Collins Foods announces strong FY22 result: Flags short-term margin hit

Collins Foods (ASX: CKF) was up 12.53% at the open after the restaurant operator of KFC, Taco Bell and Sizzler chains posted an 11.1% increase in revenue for the year ended 1 May 2022 to $1.1845bn with profit up 68.1% to $54.7m.

The company declared a fully franked final dividend of 15 cents per share (CPS), bringing the total dividend declared to 27 cents per share fully franked, an increase of 17.4% on the previous year.

Highlights of today’s full year announcement included:

• Underlying earnings (EBITDA) from continuing operations up 12.6% to $209.2m

• Statutory NPAT from continuing operations up 47.2% to $54.8m

• Underlying NPAT from continuing operations up 25.0% to $59.7m

• Operating cash flow $156.3m

The group remained self-funded during the year, enabling a slight reduction in net debt of $174.9m.

Higher prices

Drew O’Malley CEO notes while higher prices towards the end of its full year slightly reduced profit margins, the group is well positioned to manage through the current inflationary environment.

“The brands are in excellent shape to navigate this landscape… KFC Australia managed to deliver positive same store sales growth for the full year, despite cycling unprecedented growth in the prior year,” said O’Malley.

“We continue to amplify our strengths in convenience with further growth in digital, delivery and innovation, including the introduction of drone delivery and, more recently, UberEats.”

Operations

While revenue rose 6.1% across Australia’s 254 KFC restaurants (same store sales growth of 1.4% and underlying earnings up 3.5%), KFC Europe was the standout performer with the start of a corporate franchise agreement (CFA) in the Netherlands helping to boost revenue 41.2%.

Reflecting the addition of four new restaurants, Taco Bell revenue increased 27.5%.

While same store sales declined by -8.1% for the year, there was a noticeable improvement in the second half with a return to positive growth in the fourth quarter.

Sizzler Asia delivered 10.8% revenue growth and an earning profit of $1.7m.

Short-term margin compression

While menu pricing is factoring into the group’s efforts to offset margin pressures, management is focused on keeping value at the centre of customer appeal.

While some margin compression in the short-term appears unavoidable, in the mid-term management expect margins to recover.

The group is planning for 9 to 12 new KFC Australia restaurants and 2 to 5 new KFC Europe restaurants.

The group will also accelerate the Taco Bell rollout with 9 to 12 new builds, ensuring the brand remains on track to reach scale within 3 years.

“We continue to monitor the landscape for acquisition opportunities that fit our portfolio and capabilities,” management noted.

Collins Foods share price over 12 months.