Hello, good afternoon to everyone. Thank you for taking the time to attend this briefing on Jollibee's first quarter 2025 results. My name is Gio de la Rosa of Regis Partners, and we are very honored to be hosting this call for Jollibee this afternoon. I will not be very wordy today, and I will hand over immediately to Cosette, who will have a few words before we start the presentation. Cosette.
Thank you, Gio. Good afternoon, everyone, and welcome to the Jollibee Group's earnings call for the first quarter of 2025. So, with us today is our Chief Financial and Risk Officer, Mr. Richard Shin. Let me quickly read a reminder on forward-looking statements. This earnings call may include forward-looking statements that are based on certain assumptions of management and are subject to risks and opportunities or unforeseen events. Actual results could differ materially from those contemplated in the relevant forward-looking statement, and the Jollibee Group gives no assurance that such forward-looking statements will prove to be correct or that such intentions will not change. All subsequent written and oral forward-looking statements attributable to the Jollibee Group or persons acting on behalf of the Jollibee Group are explicitly qualified in their entirety by the above cautionary statements. And now I'll turn over the call to Mr. Shin.
Thank you very much, Gio and Cosette, and a very good afternoon to all. And for those of you joining us from different time zones, thank you so much for making the effort, and a very good morning or early morning to you. So, similar to Q4, let's get right into top-of-mind questions that we believe are pertinent to our first quarter. It'll be about 30 minutes of sharing an update, and then we'll open up to live Q&A following that. First and foremost, I think what's on everyone's mind is the impact of tariffs and how that's shaping up to our various businesses and various geographies. So, what we have here, again, this is before the weekend 10-hour meeting agreement between China and the U.S.
This does not reflect the latest rate that they've decided on a short-term basis, but rather reflects the original rate of 145% and 125% rates. If nothing else, then from here on, I would say, there's more upside to this situation for us. If you look in the first column, you'll see our key market or business, and then you'll see the third column here, EBITDA or cash contribution to our business. That puts context as well, so that we can really understand how big is the real impact and not just percentages. Of course, Philippines being our largest cash contributor or cash business for us at 70% has virtually zero to no tariff impact, in terms of importation of products that would affect our pricing. Having said that, we are very cautious about inflation.
We know that this is a very complex topic, and so we don't just take a black-and-white view on tariff rates, but we also look at the residual impact on inflation and a few other topics such as consumer confidence as well. In any case, we believe we're in a good position to try to predict the best we can, build inventories as necessary, as I think we're all in agreement that inflation will impact even the Philippines, and then you go to our largest impact market, which is North America, so both the U.S. and Canada, and of course, we understand there's different rates, but nonetheless, we looked at it together, and that's our main business, Jollibee in the U.S. and Canada, 8% EBITDA contribution, and at the time of putting this slide together, we thought it's in the neighborhood of around 9%.
And if I was to give you a little bit more accurate read, our food and packaging cost in the first quarter, before the tariff was 28.3%. And after the discussion on tariffs started, it went up to 29.6%. So it's not a huge movement, but nonetheless, it's 130 basis points that we looked at. This effectively gets negated through minor price increase of between 1% to 1.5%, over the next few months, and that will get us to a margin equal level. So again, I wanted to share the theory here, but also share the reality of the numbers that's actually rolling up for our business and the plans that we have in place. So, not as big of an impact for our business as it may be for some others. Second question is really Tim Ho Wan.
You talked quite a lot about this Chinese cuisine category, and Tim Ho Wan being the global brand. What's that starting to look like early? We just took this brand over early January of this year, so only first quarter that's been consolidated. Just here you can see in the first line, system-wide sales contribution of Tim Ho Wan, now that it's been consolidated, adds about SGD 44 million to the first quarter with 77 locations across 11 markets. Then we put a few highlights here that we thought might be interesting. So first and foremost, when we took the brand back, or sorry, when we purchased the brand, I should say, we moved the center of gravity of this brand back to Hong Kong. Why? Because Tim Ho Wan was founded in Hong Kong by Chef Mak, who is from Hong Kong.
And what's important here is having the base back in Hong Kong. We're also able to experiment with menus, and we're also able to experiment with relevant price points. And so Q1 was a phenomenally successful quarter for us, as Hong Kong outperformed our expectations. We recently opened a new store in Sha Tin, and again that did much better than our original plan. So I think that was the right strategy to bring it back. Second, Singapore, which is where the brand resided in before we brought the brand's spirit back to Hong Kong, continues to contribute. And you can see here, we do have a flagship store, Marina Bay Sands, and this is very important because this was really our second model, in addition to the original model store model, that we experimented with, which sat slightly above in terms of luxury or premium.
