Strong Sales Growth Amidst Margin …

Q: What is Jollibee’s strategy in China, and how are they addressing current challenges? A: Richard Shin, CFO, explained that Jollibee does not operate its main brands like Jollibee or coffee and tea in China due to strong competition. Instead, they focus on Chinese cuisine in the value segment with their lead brand, Yongha King. They are testing new pricing models to increase transaction counts and plan to expand in tier 3 and 4 cities using a franchise model. Shin emphasized that they are not funding China operations externally and are optimistic about future growth as consumer confidence improves.

Q: Can you explain the recent management changes at CBTL and the strategic direction moving forward? A: Richard Shin, CFO, noted that John Indebrich resigned as CEO of CBTL Global, and Peppard Minana has been appointed as the permanent CEO. The focus is on growing the US market and expanding the franchise model outside of Malaysia and Singapore. They have restructured to reduce GNA costs and improve efficiency. Tara Hinkle, with a strong background in network development and franchise management, has joined the team to drive growth.

Q: What are the plans for CapEx, and how does it align with the franchising model? A: Richard Shin, CFO, stated that while CapEx is slightly higher, it is focused on technology investments, such as loyalty programs and CRM systems, rather than just store buildouts. They are also expanding commissary capacity. The franchising model will reduce the need for store-related CapEx, allowing for more strategic investments in technology and infrastructure.

Q: What is the current status and future potential of Smash Burger? A: Richard Shin, CFO, acknowledged challenges with Smash Burger but emphasized the brand’s potential in the $100 billion US burger market. They have made management changes, with Jim Sullivan now leading the turnaround efforts. The focus is on improving transaction counts and menu innovation. They are implementing a high-low pricing strategy to attract customers and drive repeat visits.

Q: How is Jollibee addressing the impact of California wage hikes on margins? A: Richard Shin, CFO, explained that they are diluting the impact by expanding outside California and taking strategic price increases. They aim to manage costs while driving top-line growth, with a focus on maintaining high average daily sales (ADS) to offset increased labor costs.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.