Is Famous Brands giving up on GBK?
Gourmet Burger Kitchen is costing the company R2 million a week.
The business is losing nearly R2 million a week.
The situation at Famous Brands’ UK mess, Gourmet Burger Kitchen (GBK), is getting worse.
Last week, after the market closed, the group published a “voluntary performance update” in which it revealed that like-for-like sales for the five months to end-July had plummeted by 10.6%. This was certainly not the plan. The group says GBK “underperformed the board and management’s expectations”.
On Friday, the group said it “is giving consideration to strategic options relating to a subsidiary that may have a material impact on the company’s share price”.
There is no conceivable way that these two announcements are not linked.
Given how it has weighed on the share price since last year, GBK is the only subsidiary where “strategic options” could be material.
The 10.6% decline is stunning when looked at in context. Considering that the company had targeted six “distressed” restaurants for closure this year, it means the stronger, established part of the portfolio is really struggling.
And, since acquisition, the likefor-like sales declines have been accelerating. Also, this period is the first since Famous Brands acquired the businesses where system-wide sales are also in decline – surely the result of a store rollout programme that has all but ground to a halt.
In the performance update, Famous Brands says GBK posted an operating loss of £2.24 million in the 22 weeks. Last year the loss was £680 000, meaning it has more than tripled. At R17:£1, the operating loss for the five months is nearly R40 million – it’s losing almost R2 million a week.
The update says: “We are mindful that GBK’s contribution to group profitability has taken longer than initially anticipated, hampered by the adverse trading environment.”
The question that needs to be asked is whether Famous Brands now believes it has the skills and patience to fix what can only be described as a disaster. In May, it certainly believed it did.
As recently as two months ago, Famous Brands CEO Darren Hele told the Financial Mail that “We are fighting it out”.
The numbers released last week tell another story altogether. How could the situation have changed so fundamentally in the past three months? That’s unlikely – meaning that management either didn’t understand the extent of the problem or how to fix it.
It’s unclear what these “strategic options” are, but you can be sure that there’ll be private equity vultures circling GBK’s carcass.