And we got a lot of learnings out of that. But the bottom line is at the right price point and with the right menu items, i.e., menu not being too large or complex, but the right level, we seem to be catching the pre-lunch, lunch, post-lunch, and dinner. You can see transaction count with that menu adjustment and price adjustment went up by 11%. And our average daily sales went up by 7%. And equally important, our consumers said through Google ratings that this is a really good experience. So we went from 3.7- 4.3. So again, the benefit of bringing the brand in-house to JFC, where we have a lot of experience in this area. China continues to be a challenge for many businesses, including ours.
But what was incredible to note, again, with the new menu and price positioning, we got transaction count up to 34% up, and our ADS up to 24%. So we start to now look at China with the possibility of having the right store model represented. So, a lot to go from here, but the lessons and learnings have been fantastic in the first quarter now that we own the brand fully. And then we mentioned a few of our franchised out markets. And the franchise model for Tim Ho Wan is a very important model because it is very lucrative. And, right across from Philippines, Macao to Taiwan, our franchisees are delighted to be working with us, and we've seen some really good performance coming out of these markets. So again, early signs, but wanted to share with you, as it is the first quarter.
The next question or thought is what exciting developments can you share about the Jollibee brand right across from the Philippines to international. So we put here on one slide pertinent data points of system-wide sales in billion pesos, system-wide sales growth rate, same-store sales growth rate or rolling base, as we call it, RB, number of stores, and the store growth rate. So you can see the Philippines continues to grow at a very impressive double-digit system-wide. In fact, all of our businesses are contributing double-digit system-wide and very strong same-store sales growth as well. So the quality of growth has been coming through our existing stores equally as well as new openings. And new openings to the tune of 6.1% for the Jollibee brand. So we're very happy with that. International growth of 20% on our store growth.
This was really driven by Southeast Asia, in particular Malaysia and Singapore, as we ramp up to be larger footprint in ASEAN markets. So that's all great, but how did it compare to other global competitors? Again, we put here the best comparisons we could in terms of multi-brand peers like Yum! Brands and Yum China, and also single-brand peers, although larger than us, but nonetheless, comparables the way we track our business, such as McDonald's, Chipotle, etc. And you can see, and this is public information, so this will be out already, and the numbers I just shared with you. So on a comparison to peers, we've had a very strong first quarter from both system-wide, but also same- store sales growth. Continuing on with the Jollibee story, this is a global view, not just the Philippines.
When we took a look at an independent assessor. Brand Finance is the company that puts a valuation or valuation growth ranking to several industries. The one we're looking at here is, of course, QSR. Jollibee is number 17 in the world. What that means is the brand value was up 8% from a year ago. The brand remains strong internationally as well. I know there's some concerns about tariff and inflation. One of the questions that possibly is on people's mind is, what does it look like in April? How is your U.S. business looking in April? We added Canada as well. You can see here our average daily sales continues to go up. It's now $13.534. This is U.S. dollar per day average store.
Our average transaction count was at 5.9% in April. Our average check was at 5.6%, mainly through mix, with a slight price increase earlier, which I mentioned, was aimed at neutralizing any margin erosion. You can see, for Canada and U.S. dollar as well, very strong ADS and very strong average check growth as well. That's April. If we look back at Jollibee, just overall, what's driving some of this growth and interest in the brand? One of the key things that we're very proud of is the recent launch of our loyalty program. This is important because we know it addresses convenience needs of consumers who like to pre-order or they like to order in different ways other than order and wait. You can see that we've, since launching in September of 2024, we have now 500,000 signed-up members.
When you look at the data points of those who are on the loyalty program versus those who are not, there's a significant uplift in average check, among other things such as frequency of visits. It's a very important platform for all QSRs, and we're happy to share that. Our program's been rolled out, and it's starting to gain some momentum now. Affinity, brand affinity. Chef Joshua Weissman is an example. He has over 10 million followers on YouTube. This particular one here recently ranked just overall best chicken. What that meant was it could be represented by bone in, or it could be represented by boneless, like a sandwich or tender. In the case of Jollibee, he actually tried all three: Chickenjoy, sandwich, and tender. Then he picked what he thought was representative of Jollibee.
In the end, we ended up ranking number one in the U.S. in terms of best chicken, regardless of category of boneless or bone in. Again, affinity for the brand, love for the brand continues to drive our growth, which is very different again from our peers that we see in the U.S. China, what levers are in place to deliver China's recovery? I want to start by saying that we've been very clear on trying to define what Yonghe King and going back to really the history of Yonghe King, what it represented, and which, of course, is the soybean expert, whether it's breakfast or snack or lunch. We've tightened the menu, we elevated the quality of taste and experience. We've remodeled some of our stores, and we priced, repriced, or price positioned, such that we understood value was very important.
All that basically rolled up to us now understanding that we have a model to go forward with in China. We've now rolled out the super value store model across all 300 of this store type locations. We're seeing some fantastic data points to suggest that we've turned a corner on China. Then the last price point over here, April, will deliver now for the first time in a while a break-even same- store sales growth, because we've been comping at minus double digits in the past, down to minus single digit, and now to break-even. We're turning the corner on this with the new model, which I, I believe in the past I've also shared. How Smashburger performing post the recent management changes, which I announced in Q4, excuse me, in mid-February, we had a CEO change.
