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Restaurant Brands posts flat 1H earnings, sees better second half

Thursday 17th October 2013

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Restaurant Brands New Zealand, which operates four fast food chains, posted flat first half earnings, but said an improvement in the second half would see full-year earnings rise as much as 7.3 percent.

Profit excluding non-trading items was $8.8 million in the 28 weeks to Sept. 9, in line with the year earlier, the Auckland-based company said in a statement. An improvement in the second half will see full-year earnings of between $18 million and $19 million, up from $17.7 million a year earlier, the company said.

Restaurant Brands is attempting to boost profitability by refurbishing stores at its main KFC fried chicken chain and exiting its worst performing Pizza Hut and Starbucks Coffee stores while bringing on board a new Carl's Jr burger chain.

"The ongoing challenges in the retail environment have continued to suppress margins," the company said. "Whilst there has been some improvement, trading conditions remain challenging and the quick service restaurant market continues to see heavy price discounting."

Profit in the first half rose 41 percent to $9.7 million as the company gained $1.5 million from the sale of two KFC stores which it then leased back. Non-trading items added a total $1.1 million to the latest earnings, compared with a loss of $2.9 million in the year earlier period.

Shares in Restaurant Brands rose 0.7 percent to a week high of $2.88, having gained 8.3 percent this year.

The company's KFC outlets, which contribute 84 percent to total store earnings, are expected to maintain positive sales growth and will aim to raise margins in the second half. In the first half, KFC earnings before interest, tax, depreciation and amortisation slipped 4.4 percent to $22.8 million as the company introduced a lower value $1,2,3 menu range to boost sales amid strong competition in a soft market. Sales rose 1.4 percent.

Pizza Hut is forecast to maintain current margins in the second half while continuing to reduce its current network of 52 stores. Earnings rose 88 percent to $3.1 million as sales gained 2.7 percent, despite having 11 fewer stores.

The Starbucks Coffee chain is expected to hold its current sales and margin in the coming half. Earnings were little changed at $1.4 million in the first half as sales slipped 2.9 percent, reflecting the closure of five stores compared to the year earlier period. Still, excluding store closures, sales rose 4 percent.

The Carl's Jr burger outlets, which Restaurant Brands introduced in November 2012, are on track to begin returning positive margins in the second half of the year. The company opened three stores in the first half, taking total numbers to five, and plans to open a further three in the second half.

"All stores have opened with very strong initial sales and have settled back to sales volumes at levels slightly higher than KFC," the company said.

Carl's Jr posted a $200,000 loss in the half, reflecting start-up costs, on sales of $6.6 million.

Restaurant Brands reduced debt by $4.6 million in the half, cutting total borrowings to $10.2 million.

It will pay a dividend of 6.5 cents a share on Nov. 22, unchanged from a year earlier.

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