Famous Brands to focus on fast food
Famous Brands, which says it is seeing progress in the turnaround of its disastrous acquisition of Gourmet Burger Kitchen, is intensifying its focus on home delivery and online ordering to benefit from shifting consumer behaviour during the December period.
Famous Brands, which says it is seeing progress in the turnaround of its disastrous acquisition of Gourmet Burger Kitchen (GBK), is intensifying its focus on home delivery and online ordering to benefit from shifting consumer behaviour during the peak December trading period.
There had been an outperformance of takeaway and fastfood outlets at the expense of restaurants and coffee shops, reflecting their perceived convenience and value proposition, the company said as it reported a 4% fall in operating profit to R405m in the six months to end-August.
Revenue was flat at R3.6bn, with Famous Brands reporting pressure on its supply chain division in SA, where operating profit declined 19% to R207.7m.
The disappointing performance is a reflection of weaker sales and sustained low food inflation, which restricted opportunities to increase prices, the company said.
In the lead-brands segment, which includes Debonairs, likefor-like sales grew 7.1%, which Famous Brands CEO Darren Hele described as encouraging in light of sustained economic pressure on consumers.
“We are not expecting trading conditions to improve, but we are hoping for a much better peak season,” Hele said.
Like-for-like sales figures exclude the effects of new restaurants and closed restaurants over the period.
The company’s like-for-like sales were likely to be sustainable going into the festive season, Mergence Investment Managers equity analyst Nolwandle Mthombeni said.
“Famous Brands has the largest and most diversified portfolio in SA, which allows it to capture a proportionate share of even the slightest improvement in industry growth, and this December spending season is projected to be better than the prior year,” she said.
The group’s struggling GBK business in the UK is seeing progress in its turnaround, Famous Brands said, though revenue decreased 7% to R640.7m during the period. This was largely due to a closure of seven stores during the period under review, bringing the total to 24 during the review process.
The company reported dinein sales declined, while online and delivery sales grew strongly, supported by promotional activity. It said like-for-like store sales after the period’s end were positive.
While the outlook remained challenging, and heightened competition would temper revenue growth in the medium term, Famous Brands looked well positioned to defend market share given its investment in technology and homedelivery capacity, said an associate portfolio manager at Kagiso Asset Management, Dirk van Vlaanderen.
“While the potential return to profitability and reduced cash drag [at GBK] is encouraging, we struggle to see how Famous Brands will ever earn a suitable return on capital on this investment,” said Van Vlaanderen.
Hele said the company believed the worst had passed in terms of its struggles with GBK, though risks posed by Brexit persist.
Famous Brands declared an interim dividend of 90c for the period, having opted not to do so in the previous comparative period, when it wrote down its GBK business by R874m.
Group financial director Kelebogile Ntlha said the company is “cautiously optimistic” that it has put GBK’s impairments behind it, though further financial tests will be conducted at the group’s year-end.