And, subsequent to that, we had some other senior position change. What I can report back today is we have a very renewed energy and focus from both employees, but equally important from our franchisee partners as well. Because we're about, roughly half and half, franchise stores and company-owned stores, in Smashburger. Our investments, through our marketing, so our A&P spend has been refocused to really drive a profitable traffic, that's across, all the channels, including dine-in, of course, along with, tweaking our menu to make it more relevant. As we received, many feedback when we adjusted our strategy to do it too tight of a menu, back in September of last year, where we started to see some difficulties, in our business. So, we're getting families to come back. It's now being, known as more craveable classics again.
We've put some new news out there, which we hadn't had for about eight months. So all of that work's been done in the past quarter. This $5 + $5 is really an entry point burger using the same 100% Certified Angus Beef, but single patty. We're now test-piloting it. We don't want to roll it out nationwide until we've test-piloted it to make sure that we don't trade people down. That's our loyal customers coming in, but rather that this program is used to really bringing new traffic. We're working through this. It's a bit too early to report, but we'll be reporting some data points in Q2. The fourth relevant point here is we continue to build our strongest channel, which is the non-traditionals, not just airports, which is doing really well for us.
We have 30 of those locations. We've now very quickly pipelined another 14 new sites. You can see some examples of airports, but it's also military bases and another non-traditional location where you have high volume and a captive audience. We'll continue to do that as we transition more towards a franchise model for Smashburger to improve its P&L. Of course, cost management was a focus. This is just an example of the labor model, low-hanging fruit, where we've now completed all 60 of 60 stores that we have targeted to improve our labor model. This was, of course, an improvement to our margins, but also without compromising any of our consistency or what we call gold standard or our FSC, what we call food service and cleanliness ratings. Philippines.
So, how well are you defending your leadership position in the Philippines, given that there's a lot of noise around inflation and challenges coming from other competitive brands? And you can see what we've done here is really we've given you two comparables. So Q1 of 2024, but we went back one year out, so you can see a bit of a trend. Q1 of 2023, and these in the dotted boxes here are the growth rates versus those respective periods. So you can see revenue top-line growth, very nice gearing from 10% to 15% in our gross profit. And if you come to go two years back, that's an improvement of 27% in our GP. In our operating profit, you can see we're 12% up. And if you go back two years, we're 31% up and so forth.
So we continue to defend, not only defend, but grow and outgrow our competitors. And then the rest of the KPIs are shown here, system-wide sales, etc., which I've shared with you earlier. What about your coffee and tea segment? Because there's been some noise last year around Compose acquisition, but also your other brands, CBTL and Highlands, because about a year ago we were hitting some macro headwinds with Highlands. All that's reversed now. Highlands is comping, comping double digits now. I know it's a bit of a busy slide, but just if you can stay with me here, you have five quarters of data, Q1 2024 all the way to Q1 2025. You have the four brands in our coffee and tea segment, and you can see the growth and contribution happening. And versus the prior period, the last year, you can see the double digit.
Yes, Compose obviously adds to growth rates like 62%, but even without Compose, you can see a very significant double-digit growth, that's coming through from CBTL, Highlands, and Milksha. This 470 basis points is a margin rate improvement. Yes, rate, not dollars. So this is quite significant. And if you were to take Compose out of this equation, it would still be over 80% basis point improvement in a world where coffee bean price has been escalating. So I wanted to answer that question through this margin data point as well. So today, our coffee and tea segment represents PHP 2.1 billion from an EBITDA perspective. That's a growth of 78% excluding Compose. So like for like if you all, it's still a 21% growth. So we're very happy with the segment and we'll continue to expand and grow the segment. Financial highlights. So let's get into the numbers now.
So I'll start with the summary. So a lot of this you would have seen. So system-wide sales over PHP 100 billion for the quarter, near 19%, driving revenues up to PHP 70 billion for a growth rate of 14.6%, which produced a gross profit of PHP 13 billion or 16.3% growth. And our GP margin rate is a record high Q1 rate of 18.6%. Of course, that delivered a very strong OPM of 6.8%, PHP 4.8 billion, which represented 17.6%. And what happened here, this is 200 million swing. So it's not a big number, but that swing essentially with two factors. So other income, so our non-operating item, in particular, our mark-to-market, we used to have a fixed income instruments where in Q1 of 2024, we had enjoyed a mark-to-market unrealized paper gain, but nonetheless reported in the P&L.
That's gone because that cash went to Compose Acquisition, which I mentioned, last quarter as well as the quarter prior to that. So, that was a big part of that, PHP 200 million swing. And then the other part, of course, we recently went from our perps that were enjoying around 4% coupon rate. We refinanced that into seniors. And of course, the world had changed since the last time we raised that perp. And so we got a seven times oversubscribed.
