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Restaurant Brands faces earnings halve due to weak sales growth and rising costs in 2023

Restaurant Brands (ASX:RBD), the NZ-based fast food chain operating across the Pacific, issued a disappointing trading update, attributing weak sales growth and increasing costs for a significant decrease in expected earnings for 2023.

According to the company’s announcement on both sides of the Tasman on Monday, net profit after tax for 2023 is now projected to be in the range of $NZ12 to $NZ16 million. This stands in stark contrast to the reported net profit of $NZ32 million in 2022, representing a decline of nearly $NZ20 million from the previous year.

The impact of global inflationary pressures, especially concerning rising ingredient and wage costs, has weighed heavily on profits. The inflationary environment has continued to evolve, and the company’s performance is significantly affected by ongoing input cost increases in the New Zealand business, surpassing earlier expectations. Additionally, lower-than-expected sales growth in California and Hawaii has further contributed to the earnings downturn.

Given the prolonged and heightened impact of these factors, the company anticipates a weaker recovery in the second half than initially projected. Despite implementing strategic price increases and cost control measures to alleviate margin pressures, the company has been unable to fully offset the input cost increases through price adjustments.

For the June quarter, sales increased to $NZ331.6 million, marking a growth of $NZ22.1 million (+7.1%) over the equivalent period last year. This improvement reflects the ongoing recovery from the 2022 COVID-19 Omicron outbreak and the price increases implemented across all markets. Year-to-date sales reached $NZ640.2 million, indicating a 9.4% increase compared to the previous year. The overall sales growth was supported by the inclusion of 10 new stores (bringing the total to 377 stores) and the strengthening US dollar compared to the equivalent period last year.

Jose Pares, Chairman of Restaurant Brands New Zealand Limited, expressed regret over the adjustment, acknowledging it would be disappointing for shareholders. However, he assured stakeholders that the company is diligently managing these short-term challenges and has full confidence in the new leadership team’s ability to deliver on their strategy and provide long-term shareholder value.

Restaurant Brands currently operates 376 stores, including KFC and Taco Bell locations, with over 11,900 employees across New Zealand, Australia, California, and Hawaii. Despite facing challenges, RBD shares have shown resilience, recording a 6.4% year-to-date increase on the ASX, closing at $A6.29 on Friday.