Shakey’s cuts capex to P300M, expects recovery in 2 to 3 years

By Denise A. Valdez, Reporter

SHAKEY’S PIZZA Asia Ventures, Inc. (SPAVI) is halving its budget for capital expenditures (capex) this year to P300 million as it delays expansion plans to preserve cash.

“From an original P600-million budget for 2020, we have cut our capex budget in half to roughly P250 million-P300 million, most of which have already been spent in the first few months,” SPAVI President and CEO Vicente L. Gregorio said in an e-mail to BusinessWorld after the company’s stockholders’ meeting on Wednesday.

This allocation is 40%-50% lower than the P500 million the company spent in 2019, which went to investments in new store openings and delivery, and digital platforms.

In the meeting, Mr. Gregorio said the coronavirus disease 2019 (COVID-19) pandemic is expected to put an end to SPAVI’s 16-year streak of recording double-digit growth.

“In spite of only half month’s worth of COVID-19 impact, year-on-year numbers in the first quarter already took a significant hit… The worst is yet to come, with succeeding months feeling the brunt of the pandemic’s effects,” he said.

“More specifically, the second quarter will be our worst quarter, given the full-quarter effect of COVID and quarantine period,” he added.

Mr. Gregorio also said the company is projecting recovery to take two to three more years as the pandemic continues with still no vaccine. “We think 2022 would be a good estimate when it would be more like normal or pre-COVID, but it could extend to 2023.”

SPAVI Chairman Christopher T. Po said the plan is to keep reevaluating the business model to adapt to the current situation. “So far the recovery of our business is roughly around 55% of pre-COVID levels… We are doing many things to try and make sure that when we come out of the crisis, we’ll be in a good position to really start growing again.”

SPAVI’s earnings in the first quarter fell 35% to P114 million due to the temporary closure of 91% of its stores as of end-March. Overseas, SPAVI had already closed two of its four stores in the Middle East and is currently contemplating whether to shut it down for good.

The company was originally planning to open 38 new stores this year, but this plan is put on hold due to the economic uncertainties.

After temporarily closing 91% of its store network in March, leaving it with 24 operational stores out of 280, SPAVI has already reopened 267 stores as of end-June, or 95% of its network.

Considering the impact so far, Mr. Gregorio said SPAVI is planning to rationalize its operations to address changing consumer behavior.

“The pivot would be more towards smaller, more delivery-focused stores rather than the big boxes,” Mr. Gregorio said. He added the company wants to leverage digital platforms, which include the Shakey’s mobile application and presence in food delivery channels.

At the start of the lockdown, SPAVI had P1 billion in cash and about P5 billion in unused credit lines for emergency. It also has no maturing loans this year.

Mr. Gregorio said the priority for now is cash preservation and cash flow, and he expects to achieve cash breakeven by the second half of 2020.

“We will remain on this cash conservation mode as we weather through this crisis, suspending all non-essential expenses without putting the long-term health of our organization and brand at risk,” he said.

“This translates to a more conservative store renovation plan, temporary suspension of new store openings, agreements with partner lessors for rent waivers, coordination with suppliers for discounts and extended payment terms, and accelerated efficiency programs at both store and head office level,” he added.

SPAVI shares at the stock exchange slid two centavos or 0.33% to close at P6.10 each on Wednesday.