Restaurant Brands provides tasty result for shareholders

Russel Creedy
Russel Creedy
Recent acquisitions have helped push Restaurant Brands’ profits higher and provided shareholders with a higher dividend on the previous corresponding period.

The operator of KFC, Pizza Hut and Starbucks reported total sales of $386.1 million for the 28 weeks ending September 11, up $129.9 million on the first-half sales in the previous period, or 51%.

The reported group profit after tax was up 41.3% to $19.1 million from $13.5 million and the dividend was 10c for the period, up from 9.5c.

Forsyth Barr broker Suzanne Kinnaird said the profit was largely underpinned by recent acquisitions.

The normalised profit of $20million, up 20%, was below expectations and reflected weaker  margins in both KFC New Zealand and Australia.

Despite a glowing report from Restaurant Brands chief executive Russel Creedy, Forsyth Barr adopted a disappointed tone when reviewing the half-year operations.

For KFC New Zealand, the key driver of group profit, the operating profit of $35million was up 5.7% on the pcp but 2% below expectations, Ms Kinnaird said.

Margins were weaker than expected at 20.5% but remained healthy and ahead of the company’s targets of 19% to 20%.

"The company comments its new format Auckland KFC store has significantly outperformed expectations. It is early days but this bodes well for the new format stores which are expected to be rolled out in other central city locations to support the footprint growth assumptions in our model."

Mr Creedy said the Fort St store was customised for a central city environment and had no drive-through facility. It was expected to be the prototype for similar central city stores.

In its other operations, Restaurant Brands reported a weaker than expected result in its three smaller New Zealand brands, Ms Kinnaird said.

Little detail was provided but Pizza Hut margins were significantly weaker than the pcp, Starbucks was modestly better and Carl’s Jr continued to take longer than expected to build its business.

For KFC Australia, operating earnings of $10.6 million were 4% below expectations, reflecting weaker than forecast margins at 14.7%.

Margins showed an improvement on the second half of last year (14.4%), although they were still below the stellar 2017 first-half result of 16.6%.

The first-time profit contribution from Hawaii of $12.7million compared well with Forsyth Barr expectations of $13million.

Pizza Hut showed significant pressure from value-led promotions, rising labour costs and higher commodity prices.

Taco Bell was performing ahead of earnings provided at the time of the acquisition. One store had been transformed in the market to date, showing an impressive result  of 60% same-stores sales growth, she said.

Mr Creedy said Taco Bell was a new brand for the group and was performing well. Total sales to date were $US36.6 million ($NZ51.1 million) and store level operating  profit was $US7.2 million, 19.6% of sales.

The company had embarked on a KFC-style  store rebuilding and refurbishment strategy for theTaco Bell stores.

Restaurant Brands was also embarking on an asset refurbishment strategy for Pizza Hut Hawaii which would be a move away from the larger restaurants into smaller, more cost-effective delivery and carry-out units, he said.

"The current strategies across all geographic markets are delivering positive results. The acquisition of the Taco Bell and Pizza Hut brands in Hawaii has made a pleasing contribution in the first period of ownership. The strong performance of the KFC brand in Australia and New Zealand is expected to continue in the second half."

The group was forecasting a tax-paid profit for the 2018 financial year of $40 million, Mr Creedy said.


At a glance

• Half-year sales up 51%

• Operating profit up 44%

• Brokers disappointed with margins and growth

• Full-year profit forecast of $40million

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