Shares in the fast food chain operator Collins Foods (ASX:CKF) jumped 10% to $10.30 on Tuesday after the company lifted its dividend following a very solid revenue and earnings performance in its 2023-24 financial year.
The final dividend was increased by half a cent to 15.5 cents per share, making a total of 28 cents per share for the year, compared to 27 cents per share the year before when the interim dividend was lifted to 12.5 cents per share.
Collins reported that revenue from continuing operations was up 10.4% to $1.488 billion. Underlying EBITDA from continuing operations rose 12% to $229.8 million, and underlying net profit after tax from continuing operations was up 15.6% to $60 million.
However, it seems that 2023-24 was as good as it gets for a while. It is clear from the commentary that the closing months of the year to April 28 saw a slowing in momentum, which has continued into the opening weeks of 2024-25.
"As expected, trading conditions were softer in the second half given the dual impacts of inflation across all input lines and weaker consumer sentiment," directors said.
That’s perhaps why the initial enthusiasm among investors eased after realizing just how much the momentum had shifted.
"Sales in the first seven weeks of FY25 reflected the continuation of a weaker consumer environment in Australia and Europe, as well as the lapping of strong growth in the prior year. In addition, the conflict in the Middle East has continued to impact sales, particularly in the Netherlands.
"KFC Australia's total sales increased 1.5% during the period, with same-store sales partially impacted by short-term cannibalisation from the addition of new restaurants, down 0.8%.
"Total KFC Europe overall sales remained relatively stable, down 0.1% in the first seven weeks, with same-store sales down 2.3% in the Netherlands and 2.8% in Germany.
"Taco Bell's positive momentum has continued into the new fiscal year with same-store sales up 0.6%." That growth, though, was down from 3.5% in the year to April 28.
Given the dramatic change, the performance in 2023-24 and the accompanying commentary is now just history. Like many other companies in the consumer space, it's now all about battening down the hatches.
CEO Kevin Perkins was realistic about the change in circumstances, saying in Tuesday’s outlook:
“Significant cost-of-living and inflationary pressures are expected to remain for much of the year ahead, impacting sales growth, and we expect margin pressure across the Group.
"Encouragingly, we are seeing commodity prices stabilising further. However, labour and energy costs remain elevated globally.
"While we are confident margins will recover as trading conditions improve, we also recognise the importance of maintaining brand health to ensure our mid and longer-term success.
"Our consistent approach to everyday affordability and product innovation will continue in FY25 – key pillars of the strategy that have enabled us to weather the challenging macro environment better than many of our peers.
"At the same time, the strong operational expertise of our management team will continue to find efficiencies across labour, supply chain, and energy."
Despite these challenges, Perkins remains confident that growth can still be found, even through M&A activity.
"Current conditions remain challenging; however, they have not dampened our enthusiasm for growth.
"We're continuing to grow our KFC network with Australian expansion in FY25 expected to be a little ahead of our development agreement commitment, and a number of new restaurants are planned for the Netherlands.
"We're also exploring and evaluating M&A opportunities for KFC in existing markets as well as complementary new geographies. Alongside our expanding KFC footprint, modernising our portfolio will drive continued growth through digital and delivery channels and elevate customer experience.
"And we're continuing to work with Taco Bell International to improve the foundations of our Taco Bell business, solidifying its position as a genuine QSR alternative within the fast-growing Mexican category.”
This optimism references the recent success of the Guzman y Gomez IPO on the ASX last week.
