SIZZLER A DRAG ON COLLINS

Written on the 25 June 2013

SIZZLER A DRAG ON COLLINS

COLLINS Foods (ASX: CKF) boosted revenue 4.4 per cent to $423.9 million last year, the company announced today in its full-year results.

Net profit after tax (NPAT) was $16.4 million, down from $18.4 million the previous year. Statutory NPAT was better, with net profit growing from $11.4 million.

Earnings before interest, tax depreciation and amortisation (EBITDA) were $47.2 million, down from $51.1 million the previous year.

The operator of KFC and Sizzler in Australia largely achieved the increased profit through $6.8 million in savings in administration costs as sales growth was offset by increased operating costs, which the company blames on the carbon tax.

Margins were also squeezed as consumers opted for value deals ahead of premium menu options.

KFC contributed $318.2 million to revenue, an increase of 5.5 per cent on PCP, with same-store sales down 1.8 per cent to 4.2 per cent. Sizzler added $105.6 million and same-store sales went backwards by 2.4 per cent.

The company added two new KFC restaurants to its portfolio and refurbished a further eight.

Collins foods managing director and CEO Kevin Perkins says it is a strong result, considering the increase in utility costs driven by the carbon tax, and in line with market expectations.

“It has been pleasing to see our KFC stores returning to same-store sales growth and performing above last year’s levels in what remains a subdued retail environment,” says Perkins.

“Whilst that environment has driven KFC customers increasingly to value deals, we have been able to generate real and sustainable sales growth with minimal cannibalisation of existing sales.”

Sizzler isn’t faring as well as its sister chain and Perkins says price sensitivity and relevance are affecting sales in the highly-competitive casual dining market.

“In Sizzler, specific strategies have been developed to improve value perceptions, involving menu changes and choice and will be rolled out in the coming months,” says Perkins.

“We are reviewing the Sizzler format, restaurant layout and design to achieve a cost efficient and ‘investable’ model, to develop an economical store formula that delivers improved profitability.”

The company has moved to improve efficiency and productivity in its restaurants by reducing energy consumption, labour costs and food wastage. KFC is trialling digital menu boards, tandem drive throughs and online ordering.

“The benefits of a number of operational initiatives aimed at improving efficiency are beginning to emerge and we expect that these will help to stabilise margins going forward,” says Perkins.

“We expect the positive sales trend for KFC to continue and have a solid pipeline of new restaurants and refurbishments planning for the coming year which should support further growth.”

Collins will pay a fully franked final dividend of 5.5 cents per share (CPS), bringing FY13 fully franked dividend to 9.5 CPS, up from 6.5 CPS in FY12.

Late this afternoon CKF shares were trading down 2.42 per cent at $1.61 per unit.


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