So it was a very successful subscription, but we converted to senior bonds at 5.3%. So what you're seeing there is the cost, which is around PHP 60 million, that came into our below-the-line impact. So that's what you're seeing coming through there. So again, I think most of this I explained. So it'll be available online. So I won't go through it again. And then, of course, our EBITDA.
So our cash profits, Philippines, growing at 9.2%, international growing at 9.3%, a similar rate. And of course, total EBITDA 9.2%. And if we compare it quarter on quarter versus Q4 of last year, just to see the continuity of our business from Q4 to Q1 this year, you can see our growth rates are even higher, 13.8%, and international at 24% and overall at 17%. We're not hiding anything, so we fully disclose. Smash at 0.4%. If you add that back to 9.8%, that's a loss. That represents around a 3% EBITDA contribution. So we know it's broken. We're fixing it, starting with bold moves on management and really attacking the problem where the root cause is. But it's not one that I would say overshadows the rest of our portfolio that's performing really well for us.
Quarter on quarter, just to have a different view again, you can see Q4 typically is our highest quarter in terms of sales. So you'll see the top line items like sales and gross profit to be down, of course. But you can see our EBITDA was 17% up, as mentioned. Our net income, sorry, our, I missed one here, our operating profit, you can see was up by 64.7% quarter on quarter. You can see our net income at 30% and NIAT at 30%. If you remember last quarter, I didn't mention in NIAT, there was a one-time item. There are two items in there that total about PHP 1.1 billion. I said that's one time and that'll wash through. You can see on a quarter by quarter on quarter basis that washing out.
But beyond that, you also see a solid growth in our operating profit and our bottom line. Okay, let's move on now to cash flow. What you're seeing here is really the impact of us building up our inventory, both in quantity, but also the cost of inventory has gone up because of inflation. And the reason for that is because of the unknowns ahead of us. And our growth rate being double-digit, we wanted to make sure that we did not keep the same level of safety stock when there's an unknown ahead of us, i.e., inflation. So when you look over here, you can see inventory days. I think for about five quarters or more, I've been reporting a decline from 57 days. I remember back in Q2 of 2022, all the way down to 38 days. Today it's up slightly, two days up.
And again, that's really making sure we're safe and we have stock, because we do appreciate that. There's a little bit of turmoil in the world at the moment. Cash relatively stable. What you're seeing here in net debt is our perps or perpetuals, which was equity accounted. So it was not in net debt. It's no longer there. We refinanced it using seniors, as I mentioned. So you're seeing the movement of seniors coming in. And the bank loan, this piece here, this is the acquisition loan for Compose Coffee, which again is giving us a superior ROIC. So we're happy to take on the bank loan, as we've already collected our first dividend in less than a year. What's important here is our financial covenants, the max and the mins. We are nowhere close to breach.
So regardless of the slight changes that we're seeing, which are purposeful, we're still operating way within our limits and we'll continue to monitor this, of course. Our guidance, we guided earlier that our system-wide sales would be in the range of 8%- 12%. First quarter, we were at 19%. So, tick on that. Rolling base, we guided 4%- 6%, and you can see the higher range here at 5.5%. Store growth, to be fair, let's look at organic. So skip out Compose. So we're on a good run rate at 4.2% for the first quarter. CapEx compared to last year, first quarter, 2.3. We're running at 2.5. So right within range. And our operating income, we guided 10%- 15%. And first quarter, we delivered above that guidance at 17.6%. I will stop here and yeah, exactly 30 minutes. So very happy to take on any questions.
Hey, if you have any questions, please feel free to either click the raise hand button so we can acknowledge you. Or you can also type in your questions in the Q&A box. But before, well, let's give the audience a little time to digest the presentation and maybe formulate questions. So I will start by asking the first question this time. Richard, you know, the numbers for the domestic business still look, you know, very well, very strong. They look fantastic, in fact. You know, system-wide sales, double-digit growth again, same-store sales up 8%. I'm wondering, you know, what is your thinking behind how long this can go on? Meaning, will we continue seeing double-digit numbers, for SSSG, for example, for the next two, three, four, five years? Or this is something that is ultimately bound to fall to earth?
Yeah, that's a great question. Thank you, Gio. I guess the way I'm looking at Philippines market is nothing's broken for us in the category in which we compete, which is affordable, what I would consider to be very relevant option for families to feed families. And so, I'm not sure about percentages because as the pie gets bigger, the percentage will naturally come down, but the dollar contribution or peso contribution of that growth continues to be larger. So what I'm concerned about more is how we translate that into bottom line. How do we, you know, manage our OPEX? How do we manage our operational efficiencies? And I'm very happy to report that in Q1, our OPEX, which was slightly tilted in Q4, which, you know, alarmed some people.
