Smashburger Troubles And Mounting Global Burdens Will Limit Prospects

Key Takeaways

• Escalating operating costs, regulatory pressures, and shifts toward health-conscious dining threaten profitability and future revenue growth in key markets.
  
• Rapid expansion risks brand dilution and integration difficulties, while increasing competition and sustainability challenges could undermine long-term earnings and cash flows.
  
• Aggressive global expansion, a diversified brand mix, asset-light franchising, prudent capital management, and strong digital integration are driving sustainable growth and profitability.

Catalysts

Develops, operates, and franchises quick service restaurants.

• The company faces mounting structural risks from increasing global labor costs and higher regulatory burdens around environmental sustainability, both of which are likely to drive operating expenses materially higher in key growth markets, leading to margin compression over time and threatening both net income and long-term profitability.
  
• Jollibee Foods' reliance on a traditional, meat-heavy and fried menu makes it acutely vulnerable to the accelerating consumer shift toward plant-forward and health-conscious diets, which-if not adequately addressed-will erode its long-term same-store sales growth and restrict future revenue opportunities in more advanced international markets.
  
• Aggressive international expansion and a growing portfolio of acquired brands could result in significant brand dilution and escalating integration risks; if turnaround efforts at legacy acquisitions such as Smashburger and The Coffee Bean & Tea Leaf falter, this may lead to sustained earnings drag and potential asset impairments, undercutting return on invested capital.
  
• Intensifying competition from global quick-service restaurant giants and digital-first insurgents may hamper Jollibee's customer acquisition in developed markets, while the proliferation of food delivery apps and ghost kitchens threatens to erode foot traffic and undermine revenue growth from physical store locations, straining top-line expansion.
  
• As regulatory scrutiny intensifies on packaging waste and supply chain emissions, Jollibee Foods will likely face escalating capital expenditures and compliance costs; without clear leadership in sustainability, these ongoing burdens could materially weaken both net margins and cash flows despite revenue gains.

Jollibee Foods Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Jollibee Foods compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Jollibee Foods's revenue will grow by 6.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 3.4% today to 3.7% in 3 years time.
• The bearish analysts expect earnings to reach ₱12.9 billion (and earnings per share of ₱11.5) by about September 2028, up from ₱9.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 26.7x on those 2028 earnings, up from 26.5x today. This future PE is greater than the current PE for the PH Hospitality industry at 12.9x.
• Analysts expect the number of shares outstanding to decline by 0.19% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.66%, as per the Simply Wall St company report.

Jollibee Foods Future Earnings Per Share Growth

Risks

• Jollibee Foods is demonstrating robust international and domestic expansion, with record system-wide sales, double-digit revenue growth, and strong same-store sales growth across the Philippines, North America, China, Southeast Asia, and EMEA, which indicates an expanding addressable market and supports revenue and earnings growth.
  
• Strategic focus on franchising and an asset-light model, particularly for brands like Smashburger and Campos Coffee, is driving higher return on invested capital and reducing capital requirements, which supports improved margin resilience and sustainable long-term profitability.
  
• Diversified brand portfolio across chicken, coffee and tea, better burgers, and Chinese cuisine spreads risk and enables Jollibee to capture consumer trends across multiple food service categories, potentially leading to more stable or rising revenues and gross profit.
  
• Smart capital structure management, including shifting to a higher proportion of debt at lower rates and an explicit focus on widening the return-on-invested-capital to cost-of-capital spread, positions the company to enhance net margins and generate higher returns to shareholders over time.
  
• Adaptation to digitalization trends via loyalty apps, delivery platforms, and menu/price innovation is increasing customer engagement, transaction counts, and sales volumes, which supports top-line growth and provides additional resilience against changes in consumer behavior.

Valuation

• The assumed bearish price target for Jollibee Foods is ₱199.58, which represents two standard deviations below the consensus price target of ₱290.18. This valuation is based on what can be assumed as the expectations of Jollibee Foods's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₱330.0, and the most bearish reporting a price target of just ₱196.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ₱348.7 billion, earnings will come to ₱12.9 billion, and it would be trading on a PE ratio of 26.7x, assuming you use a discount rate of 15.7%.
• Given the current share price of ₱234.0, the bearish analyst price target of ₱199.58 is 17.2% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.