QSR chains' sales recovery: The main course with a side of optimism

Plating a comeback: QSR stocks ready to break their six-month diet of negative returns

After several quarters of decline, most listed quick-service restaurant (QSR) chains have reported a recovery in same-store sales (SSS) or like-for-like growth in the 2024-25 (FY25) October-December quarter (Q3). The steady recovery across key players has led some brokerages to adopt a more optimistic view of the prospects of QSR majors. This recovery may also be reflected in the share prices of QSR companies, which, except for Jubilant FoodWorks, have posted negative returns over the past six months.

 

Motilal Oswal Research recently upgraded its outlook from ‘cautious’ to ‘positive’, as the segment began showing signs of modest improvement in Q3, aided by a favourable base effect.

 

Analysts Naveen Trivedi and Tanu Jindal from the brokerage say, “Dine-in footfalls and order volumes are gradually improving, while delivery channels continue to perform well. Mid-income households, a key customer base for QSR chains, are expected to increase their dine-out frequency, supporting SSS growth and overall industry expansion.”

 

Macquarie Research, in a note last month, observed that after more than a year of weak SSS growth performance, and in light of actions taken by restaurant companies, they foresee a gradual recovery in demand in the restaurant space. This recovery will be driven by steady SSS growth, followed by consistent store additions as growth momentum picks up, and finally, a recovery in operating profit margins.

 

While most QSR chains show signs of recovery, Jubilant has been an outlier, consistently posting growth in the SSS metric. The December quarter marked its fourth consecutive quarter of year-on-year (Y-o-Y) SSS growth. A 12.5 per cent increase in SSS, along with higher average daily sales across its stores, enabled Jubilant to achieve an 18.9 per cent growth in standalone revenues. Although brokerages acknowledge the company’s strong operational performance, they maintain a ‘hold’/‘neutral’ rating on the stock, as these positive results are already factored into the stock price.

 

Westlife FoodWorld, another QSR major with positive SSS growth, posted a 2.8 per cent rise in this metric for Q3, reversing a four-quarter streak of Y-o-Y declines. Growth for the McDonald’s franchise was driven by higher in-store footfalls, stable average bill value, a healthy recovery in the dine-in channel, and a low base from Q3 of 2023-24. Nuvama Research notes that the company’s strategic initiatives, such as the Everyday McSaver Meals and McSaver Combos, are improving foot traffic. However, it has reduced its FY25 revenue estimates by 9 per cent due to sluggish demand and a gradual recovery in revenue per store.

 

Devyani International and Sapphire Foods India, both franchisees of KFC and Pizza Hut, posted mixed results, with Sapphire performing slightly better in terms of SSS growth.

 

Devyani’s KFC sales grew by 9 per cent Y-o-Y, supported by a 17 per cent increase in store count. However, the gains from store expansion were offset by a 4 per cent drop in SSS sales. In contrast, Sapphire’s KFC showed a smaller 3 per cent decline in SSS growth, while its revenue increased by 12 per cent, driven by a 22 per cent expansion in stores.

 

On the Pizza Hut front, Devyani’s revenues grew by 6 per cent Y-o-Y, aided by a 14 per cent increase in new stores, although SSS growth fell by 0.8 per cent. Sapphire’s Pizza Hut operations performed more robustly, with positive SSS growth of 5 per cent and new store additions of about 6 per cent, leading to over 10 per cent growth in overall revenue.

 

Motilal Oswal Research, which has a ‘buy’ rating on Devyani, suggests that the key factors to monitor are average daily sales and SSS growth recovery, as they are crucial for improving unit economics. The stock has been flat for the past three years due to growth challenges.

 

Centrum Research has maintained its ‘sell’ rating on Sapphire. The brokerage expects a turnaround driven by strong management and improvements in execution capabilities. However, weak consumer demand, rising competition in the chicken QSR segment, and reduced discretionary spending present short-term risks, it adds.

 

Restaurant Brands Asia, which operates the Burger King franchise, reported 11 per cent Y-o-Y revenue growth, driven by store expansion, while SSS growth was impacted by a moderate demand environment. Analysts at Prabhudas Lilladher Research, led by Amnish Aggarwal, caution that the near-term outlook remains unclear due to the upcoming 2025-26 expansion plans in India, subdued demand conditions, and ongoing challenges in the Indonesian market. The brokerage has lowered its target price and kept a ‘hold’ rating, advising investors to avoid new entries until clearer signs of a turnaround in Indian operations emerge.