And I did say that, there were some pre-spend and pre-recruitment and pre-headcount, et cetera, but it will catch up in Q1 because revenues, contributing against that will catch up. And that's exactly what we saw in Q1. So we're back to, in fact, slightly lower G&A as a percentage. So the growth will continue to happen because Philippines continues to be a consumer market and we continue to be in that very relevant price point. Having said that, Gio, I, I do want to caution that we don't know what we don't know in terms of, you know, food security and what all this leads to in terms of consumer confidence and inflation impact. So we're monitoring that very carefully. We don't like to take price to consumers. And because of that, we've been growing faster at transaction count versus average check. Average check is really pricing or mix.
And so we think that was one of our advantages that we were able to enjoy for last four, if not, you know, five, six quarters. So that's what we're looking at. So we want to make sure our growth continues to be from quality growth, from same existing stores where investments were made, and from transaction count. So we're balancing inflation against price increase and everything else. But you know, if I'm taking a look at April, if I'm taking a look at May, it doesn't appear to be slowing down at all.
Okay, great. Okay, I guess we'll take a question from Divya. I'll unmute your line now.
Hi, Divya.
Hi, Richard. Thank you for the opportunity to ask a question. I guess my first question can be on China. So we noticed the same- store sales in the first quarter was -8%. Yeah, in China was maybe about flatish, I guess. While you know the April development is positive, I'm trying to get a sense from you on how we should think about the EBITDA turnaround as well. And you know what do we need to see or what level do we need to get to to make China again profitable on a sustainable basis? So that's my first question.
Okay, great. So earlier we were double-digit and thanks for calling out the 8%. That's exactly what we were in the first quarter. What happens in April will be a flat or a non-negative same- store sales growth. What we need, not EBITDA, but if you go all the way to net operating income, what we need is around a 12% year-on-year growth for us to get back to China contributing profits to our business. So which means somewhere before that 12% growth, we'll get to EBITDA growth again. So the answer is somewhere between, I would say, break even, or not break even, but flat RV to low single, our EBITDA should be coming back into play again.
Got it. That's helpful. Thank you. My second question is, just on coffee. I mean, despite coffee prices going up so dramatically, I'm very intrigued to know how we've been able to improve our coffee margins and, you know, what kind of price hikes have we taken? And are we worried about the impact of that on demand?
Yeah. So we have, excuse me, three main coffee businesses. So, let me start with the easiest one. So on Compose Coffee, we did not take price in, relevant price, in Q1. We took a small adjustment. What we did in Q1 is we asked our franchisees to take retail price and to keep that margin for themselves, which really helped reduce potential store closures. I talk about this strategy because for me, it's not just about pricing up or down versus a commodity like a coffee, but it's making sure our franchise network is healthy and profitable. So that strategy seemed to work very well in Korea. In terms of CBTL, last year, April, we took a significant price in the US, and that carried us all the way through, I would say, till end of last year and into half of first quarter this year.
So again, we took price at the right time early, so we didn't have to go heavy price in Q1 this year. And then Highlands Coffee, because we're by far the largest downstream player in Vietnam, and it's Robusta beans. Again, the significance of that is most of our beans are procured in Vietnam because Vietnam is one of the largest Robusta bean growing nations. So upstream wise, we're able to have a two-year out price negotiation. So even when prices go up, we're able to " hedge" through commitments and quantity. And so we did not take price in our core business in Highlands Coffee. And so I think because of all of that, I think consumers are coming back to us and we were chasing more transaction count.
And so because our transaction count increased faster than the cost of goods, I think we were able to absorb. And then the last thing I'll say is the LTOs, the limited time offers, right, right across the board, they usually have better margins for us. So when we launch those, that also helps mitigate the margin erosion from escalating bean price.
Got it. Thank you very much. Just one very last quick clarification question on Philippines. Is there any impact from elections that you think that's helping on the same- store sales growth? And do we expect that to taper off in the next few months? And is the loyalty program that you've launched for, is it just for the Jollibee brand or are you planning to spread that out to the other brands within Philippines as well? Thanks.
Great questions. The truth is yes. So if you look historically at all the pre-election, I'm not sure what the right terminology is, but I guess subsidies or funds available to consumers, we did see historically certain trends, but I think our growth is beyond that. So second half, we might have some impact of pre-election spend. But again, April, sorry, May, and really we just have one day data point in May because the election was just yesterday. But what we're seeing is it's continuing on. So I think the answer is yes, Divya. I think there is some election pre-spend, but it's not to the point where I think our business falls off the cliff because elections are over. In terms of loyalty, that's our single number one focus across all of our core brands in all of our geographies.
So the answer is yes because we're seeing consistently, whether it's in the U.S. or within the Philippines, loyalty, consumers do spend more and do frequent more, more times, per month. So yes, we'll be rolling this up across brands.
Great. Thank you very much.
Okay. Thank you, Divya.
Okay. Thanks, Divya. We'll take our next question from Karisa Magpay o. I'll mute your line right now.
Hey, K aris a.
Hi, Richard. I'm Carissa . Just wanted to ask, I recall, during the FY24 results briefing, you mentioned a net profit guidance of 15%. Is this still the case, going by the run rate in the first quarter and how will this be achieved if so? And, I guess related to that, I noticed a big jump in interest expenses in the first quarter. Are there plans to prepay some of the debt to lower interest expenses moving forward?
