Café De Coral Hong Kong operations in-line with expectation

Profitability could take a hit though in China where Café De Coral has yet to reach critical mass, says Kim Eng.

Kim Eng noted:

We spoke to CDC’s management for a business update. Key takeaways are:

i) SSSG to be in the mid-single-digit range in HK and flat in China, given that operations in both markets were purely price-driven;

ii) SSSG of specialty stores, in particular Spaghetti House, was flat, weighed down by weak consumer sentiment and a higher base;

iii) HK sales expected to yield high-single-digit YoY growth. Management believes it can grow the segment’s bottom line in tandem with the topline, as the moderation in food costs, albeit on a base effect, will help mitigate labour cost pressure; food costs, however, are expected to rise HoH in 2HFY3/13E;

iv) as for its China operation, management was satisfied with the cost control measures for its stores but admitted that the addition of new stores would dilute near-term earnings. To recap, CdC targets to add 30 new stores in FY3/13E and achieve a store count of 200 by end-FY3/14E. It already has around 120 stores as at end-FY3/12.

Overall, the operations in HK are in-line with our expectation while profitability could take a hit in China where CdC has yet to reach critical mass.