2-year CAGR LFL decelerated from 9% to 6% Q3 to Q4; delivery LFL fell from 28% YoY to 10%. What explains the sequential deceleration in both dine-in and delivery?
Sameer Khetarpal noted that Q-o-Q is more noise; full annual number for 2 years has been closer to 7%. Delivery continues to grow strong. Two underlying headwinds: dine-in and takeaway challenges; and average order value drop due to conscious reduction of minimum order value from Rs. 149 to Rs. 99 to gain market share and match competitors. The drop in ticket size is the subtext. Dine-in and takeaway remain the real challenge.
How to think about SSSG and margins going forward given commodity inflation (milk, petrol, diesel)?
SSSG guidance: Q1 already better than Q4; annual target of 5-7% maintained. On margins, three inflation vectors: energy, labor, commodity. Approach: tighten belts first, pass on to consumer only after calibration. No specific margin guidance given given rapidly changing dynamics.
Margin pressure duration - next 1 or 2-3 quarters? When will 20%+ margins return?
Suman: very difficult to predict; hopes only for next couple of quarters but cannot give guidance as inflation numbers change daily. Sameer: enough levers exist (LFL growth, gross margin improvement, productivity) to return to desired margins barring 1-2 quarters.
Discounting trends in the quarter? Can 5-7% LFL growth target and 200 bps margin improvement be achieved simultaneously?
Sameer confirmed growth has been prioritized, specifically volume metric growth. Dropping order value creates headwinds toward margins, but with >50% fixed costs, growth is the biggest driver of margins. Drag from Popeyes, Hong's and Dunkin is ahead of plan. Optimistic about achieving both growth and margins.
Store addition outlook given near-term headwinds and changed competition; any reset to store format strategy?
Sameer confirmed Domino's has gained share in the category and in QSR space, per Nielsen panel of 50,000 customers. From store format standpoint, they are opening more delivery carry-out stores of ~600-700 sq ft. In large metros go-to model is delivery carry-out. Store approvals for 1,500-1,600 sq ft are no longer given even in Tier 3/4. Capex per store has reduced YoY by nearly 20% for 3 consecutive years. Plan: open 230-250 restaurants this year.
Is 75.5% gross margin a steady-state run rate? What is the inflation trajectory in input costs?
Sameer noted they had communicated 3-4 quarters ago that they would improve gross margins via calibrated price increases in Volcano Pizza, wastage reduction, premium product launches (Big Big Pizza, Sourdough Pizza), and mix changes. Energy cost (LPG, PNG) is the biggest headwind at 100-120 bps, already coming into P&L. Structural improvements (wastage reduction, mix, premiumization, sourcing) will stay the course. Suman added: energy 120 bps, commodity inflation building, wage inflation from Labour Code (~20 bps) plus 11 state minimum wage increases (20-30 bps) plus delivery mix headwind (76%). Near-term margin compression likely but structural improvements remain intact.
Channel checks showed price increases in April were rolled back (garlic bread stick Rs. 10 price reduction in May). What happened?
Sameer denied any rollback - price increases are calibrated after 14-16 weeks of experimentation. Suman noted the observed difference would be store-specific and discount-specific variation, not a systemic rollback.
Cost of goods purchased slowed Q3 to Q4 - is that sustainable? Are April-May seeing similar trajectory?
Sameer: gross margin is sustainable. Contested assumptions about Jan-Feb being exceptional in source data.
LPG and own-fleet exposure gives JUBLFOOD higher margin headwind than peers - can you quantify the differential?
Sameer: actually no. Large part of fleet is electric, providing advantage vs market. LPG impact being calibrated; 1.2% pricing passed through to offset energy inflation. Suman added 120 bps energy headwind, 120 bps pricing taken. Other LPG mitigation: converting to electric and piped natural gas (government mandate also supporting PNG conversion). Developing own electric oven solution kits, importing electric ovens. Conversion being done actively where feasible.
Structural margin levers for Domino's India to achieve 200 bps over 2 years beyond Dunkin drag reduction?
Sameer: biggest lever is LFL growth (covers fixed cost inflation). Second is gross margin improvement via premium products, operations management. Supply chain cost is at lowest ever in company history with further room. Logistics cost has further improvement potential. Opening 250 stores/year enables renegotiation with landlords for better rents. Multiple productivity levers across large line items.
Systems were reportedly down for 6 hours during World Cup final day - what was the impact and what steps are being taken?
Sameer: information incorrect. Systems were not down for 6 hours. There was a minor downtime on the app only; rest of systems were working and recovered quickly. No notable sales impact. Systems are very stable.
Nielsen panel shows market share gains in delivery - but aggregators have grown faster than Domino's delivery this quarter, suggesting QSR as a basket hasn't grown as fast. Your comments?
Sameer: Nielsen data tracks only Delivery among ~30 QSR players. Domino's gained share among those 30 (mostly QSRs with ~0.3%-0.4% market share individually). Agrees aggregators grew faster than Domino's delivery this quarter, which implies QSR as a basket hasn't grown as fast and aggregators' incremental growth is from non-QSR or premium players. Plans to increase delivery growth rate.
Gross margin expanded 100 bps to 75.5% but realization declined 5% - how do you reconcile? Is the move to Rs. 99 minimum order toward higher-margin products?
Sameer: a nuanced question; suggested taking it offline. Suman: they have a breakup but it is a reconciliation point best handled with IR team.