Yeah. Great two questions. So, we're not changing our guidance down at all. We delivered above the 15% in the first quarter. And, one thing I did not mention, because, this takes a little bit of, I think, explaining, but as you know, historically, we haven't had the best process in terms of our A&P spend. So in Q4, we always had a very large catch-up, which, we've been committed to work on and so forth. So in Q1, actually, that process improved quite a bit. So even with this, near 18%, bottom line growth, we had actually over-indexed on our A&P spend. So, the answer is yes, Karisa. We believe we can deliver that 15%, if not better. In terms of interest, you're right. We used to think the numbers around PHP 350 million on across all debt instruments, bonds, term loans, et cetera.
A big chunk of that, of course, is for the acquisition, borrowing that, we borrowed, for Compose. So that, that's going to come through pretty quickly, come down pretty quickly, I should say, as that business continues to outperform our expectation. And we'll get dividends twice a year. And so with that cash, we'll be able to mitigate some of those debts. The rest of it, I think, you know, our business that's not producing cash needs to produce cash. So I gave an example of us not producing cash, but again, a small part of our near PHP 10 billion is Smashburger, but it's those kind of businesses that will not need as much third-party financing. So as the business performs differently than ours, I think our interest will come down. Our facilities will exist, but we'll just draw upon them a lot less.
Thanks, Richard. Just on the domestic side, I just want to get more color on the performance of Red Ribbon. I noticed there was a marked improvement in the same- store sales growth. Was there anything that was different in the first quarter, and also on the flip side, Greenwich seems to be struggling since the third quarter, and what's the reason for this, and how do you plan to improve on this thing?
Yeah. I've asked exactly the same question. So without getting into all the details, I would say primarily leadership and menu. And by leadership, I mean Joey's been on this brand for a while, but we have left layers. And so I think that allowed Joey and his team to probably move faster. That's one observation. And secondly, menu, certain things that were large categories like white bread were not relevant in Red Ribbon. So I think we menu adjusted with the right items, but also sizing. We noticed that single serve cakes were quite an interesting place to be rather than sharing cakes. So by offering different sizes of our beloved products, those I would say those were the main reasons why the business turned around. In terms of Greenwich, I don't have all the reasons.
I know it's not broken per se, but compared to Jollibee, Mang Inasal, and Chowking, and even Red Ribbon, the numbers do look a little bit soft. But for us in the Philippines, we have three champion brands, and that's Jollibee, Mang Inasal, and Chowking, and those continue to grow at a rapid rate. So we'll continue to look at Greenwich. Again, not broken, but yeah, it's not growing the same way our champion brands are growing. Maybe it's a category point.
Thanks for turning this on for me.
Okay. Thank you, Karisa.
Thanks, Karisa. I'll take a question from the Q&A box now. This is a question from Clark. Richard, he's asking any updates regarding franchising for the North America business?
I think earlier I did mention a couple of challenges in North America. One, all states have regulations and licensing and permits, which we've taken some time but overcome. Two, the lead time to build out a store is around 18 months, whereas in Asia we can probably do a bit quicker. So those challenges still remain, but the update on North America is there's more interest now than ever. I'll give you an example. Very recently, and we never got invited to this in the past, but very recently we're actually invited to set up a booth in what was called a multi-unit franchise convention. So we went for the first time to a franchise convention in Vegas. I think that was like six months back. And recently we went through an invitation to multi.
So I think what's going to happen, over time as the brand becomes stronger, I think we're going to have more options for a franchisee selection. So, there are franchises out there, but we also want to be selective and pick the right ones because if we give territories away, we have to make sure that those franchises are growth franchises for us for the next 10, 15 years. But, we're on track and it's never going to be a linear, as I've always said, but the momentum as it picks up, will start to curve out more towards the back half of our five-year plan, which is to, again, triple in five years by 2028.
Okay. Thank you. We'll take our next questions from Jondy . I'll unmute your line now. Hey, John.
Hey, Richard. How are you? Three questions for me. First is just a clarification on interest expense because I see in the balance sheet that there is short-term debt and I think, before the perps were extinguished, it also contributed to interest expense. So I thought there was double counting there, but correct me if I'm wrong, and I guess as a follow-up to that, what would be the run rate for financing costs if you have that number top of mind?
Yeah, so I wouldn't say it's a double dip because what we did was we did a bridge to extinguish and then we took it to market in April and we landed it. But the incremental rate change certainly came through because in the past we were enjoying 3.9, 4.0%-ish rates. And then of course, the bridge plus the new rate would be higher than that. I think the run rate will be similar if our business is similar, meaning the facilities that we have that we draw upon to support businesses like Smash. I think as Smash starts to lose less and eventually make profit, I think the run rate will get better.
