The Good And The Bad: What Investors Should Know About BreadTalk Group Limited’s 2017 Second Quarter Earnings

BreadTalk Group Limited (SGX: 5DA) is a food & beverage retail company that has three main business segments: Bakery, Restaurant, and Food Atrium.

The company reported its 2017 second quarter results in early August. There are both positive and negative takeaways from the company’s latest earnings that investors may want to learn about. Let’s take a look, starting with an overview of the numbers:

1. The overall result

Here’s a table showing the important numbers from the income statements of BreadTalk for the second quarters of 2017 and 2016:

Source: BreadTalk 2017 second quarter earnings presentation

BreadTalk’s performance in the second quarter of 2017 was mixed, overall.

On one hand, we see that the company’s revenue for the quarter was down by 1.5% year-on-year. Yet, improvement in costs resulted in a big increase in net profit (61.9%).

2. The positives

Firstly, despite a decline in total revenue for BreadTalk, the Restaurant segment actually reported a 3.7% increase in revenue due to a positive performance from its Din Tai Fung restaurants in Singapore and Thailand, and declining losses at the RamnePlay chain.

Secondly, BreadTalk’s profit margin increased significantly, mainly due to improvements at the Food Atrium segment as a result of the company’s effort to fine-tune the tenant mix in each outlet to maximise revenue generation.

Thirdly, BreadTalk’s balance sheet strengthened when compared to a year ago. As of 30 June 2017, BreadTalk had S$128.1 million in cash and equivalents, and S$161.7 million in total debt, giving rise to a net-debt position of S$33.6 million. A year ago, the net-debt position was S$90.6 million (S$111.9 million in cash and equivalents, and S$202.6 million in debt)..

3. The negatives

As mentioned earlier, BreadTalk’s overall revenue was down. This was due mainly to lower revenue in the Bakery and Food Atrium segments. The former suffered from weaker performances at its direct-operated stores in Shanghai and Beijing, while the latter’s top-line fell due to store closures.

Secondly, the Bakery and Restaurant segments both saw their EBITDA (earnings before interest, taxes, depreciation, and amortisation) margins decline in the second quarter of 2017 as compared to the same period last year. The Bakery segment saw its EBIDTA margin decline by 0.9 percentage points to 8.6% because of higher prices for raw materials and the aforementioned weakness at the direct-operated stores in Shanghai and Beijing. Meanwhile, the Restaurant segment’s EBITDA margin fell by 1.0 percentage points to 19.2%

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.