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Westlife continues to deliver good performance on all key metrics. SSSG-driven revenue outperformance (14% 4Y CAGR vs 5% 4Y CAGR retail expansion) is impressive and is likely to be one of the top performance in QSR sector. It was likely driven by relative success (1) in the meal menu (Gourmet Burgers, Fried Chicken etc.), (2) superior dine-in experience through EOTF stores (72% of total restaurants) and (3) higher penetration of McCafe (87% of total restaurants). Consistent performance in store through-put at 7-8% 4Y revenue CAGR since last four consecutive quarter is impressive. This has likely contributed towards healthy expansion in operating profit margin. The current/guided retail expansion rate (at ~12% on existing base) is healthy. The journey of execution-driven outperformance continues to add up for Westlife. ADD.

* Dine-in led SSSG drives top-line outperformance: Revenue grew by 22% YoY led by 14% YoY SSSG driven by healthy growth in dine-in channel (double-digit growth in dine-in guest count). Annualised revenue per store grew 30% YoY and 2% QoQ to Rs66.2mn driven by healthy traction in on-premise channel (38% YoY) with continued performance in off premise channel (grew 5% YoY on high base). Revenue from non-metro town grew 1.3x of metro on pre-covid base with broad based growth across west and south markets. Revenue from digital-led sales stands at 57% driven by improvement in self ordering kiosks. McCafe beverages portfolio also performed well with continued return of dine-in customers. McDelivery continues to outperform 3POs (launched new app in Q4). Management expects to deliver high single digit SSSG growth in FY24.

* Operating margins sustained: Adjusted gross margin expanded 320bps YoY (+130 bps QoQ) to 68.2% driven by pricing, moderation in inflation, one-time volume delivery incentive and improvement in sales mix (strong traction in McCafe, meals, premium burgers and chicken portfolio). Impact of higher staff costs (higher incentives) was more than offset by operating leverage (benefit) and cost optimisation measures. Restaurant operating margin (ROM) expanded 220bps YoY to 24.5%. However, EBITDA margins expanded by only 50bps to 16.5% due to higher corporate overheads (+55% YoY; one time incentives).

* Retail expansion guidance maintained; incremental efforts towards premiumising customer-experience tracking well: Retail expansion rate continues to be on track with addition of 16 (net) new restaurants in Q4FY23. Management maintains its guidance to open 40-45 restaurants in FY24 with plans to reach 580-630 restaurants by 2027. Now ~87% restaurants have McCafes, while ~19% restaurants offer drive-through service. Also, in Q3, Westlife converted 17 restaurants (to 220, ~72% of total) to EOTF (experience of the future) format. In the next 24 months, 100% stores are likely to be converted to EOTF model. We note EOTF stores are rated 4.2-4.5 (out of 5) on Google (vs QSR average of 3-3.5 stars)

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