KFC India operator Sapphire Foods logs second quarterly loss after Devyani merger

India’s Sapphire Foods logged a second straight quarterly loss as one-time charges tied to its merger with Devyani International and changes to labour codes, along with weak urban demand and higher costs, weighed on earnings.

The results for the Indian operator of KFC and Pizza Hut come against a tough backdrop for India’s quick-service restaurant sector, where fast-food chains have struggled to revive same-store sales, a key metric to gauge underlying sales growth, amid slowing urban demand.

Near-term pressures have intensified as a cooking gas shortage linked to Middle East tensions has strained household budgets despite firms stepping up promotions and deep discounts.

The franchisee for U.S.-based Yum Brands reported a consolidated net loss of 126.1 million rupees ($1.33 million) for the March quarter, wider than the 47.9 million loss it posted in the previous quarter.

It booked another one-time charge in the reporting quarter, including 62.27 million rupees linked to new labour codes and 65.69 million rupees tied to the $934 million merger.

Sapphire merged with Devyani in a deal in January, creating a business that operates more than 3,000 KFC and Pizza Hut outlets globally, competing with market leader Jubilant Food works.

It had logged a similar one-time charge of roughly 110 million in the previous quarter related to the merger and code changes.

Same-store sales grew 4% at KFC and declined 7% at Pizza Hut chains year-on-year. Post-merger momentum at KFC was offset by weaker Pizza Hut sales, as one-time charges added to pressures from weak urban demand and rising costs.

Sapphire added 24 new restaurants in the reported quarter, bringing the total to 1,052 stores as of March end.

Revenue from operations rose 11.4% year-on-year to 7.92 billion rupees, while expenses also climbed at about the same pace.