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Restaurant Brands bets on new brands to drive future earnings growth

Friday 28th June 2013

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Restaurant Brands, New Zealand's largest fast food operator by sales, is betting on new brands such as burger chain Carl's Jr to drive future earnings growth in the nation's $2 billion fast food market and remains keen on adding new offerings such as Taco Bell.

The company opened its first two Carl's Jr stores targeting "hungry young guys" last financial year, and expects the eventual 40 outlets will match the $200 million of annual sales at its KFC chain in five to seven years' time, chairman Ted van Arkel said at the company's annual meeting in Wellington.

"It's going to be another powerhouse," van Arkel said. "If the right brand comes to us, to the table, we will add that to our stable as well."

Restaurant Brands is counting on new fast-food brands to drive future earnings growth and expects to have as many as 10 Carl's Jr stores by the end of this financial year. To improve profitability in its legacy businesses, the company is refurbishing and adding to its KFC outlets, which account for three quarters of sales, exiting low performing Pizza Hut stores and closing its worst performing Starbucks Coffee outlets.

"The success of Restaurant Brands going forward is absolutely dependent on us making Carl's Jr the same sort of powerhouse that KFC is," said director David Pilkington, who was re-elected for a final term at the meeting. "Pizza and coffee don't have the ability to do that, burgers have."

New Zealanders spend more than $2 billion a year on fast food, which is increasing by 5 percent every year. Beef burgers make up the largest part of that spend, accounting for about a third of sales, and Restaurant Brands is betting there is room in the market for Carl's Jr, its first beef offering.

The company "would seriously consider" bringing Mexican food chain Taco Bell here, van Arkel said. Restaurant Brands discussed the possibility with Yum! Brands, which also owns KFC, Pizza Hut and Starbucks, about three years ago but Yum didn't want to extend the brand at that stage, he said.

There are no signs at the moment that Yum has changed its mind, he said.

Restaurant Brands expects first half profit and full year profit to be ahead of last year, van Arkel said. The company will provide more detailed forecasts when it releases first-half earnings, he said.

The outlook reiterates the company's comment on April 4 that annual profit would be higher than the $16.2 million for the 2013 financial year.

"Last year provided us with a challenging economic environment and the new year has not yet seen a significant improvement," van Arkel said. "Customers are still not opening their wallets in any meaningful manner and the completion for their dollar remains as intense as ever."

Still, "all signs are that the economy is heading in the right direction," he said. "We are hopefully optimistic. We just want to see a few more months under our belt in this financial year."

Shares in Restaurant Brands rose 2.5 percent to $2.83, taking their gain this year to 4.6 percent.

BusinessDesk.co.nz

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