KFC operator Collins Foods’s shares soar on profit rise

Australians are not letting higher interest rates, utility bills or cost of living pressures get between them and a KFC bucket, driving sales and profit up.

Shares in Collins Foods, which operates KFC fast-food restaurants across Australia and Europe, climbed more than 11 per cent on strong first-half sales and profit growth that beat market expectations.

Collins Foods, which also is rolling out Taco Bell stores in Australia, said the Mexican themed fast-food brand – which had initially struggled leading to a $36.7m impairment last year – had returned to sales growth in the first half with its Taco Bell stores posting a loss of $100,000 but which was down from the $800,000 loss reported in the first half of 2023.

Europe is now the ASX-listed Collins Foods’s strongest market with first-half revenue jumping more than 36 per cent and underlying profits up by 53 per cent led by strong consumer demand at its stores in Germany and the Netherlands, to encourage the company to look for more openings to add to its 72 stores in the region.

KFC restaurants have proved popular in Australia as cost of living pressures sees diners seek out value meals at fast-food chains. Picture: Mick Tsikas/AAP Image

Meanwhile, while inflation remains an issue, the fast-food operator said it managed to protect its margins while also maintaining the trust of consumers who were looking for good value meals as household budgets were crimped.

It said on Tuesday that sales for the first six weeks of the second half were up 2.9 per cent in Australia, up 8.1 per cent in the Netherlands and up 8.6 per cent in Germany. Taco Bell continued its positive trajectory with same store sales up 8.7 per cent.

Inflationary pressures would continue to impact the business, with labour and now energy the most notable areas of cost growth.

“We expect consumer pressures to remain high over the coming year. Despite these and various operational headwinds, we remain focused on our sustainable long-term growth plans, and continue to invest in new restaurants, digital and design innovation, and the customer experience to improve accessibility,” said Collins Foods chief executive Drew O’Malley.

“Initiatives across supply chain, energy, and operations will continue to mitigate margin pressure in the short-term and strengthen our efficiency and sustainability efforts in the long-term.”

Inflationary pressures are still hitting KFC, and are set to continue into 2024.

On Tuesday, Collins Foods, which operates 270 KFC stores in Australia as well as 72 in Europe and a growing Taco Bell network in Australia, said interim net profit soared to $50.5m from $11m a year earlier. The jump was helped by the impairment booked against Taco Bell last year.

Revenue for the 24 weeks to October 15 rose 14.1 per cent to $695.1m as the company declared an interim dividend of 12.5c per share, payable on December 28, up from 12c.

Investors celebrated the stronger performance, higher dividend and positive outlook for the fast-food operator despite the challenges of a slowing economy and cost of living pressures, sending Collins Foods shares up more than 11 per cent to $11.24. It later closed up 91c at $11.01.

“Our approach to value has continued to deliver solid topline, same store sales, and earnings growth across the group. This was underpinned by the strength of our world-class brands, our growing digital channels, and value credentials. As higher cost-of-living pressures continue to impact consumers, offering great tasting food that provides exceptional value has never been more important,” Mr O’Malley said.

Sales at its KFC Australia business rose 9 per cent to $522.9m, as underlying earnings jumped 11.1 per cent to $105.5m. Same store sales climbed 6.6 per cent, driven by growth in digital and delivery, as well as a range of e-commerce channels such as its app.

At its network of KFC stores in Europe, revenue jumped 36.5 per cent to $148.5m as underlying earnings soared 53 per cent to $20.2m.

“Our KFC network will continue to expand, and we are building our organic growth pipeline in the Netherlands whilst monitoring the broader European landscape for acquisition and development opportunities.”

At its burgeoning Taco Bell stores in Australia, which had been underperforming and was impaired in last year’s accounts, revenue rose 18.9 per cent to $25.1m to report an underlying loss of $100,000, against a loss of $800,000 last year.

“We are encouraged by Taco Bell’s return to positive same store sales and its current trajectory. The brand is benefiting from the impact of improved product quality, successful marketing campaigns, and a relentless focus on value. We are also leveraging collaborations with popular brands such as Vegemite to enhance local appeal and introduce new consumers to Taco Bell.”

Jarden analyst Ben Gilbert said the quality of the results was good and beat earnings expectations by around 6 per cent.

“Good result, with margins the highlight for us as management continue to manage mix and costs well. Expect to see modest consensus upgrades on the back of the stronger result ... with expectations here plus ability to continue margin growth into the second half.”

Originally published as KFC operator Collins Foods’s shares soar on profit rise