Good results for Famous Brands

DESPITE UK WOES: OVERALL INTERIM REVENUE UP 5.4% SA and Middle East continue to benefit from upward social mobility.

Despite recognising an impairment at group level two weeks ago, Famous Brands has posted firm results with headline earnings per share up 10.6% and revenue up 5.4% for the six months ended August 31, 2018.

Famous Brands cautioned that it had incurred R874 million in impairments for the six months, adding pressure on the stock as investors remain wary of the UK investment.

In a statement, the group said delivery and online ordering remained key drivers of growth due to their perceived appeal as convenient and less expensive.

SA and the Middle East also continued to benefit from the upward social mobility of the population, the relatively young demographic profile of consumers and growing urbanisation.

The UK market remained marred by uncertainty from the Brexit process that is set to weigh on both consumer spend and UK high street restaurant chain Gourmet Burger Kitchen’s (GBK’s) underperformance.

“Our primary challenge in the UK will be to re-establish GBK’s gold standard across the entire value chain and customer journey and ensure the business is optimally structured to manage ongoing trading challenges,” Famous Brands said.

Macroeconomic headwinds also pose a threat, with the franchisor citing a lack of traction in key growth areas mall traffic and the delivery component.

GBK registered a 2.9% dip in revenue for the six months ended August 31, with Wimpy, surprisingly, registering a 18.2% gain in revenue to R57 447 000 .

“Wimpy’s target market is slightly different and when you think about the UK, the more premium top end of the sector, quite simply they’re just spending less often,” said chief executive Darren Hele.

“Middle to mainstream income, however, has the same frequency and Wimpy has a much smaller presence in terms of the upper-income market.”

In light of the headwinds in the UK market, Famous Brands outlined a range of strategic imperatives and corrective measures, including a targeted refurbishment and high street brands simplifying the menu design.

“Come the end of February 2019, we would have done around 250 revamps,” says Hele.

He noted the role of store earnings before interest, depreciation and amortization contribution (Ebida) in informing decisions to close six store.

“If it is not contributing to Ebida or the rent cost is lower than the Ebida contribution, then that would be the metric to close the store.” No dividend was declared. Michael Treherne, a portfolio manager with Vestact said: “As it stands, the market was not expecting a dividend from Famous Brands. They haven’t paid one since 2016.

“There is no doubt that more people would buy the stock if there was a dividend, though. I’m confident that in years to come, we will know Famous Brands as a healthy dividend payer again.”