Famous Brands’s earnings rebound

Impairment of UK burger chain in prior period allows Steers and Wimpy owner to rebound

Famous Brands, the owner of Steers, Wimpy and Debonairs Pizza, said on Friday that interim earnings to end-August would rebound, as it continues to try putting problems at its struggling Gourmet Burger Kitchen behind it.

Famous Brands, the owner of Steers, Wimpy and Debonairs Pizza, says interim earnings to end-August would rebound, as it continues to try putting problems at its struggling Gourmet Burger Kitchen (GBK) behind it.

Basic earnings per share were expected to be 143c-175c for the period, up to a 131% improvement compared with the prior period’s 572c loss per share. The rebound was largely due to the R874m impairment of UK restaurant chain GBK in the prior comparative period.

In 2018, GBK had initiated a company voluntary arrangement (CVA) process with the assistance of Grant Thornton. The process, unique to the UK, is used by financially distressed businesses to renegotiate their leases and help them reach agreements or compromises with creditors.

In a voluntary update released in September, the group said system-wide sales for its GBK business decreased 12.5% during the period. This reflected the closures it is carrying out as part of its company voluntary arrangements to right-size these operations.

System-wide sales refer to sales reported by all restaurants across the network, including new ones opened during the period. However, like-for-like sales rose 8.6%, against a decline of 9.7% in the previous year.

In its SA operation, systemwide sales grew 6%, while likefor-like sales rose 4%, the company said at the time.

Its signature brands division, which incorporates the likes of Tashas and Vovo Telo, grew 14% on a system-wide basis, reflecting the opening of a number of new stores.

Like-for-like sales increased by a more subdued 1.4%

Mergence Investment Managers equity analyst Nolwandle Mthombeni said on Friday the September update does seem to indicate a stabilisation of the UK business, though it would take a number of financial reports to get a clear indication of a concrete turnaround.

REPORTING PERIODS

“I think investors should have at least three reporting periods on consistent improvement to able to regain confidence,” Mthombeni said.

“Two more periods of positive like-for like-sales would be an indication of that.”

The company’s share price was up 1.53% to R79.50 at 10.30am on Friday, paring its year-to-date loss to 18.16%.

Like a number of other consumer-facing businesses, Famous Brands has said that difficult trading conditions have persisted across its markets, amid subdued consumer sentiment and intense competition and margin pressure.

Grand Parade Investments, the owner of the Burger King franchise in SA, said in September it had experienced a 27% rise in revenue from continuing operations in its year to endJune, though it noted economic conditions had deteriorated during the period.

Spur said that in its year to end-June, franchised restaurant sales had risen 6.2%, though the group’s main middle-income customer base was under strain.

I THINK INVESTORS SHOULD HAVE AT LEAST THREE REPORTING PERIODS ON CONSISTENT IMPROVEMENT TO REGAIN CONFIDENCE