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Restaurant Brands raises annual profit forecast; shares jump to a record

Thursday 23rd October 2014

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Restaurant Brands New Zealand, the nation's largest fast food operator, raised its annual profit forecast as it benefits from lower input costs, higher sales and restructuring of stores. The shares rose to a record.

Full-year profit, excluding the sale and leaseback of stores, will exceed $22 million, the Auckland-based company said in a statement. That's higher than the company's $20 million forecast in April and the $18.9 million posted last year. The company's shares jumped 5.7 percent to $3.70, making them the best performer on the benchmark NZX 50 Index.

Restaurant Brands today said first-half profit rose 19 percent to $11.5 million as a 9.1 percent gain in revenue outpaced a 6.8 percent increase in the cost of goods sold. Gains in profitability across its KFC fried chicken chain, Pizza Hut oulets, Starbucks Coffee stores and burger chain Carl's Jr helped the group profit margin rise to 17 percent from 15.5 percent a year earlier.

"As planned, the hard work in building internal efficiencies under last year's pricing pressures has put the company in a good position to benefit from the sales improvements with better market conditions," the company said. "This, together with some reductions in input costs, has produced a corresponding improvement in brand margins."

Restaurant Brands will pay a 7.5 cents-a-share dividend on Nov. 21, an increase from 6.5 cents in the year earlier period.

In the first half, the company's KFC unit boosted earnings before interest, tax, depreciation and amortisation 15 percent to $26.2 million. KFC sales increased at their fastest pace in four years, up 6.1 percent to $137.1 million, as the business benefited from an improving retail environment, higher advertising spending and some successful promotions including the return of 'Hot 'n Spicy', some new 'Double Down' variants and rugby sponsorship.

KFC's profit margin jumped to 19.1 percent from 17.7 percent as the business benefited from more competitive input prices, particularly in chicken, and better operating leverage from higher sales volumes. The company expects KFC to maintain similar margins in the second half, it said.

Restaurant Brands has said it plans to pick up the pace of KFC store upgrades this year as it targets a complete revamp of the network in the coming two years. It said the pace picked up in the first half, with the transformation of five stores compared with just one in the year earlier period. At the end of the first half, some 76 of the 90 KFC stores were either new or revamped with another five scheduled for completion in the second half. The five transformed stores has shown positive same-store sales growth on reopening, it said.

The company has been selling its regional and lower volume Pizza Hut stores to independent franchisees. It had 49 stores at the end of the first half, three fewer than the year earlier period, with a total of 35 stores now sold to independents. The sale programme is continuing at a slower pace, with a further two to three stores expected to be sold by the end of the financial year, it said.

The Pizza Hut chain increased earnings 4.5 percent to $3.3 million in the first half, even as sales slipped 0.3 percent to $26.5 million as it traded with three fewer stores. The pizza chain's margin improved to 12.3 percent from 11.8 percent, reflecting improved sales leverage and tight operational costs and will likely maintain current margins, the company said.

Earnings at the company's Starbucks chain jumped 46 percent to $2.1 million in the first half as sales increased 1.9 percent to $13.2 million. The coffee chain's profit margin increased to 15.5 percent from 10.9 percent after it closed unprofitable stores and benefited from a higher New Zealand dollar and store efficiencies. The company had 26 stores at the end of the first half, two fewer than the year earlier.

Starbucks is expected to hold sales and margin at their current levels for the balance of the year, the company said.

Carl's Jr, the company's newest chain, turned to a profit of $100,000 in the first half, from a loss of $200,000 in the year earlier period as sales rose 34 percent to $8.8 million. It now has nine stores, four more than the year earlier period, and expects to open two more stores in the second half.

The burger chain's profit margin improved to 1 percent from negative 2.6 percent a year earlier and the company said margins will continue to improve in the second half as local sourcing of raw materials and operational efficiencies are phased in.


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