Shares in KFC chain Collins Foods (ASX:CKF) surged on Tuesday following an impressive start to the 2023-24 financial year, despite concerns over rising inflation costs.
While analysts expressed satisfaction with the results, CEO Drew O’Malley highlighted the delayed effect of inflation, which is expected to put pressure on margins throughout the coming year.
Collins Foods reported a significant decline in net profit, with a 77% slide to $12.7 million for the year ending April 30, compared to $54.8 million in the previous year.
Nevertheless, the company’s shares rose by more than 8% in early trading.
The decline in net profit was largely attributed to the impact of rising labor costs, which eroded profit margins. Additionally, the company faced $37 million in one-off impairments related to its 28 Taco Bell outlets in Australia, where same-store sales fell by nearly 5% during the year.
In addition to the Taco Bell outlets, Collins Foods operates 272 KFC fast-food outlets in Australia, along with 64 outlets in the Netherlands and Germany.
Analysts welcomed the news that same-store sales at KFC in Australia had increased by 8.8% during the first seven weeks of the new financial year, surpassing last year’s rise of 5.8%.
The company reported a 14.2% growth in group revenue from continuing operations, reaching $1.349 billion for the year. According to the company, this growth was observed across all business units.
However, statutory EBITDA from continuing operations decreased to $197.9 million from $207.5 million in the previous year, while underlying NPAT from continuing operations dropped to $51.9 million from $59.0 million.
Collins Foods will pay a steady fully franked final dividend of 15.0 cents per share, maintaining a total dividend of 27 cents for the full financial year.
CEO Drew O’Malley stated, “While short-term profitability has been impacted by inflationary pressures, our long-term growth plans remain on track. We will continue to prioritize delivering exceptional value across our brands to enhance customer retention and engagement.”
He further added, “We are implementing initiatives in energy, supply chain, marketing, and pricing to manage cost inflation across the Group. These measures will help mitigate inflationary pressures, protect transaction volumes, and support the long-term health of our brands. Although margin challenges are expected to persist for the next year, they have not altered our long-term growth plans and outlook.”
A notable achievement for Collins Foods was the revenue generated by KFC Australia, which exceeded $1 billion for the first time. This figure represents a 10% increase compared to the previous year’s 5.8% rise in same-store sales.
However, EBITDA decreased to $201.6 million from $206.9 million, as the company’s margins could not fully withstand the cost pressures experienced throughout the year.