Collins sinks on Taco Bell hit, bad outlook

SHARES in Collins Foods have collapsed almost 20 per cent after the fast food operator issued an earnings warning and paused the rollout of its Taco Bell chain in Australia amid sinking sales.

The company, which owns KFC stores in Australia and Europe as well as Sizzler stores in Asia, had previously lauded Taco Bell as a new growth engine for the business.

Collins Foods’ net profit for the 24 weeks to October 15 slumped 58.2 per cent to $11m as revenue rose 15 per cent to $614.3m.

Revenue growth was largely offset by inflationary pressures in energy, labour and food costs, Collins Foods said. In addition it had an $11.9m impairment on the Taco Bell brand during the half-year. Collins Foods shares tumbled 19.8 per cent to $8.05, making it the worst performer on the ASX 200 on Tuesday. The company declared a flat 12c-ashare interim dividend.

But the company warned that, for its KFC Australia network of stores, additional supply cost pressure was now expected to compress full-year earnings before interest, tax, depreciation and amortisation (EBITDA) margins into the range of 15-16 per cent. Additional menu pricing and procurement initiatives were expected to mitigate further cost inflation into the 2024 fiscal year, though full margin recovery may extend into the 2025 fiscal year and beyond.

For the first six weeks of the second half of the 2023 financial year, KFC Australia sales were up 5.6 per cent.

In Taco Bell, same-store sales were in decline in the first half, down 7.8 per cent, and down 8.5 per cent for the first six weeks of 2023.