Jollibee Foods' foray in Asia pays big

Jollibee [JFC 191.60 0.47%] Q2/21 profit of P0.98 billion, up 109% from Q2/20 net loss of P10.3 billion, and up 538% from Q1/21 profit of P0.15 billion. JFC is the giant of SE Asian fast food; it has a choke-hold on our domestic quick-service restaurant industry, with a growing footprint in Vietnam and China, and a smattering of locations all over the rest of the world. JFC’s Q2 same-store sales were up 67.5% y/y, with the majority of the increase in the Philippines (international stores were less likely to be subject to lockdowns in 2020).

Most jurisdictions experienced at least some uptick in same-store sales except for Vietnam, which saw an 8% drop y/y. JFC’s consolidated operating income was P1.4 billion, up from the P5.4 billion operating loss in Q2/20. In its press release, JFC also compared its Q2 and 1H numbers with its pre-COVID performances in Q2/19 and 1H/19.

When compared against 2019, JFC’s system-wide sales were actually down 15%, but JFC is quick to point out that operating income was only down by 10%, and that EBITDA was actually higher by over 13%. Overall, JFC indicated that the following profitability metrics actually exceeded 2019 levels: gross profit margins, operating margins, general and administrative expense percent to revenues, EBITDA margins, and net income margins. JFC attributes the rise in these metrics to the increased significance of its foreign stores to the overall profitability picture, the increased contribution of coffee stores and the cost savings brought about by the Business Transformation program that JFC launched in Q2 of 2020 at the height of the pandemic. That program cost P6.2 billion and was an expense incurred in Q2/20 that exaggerated JFC’s initial losses (and exaggerated the eventual recovery metrics, including those relating to this quarter).

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Jollibee wasn’t the first to act when COVID first struck (I think that award should probably go to Fruitas [FRUIT 1.20 0.83%], which acted very quickly and build feverishly toward its vision of the “new normal”), but when it realized that its business model needed to change, it didn’t cheap-out or employ short-sighted half-measures. It saw that PH-based stores were more likely to be shut down due to lockdowns and that the vaccination rate in the PH was lagging in such a way so as to make reimposition of lockdowns more and more of a likelihood; this pushed JFC to increase its focus on its foreign footprint, especially in Vietnam and China.

That little bit of jurisdictional arbitrage definitely helped spread the risk of COVID shutdowns, but it couldn’t eliminate the risk entirely. As we’ve seen with Vietnam and Southern China, regions that were strong and COVID-free in Q4/20 and Q1/21 have struggled with the emerging Delta variant and have been locked down to various degrees. It also saw that the future of the quick-service restaurant industry was going to be in the various forms of dine-out (drive-through, pickup, delivery) that had become a necessity when people couldn’t leave their homes.

These results appear to be rewarding management’s moves to invest in take-out friendly brands and configure its new stores and reconfigure existing stores to better support the new dine-out dominant business model. The new, stricter August ECQ should test the robustness of those systems in the Philippines for JFC’s Q3 earnings, but the continuing growth of its international business should help dampen the impact (at least somewhat) this time around.

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