But, to be conservative, John, I don't, I don't want to say Q2 run rate is going to be significantly different than what we saw in Q1 because I don't think there's any double counting in Q1.
I see. Perfect. Thanks, Richard. Also a clarification on coffee. Given that for Compose, I understand we took the margin, as, from franchise instead of franchisees taking the margin. I think you mentioned, Jollibee took some of the, the pressure there, but also we saw that margins improved versus Q3 and Q4. So the question is, what other initiatives have we done to actually make the margins more resilient than what people saw?
Yeah. I think the 470 basis points that you saw, I did say that if you take Compose out, it's still about 80%. So let me address that one first. So 80 is obviously non-Compose coffee business. So Highlands Coffee is doing really well for us. And CBTL, we've taken price earlier and that was holding very well for us. So I think the contribution from those two actions, and then the balance or the bigger part, it's Q1 of last year, we didn't have those coffee margins from Compose. They're now in our P&L because they're a full quarter consolidated. As a separate point, on Compose, my point was we didn't take significant price to our franchisees. So our business model in Korea is mark up on our product rather than royalty-driven P&L.
And so we took a slight price adjustment, but we didn't take a significant price increase to match coffee bean price. But interestingly enough, it still held margins as well. If you were to compare like for like, from Q1 of Compose, even though it's not in our numbers, we still have access to their Q1 numbers. So I think that goes to say that I guess our mix was good as well. And we had a pretty good inventory going into Q1 as well. So I think it's a combination of all those three factors.
Thanks, Richard. Helpful. I guess, as a follow-up also to the franchisee pipeline questions, you did say that, despite, what looks to be, I guess, more uncertain U.S. economy, there seems to be, I guess, a healthy pipeline of franchisees, and that hasn't changed since the tariff uncertainty and whatsoever. I guess the suspicion is businesses would, yeah, okay. Just wanted to clarify that.
Yeah. And I'm going to say it this way, and it's not to really beat ourselves up, but we're not big. So KFC, 8,000 stores, we're 104 stores. So I think the advantage of smaller brands, like ourselves, when these macros come in, you don't get hit in the same way as you would if you were, let's say, one of the, you know, in terms of store count, one of the leaders like a KFC or a Popeyes. So, that's why we haven't seen any franchisees actually back off. In fact, we're seeing more franchisees knocking on the door. So we have those where MOU, what do you call it? Memorandum of Understanding, MOUs been signed already. And then we have those that are coming in with interest, but we haven't got to the MOU stage.
We're seeing a lot more of those new ones coming in U.S. interest. I think that's because of our box economics in the U.S.
All right. Thanks, Richard. Last question, if you don't mind. Jollibee U.S. same-store sales, obviously coming from 10+% last year. I guess not at the same clip that we've seen, previously. Any color in that? And, finally.
Yeah.
In April, any feedback on how Smashburger same-store sales are coming?
Yeah.
Yeah.
This reminds me of the student who gets straight A's and one B +, and I have to explain the B +, and I say that because the industry is softer, and when the industry is softer, but Jollibee's still giving you high single digits, for me, that's no different than a low double digit, it's kind of how we're looking at it, so we're extremely thrilled with North America's Q1. April, I knew you would ask this question. Somebody would ask this question, so in April, we're seeing 11.6%, sorry, let me get my notes right. 11.6% in system-wide sales and 8.8% in same- store sales, so we're seeing also another very strong April despite yeah, everything that's going on in the U.S.
Thanks, Richard. And for Smashburger, if you don't mind, since we're in the topic.
I always thought Q1 was going to be tough for us because of the timing of the change of management and things that were still clogged up in the pipe, if you will. Just as a small example, our chief marketing officer was let go in February, and then the new person came in March 31st. So I always knew Q1 would be what it is. But I think the amount of clarity they have now in terms of how to invest the dollar, what the single KPI is, and how to go after that. So again, being only 3% of our EBITDA contribution, I still think we have a bit of time on Smash to really correct course on this because there's a lot of other things that's going quite well in terms of the franchisee interest, non-traditional.
I've not seen numbers like this before where we're getting a lot of interest, so we just got to get the traditional and company-owned store bit but I think there's still light at the end of the tunnel, so we'll minimize so we're not over-investing in this brand, as you know, but we'll continue with leadership of Jim Sullivan and his new team.
Thank you, Richard. Thank you, Gio.
Okay. Thank you, John.
Thank you. I'll read a question from the Q&A box right now before we go back to the live Q&A. I'll just paraphrase this question a little bit. Coffee bean prices have gone up quite a bit over the past few months. When should we expect this to have an impact, I assume negative impact on margins, for the coffee business of Jollibee?
Yeah. So if we, they all have a slightly different pattern. So let me start with the easiest one. Highlands Coffee, we won't see the impact because our buy price has not gone up. And that's because we guarantee, we're bigger than the next four coffee players in Vietnam. So we're able to guarantee quantities. So that's the easier one. The rhythm and the way we buy coffee in CBTL and Compose Coffee is such that, and by the way, the price did come down. It went up again, then came down. So it's always going to be up and down and cyclical. So the way we're buying now, and I can't describe exactly the rhythm because I don't think I'm allowed to do that, but we buy it in a way that we don't hold too much inventory, but we don't hold too thin of an inventory.
