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Highlights
Collins Foods sees its shares slide 8% in early trade following weak results.
Revenue up 1.2%, but profit drops 23.8% as inflation impacts margins.
Company lowers interim dividend by 12% to 11 cents per share.
Collins Foods Ltd (ASX:CKF), the operator of KFC and Taco Bell franchises in Australia and Europe, has faced a challenging six months, with its shares falling as much as 8% in early Tuesday trading. While the stock has since recovered slightly, it remains down by 3% at the time of writing, following the release of its disappointing half-year results.
Mixed Financial Results Reflect Tough Conditions
The company reported a modest 1.2% increase in revenue from continuing operations, which reached $703.5 million. While this growth is encouraging, it was largely driven by the Australian market, with European operations showing signs of weakness. Collins Foods' KFC Australia business posted a 2.7% rise in revenue to $536.8 million. However, the European segment saw a decline, with revenue from KFC Europe falling by 3.4% to $142.1 million. The Taco Bell business also struggled, reporting a 2% decrease in revenue to $24.6 million.
Despite the slight revenue increase, Collins Foods' underlying EBITDA (earnings before interest, taxes, depreciation, and amortization) from continuing operations dropped by 6.6% to $102.7 million. This decline was primarily due to the ongoing inflationary pressures and flat same-store sales (SSS), which negatively impacted margins.
The company’s net profit after tax also fell sharply, dropping 23.8% to $23.7 million, driven by lower EBITDA and higher depreciation costs as the company expanded its store footprint.
Dividend Cut and Cash Flow Strength
As a result of the weaker profit performance, the Collins Foods board decided to reduce its fully franked interim dividend by 12%, lowering it to 11 cents per share. Despite the lower profits, the company continues to generate strong cash flows, which has enabled it to reduce net debt during the half-year period. The management team believes this positions the company well for future growth opportunities, with significant investment capacity moving forward.
Outlook for the Second Half
Looking ahead, Collins Foods' management noted that sales trends during the first seven weeks of the second half continue to reflect a challenging consumer environment, both in Australia and Europe. In Australia, KFC total sales increased by 3.9%, although same-store sales were more modest, up just 0.8%. Meanwhile, KFC Europe's total sales declined by 1.6% during the same period.
Management has provided a cautious outlook, forecasting an underlying EBITDA margin range of 14.2% to 14.7% for the full year. This is slightly below the first-half margin of 14.6%, reflecting ongoing challenges in both regions.
Despite these challenges, Collins Foods’ CEO, Xavier Simonet, expressed optimism about the future. He highlighted the resilience of the company’s business and brands, noting that they operate in a strong and attractive market. Simonet added that the company is well-positioned to benefit once consumer confidence improves.
In summary, while Collins Foods’ half-year results were disappointing, the company remains optimistic about its long-term prospects. Investors will be hoping that the second half of the year sees an improvement in consumer sentiment and that the company can navigate the ongoing inflationary pressures to return to stronger growth.
