands, such as: Yonghe King in China (acquired in 2004); Red Ribbon in the Philippines (2005), Hong Zhuang Yuan in China (2008); Mang Inasal in the Philippines (2010), and Highlands Coffee (2012). Together, these contributed 25 percent to worldwide system sales and 37 percent to operating income.