About 500 cafe outlets of coffee chain Cafe Coffee Day have been closed down since April this year, as the company looks to arrest the falling profitability of its coffee business and readies for divestment of the business. The company has cited a drop in margins and an increase in costs at Coffee Day Global, which houses the coffee business, which is partly attributed to the economic slowdown.

The company had announced the closure of 280 cafes in the first quarter as part of its unaudited financial statements this week, but sources say the number may have risen to close to 500 by the end of Q2 and that more closures are likely.

The current cafe outlet count for CCD stands anywhere between 1,200-1,300, compared to 1,752 outlets in Q4 of FY19 and 1,480 in Q1 of FY20.

The store closures are being done to contain falling profitability, as the company is in talks with multiple players to divest its coffee business. Outlets across regions that are not profitable or may not turn profitable soon are being closed, and there are more closures likely in the coming months.

The move comes as the coffee business saw profitability more than halve in the June quarter on a year on year basis, without taking into account the new accounting standards.

Retail EBITDA of coffee business under Coffee Day Global fell 10 percent to Rs 73 crore in the first quarter compared to Rs 81.3 crore in Q1 of the previous year. This was arrived at after applying the mandatory adjustments as per the new Accounting Standard IndAS 116, applicable with effect from April 01, 2019. Accordingly, a sum of Rs 37.83 crore, being expenses pertaining to operating leases, have been reduced from “Other Expenses” and added to Depreciation& Amortization Exp and Finance cost, as per the calculations stipulated in IndAS 116. The EBIDTA, without applying IndAS 116 would be less than Rs 40 crore.

The same stores' sales growth for Coffee Day global, which houses the coffee business, declined by 4.21 percent in the June quarter, compared to an uptick of 5.48 percent in Q4FY19 and a growth of 10.40 percent in Q1Fy29.

Coffee Day did not respond to CNBC-TV18's queries, but in its Q1 filings, it cited a few reasons for the fall in EBITDA, quoting a drop in margins and increases in promotional costs due to the economic slowdown.

The company said EBITDA fell due to drop in exports sales and margin, reduction in gross margin due to increase in sales for lower-margin product and promotional activities undertaken to arrest the drop in revenue due to general slowdown in the economy, the impact of annual salary increments, and an overall increase in other expenses.

The company also mentioned that the impact of the closure of 280 cafes during the quarter was Rs 19.05 crores.

Overall, Coffee Day Enterprise Ltd, was able to see a spike in EBITDA of 817 percent Yo-Y and a growth in PAT of 8776 percent YoY mainly because EBITDA included exceptional gain amounting to Rs 1,777 crores, and PAT included exceptional gain amounting toRs. 1,659 Crores on account of sale of equity stake held in Mindtree.

CDEL revenue was down 2 percent year on year at Rs 942 crore.

First Published:Nov 15, 2019 7:48 PM IST