That strategy at the moment, we don't do any paper hedges because those could be quite costly. The way we're doing that seems to be able to filter through. This has been around for, I would say, since 2024, we've felt the pressure, but we've been able to maintain our margins. I think it's the way we're buying and how much stock we're holding as well. We made some tweaks in one of the two businesses, but again, I don't think I'm allowed to give too much inside information on that piece. It's just the way we're running our business. We're very operationally smart about how much we hold. We use traders, we use third parties, we also use different forms of coffee ways to buy coffee because they're all quite different in terms of how we can hedge the price.
Okay. We'll take a question from Lonnie Yu. I'll unmute your line right now. Lonnie?
Hi, Lonnie.
Lonnie, can you hear us?
Hi. Can you hear me?
Yes.
Okay.
Hi, Lonnie.
Hi. Thanks, Richard. I just want to understand the system-wide sales of Compose, if you can help me, because on your Section 7, you're sharing the detail on the coffee and tea. So the system-wide sales for Compose in first quarter is 6.1. It's actually lower compared to fourth quarter, 6.7. So it would be great if you can highlight if there's any seasonal quarter or less number of day operation, why there's a drop, Gio.
Yeah. So there is definitely seasonality. So 60% of our Compose business is actually, sorry, 70, no, no, no, 80% of our Compose business is sold in a cold format.
Okay.
Around 60% is Iced Americano, which is our flagship, very profitable flagship. So in the month of January and February, Iced Americano consumption tends to come down a little bit. Now I know in fourth quarter we still have winter months, but it's slightly different. January February gets really cold in Korea versus somewhat cold in Q4. So I did see some seasonality coming through, some of our volumes from Q4- Q1.
Gotcha. So does it mean that in April we may see improvement in Q1, Q2, and it should continue into the July quarter?
Yes. Q3 probably will be our strongest as our summer month, starts to come in.
Okay. Great. Thanks.
Okay. Thank you.
Okay. Thank you. I'll read a couple more questions in the Q&A box. I think we have just a little bit of time there. This question is from an anonymous attendee. Is JFC planning to tap the bond or preferred share market this year to support its funding requirements?
Not to support our funding requirement, but we do have one. We have two senior bonds. They're $300 million denominated each, and one is coming due in January 2026. What we'll be doing, probably the second half of this year, is we'll make preparations like we did last year to make sure that we have a good refinancing. Our plan is to roll that out. I think it will be safe to say then the second senior, which comes due in 2030, I think it's safe to say then we'll consider options as to whether we just retire it rather than refinance it. We started our journey at $1.4 billion in various types of bonds. We're down now to $900 million, and we'll probably carry that into outer years, and then we'll see if it can even come down lower than that.
But again, it's just, you know, if we don't need it, then we can tap into term loans and other options as well.
Okay. That's clear now.
Okay. Thank you.
Maybe I'll read this last question if you don't mind, Richard. I guess this we'll take this last question from the Q&A box. I'll read it verbatim. Is there any risk that franchisees sign up slow down in the event of an economic downturn in the United States? What kind of commitments, i.e., length of contracts and stores do your North American franchisees take when signing up?
Yeah. I think this was covered, but I'll just highlight the points again. We're not a big brand in terms of network. We're only 104. What we've seen is beyond the MOUs that are signed, we're seeing actually the pipeline of interest getting even bigger, so the answer is no, we're not seeing slowdown, but what we want to make sure is we don't rush. We want to make sure we pick the right franchisees, so that we have, you know, some level of experienced franchisee, some level of deep financial capabilities to expand and grow.
I guess that's all we have time for this afternoon.
Okay.
Yeah. So, Richard, I'll hand it over to you to, if you have any final words, please.
Yeah. Sure. Thank you. Again, thanks everyone for attending. I know there's a lot going on in the market these days. As I said in Q4 and as I say in Q1, we're a growth company and we'll continue to deliver growth as you've seen the double-digit growth numbers. I think, you know, a company with a portfolio like ourselves also has an advantage to sort of weather through and hedge through some of the geographic challenges or category challenges, whatnot. Yeah, I think it's business as usual for us. We don't see a lot of terror in all the uncertainties. I think we've demonstrated whether through coffee bean purchasing or whether it's how we price out to consumers without really being overpriced. I think that comes with years and years of experience of the operation team, so all my colleagues.
So I want to give them a shout out as well. And so, yeah, thank you again for interest in JFC, and we'll continue to deliver very strong quarters.
Thank you, everyone. Thank you, Richard.
Okay. Thank you, Gio. Thank you, Cosette.
Thank you, John. Thanks, Richard.
Thanks, everyone.