Collins Foods Limited Reports 1.2% Revenue Growth, Expanding KFC and Taco Bell Networks

About Collins Food Limited

Collins Foods Limited (ASX: CKF) is a leading operator in the quick service restaurant (QSR) industry, with a portfolio that includes KFC and Taco Bell franchises across Australia and Europe. The company focuses on the development, operation, and management of high-quality restaurant networks, ensuring exceptional customer experiences. Collins Foods is dedicated to growing its presence through both new restaurant openings and strategic remodels while also driving innovation through product offerings and digital sales channels. The company was listed on the ASX in 2011 at an issue price of $2.47 and has established a strong market position within the QSR sector.

Financial Performance

For the half-year ending 13 October 2024 (HY25), Collins Foods reported a 1.2% increase in revenue to $703.5 million compared to $695.2 million in the prior year (HY24). Despite this modest growth, the company faced challenges, particularly in the context of a tough consumer environment and persistent inflationary pressures, which impacted margins and same-store sales (SSS). The group experienced a 0.1% decline in SSS for KFC Australia, contrasting with a solid 6.6% growth in the same period last year. These trends were reflected across both regions, with KFC Europe also experiencing a softening in consumer sentiment, leading to a 3.8% decline in SSS compared to a strong 8.8% growth in the previous corresponding period.

Underlying EBITDA from continuing operations for the half-year was $102.7 million, a 6.6% decline from the previous year, while underlying NPAT decreased by 23.8% to $23.7 million. This decline was attributed to the lower EBITDA and higher depreciation due to an expanding store footprint. Despite these pressures, the company maintained a strong cash flow, with a net debt reduction to $158.9 million from $173.0 million in HY24, further strengthening its balance sheet.

Collins Foods’ statutory NPAT for HY25 was $24.1 million, a significant drop from $50.5 million in HY24, which was inflated by a one-time gain of $20.2 million from the sale of Sizzler Asia. Despite these headwinds, the company’s cash conversion remained robust at 108%, underscoring its operational efficiency and resilience in the face of challenging conditions. The board declared a fully franked interim dividend of 11.0 cents per share, down from 12.5 cents per share in the prior year, in line with the lower earnings but reflecting the company’s commitment to shareholder returns.

Growth Opportunities and Strategic Developments

Collins Foods is focused on leveraging its strong operational platform to drive future growth. The company continues to expand its restaurant network, having added six new KFC restaurants in Australia in HY25, bringing its total to 285 across the nation. In addition to this, 22 existing KFC locations were remodelled, with seven receiving significant upgrades to improve the customer experience, operational efficiency, and overall capacity. These expansions and remodels aim to position Collins Foods for growth as consumer confidence recovers in the coming years.

Strategically, the company is increasingly leaning into digital channels, which accounted for 33.7% of KFC Australia’s sales in HY25, up from 28.1% in the previous year. This digital growth is underpinned by continued expansion of app usage, kiosk rollouts, and delivery channels. The ongoing investment in digital technology not only provides enhanced customer convenience but also drives revenue growth and operational efficiencies. Digital channels have proven essential for improving customer engagement and capturing market share, particularly in the competitive QSR sector.

Collins Foods is also concentrating on maintaining and expanding its market share in both Australia and Europe. Despite the softer consumer environment in Europe, KFC continues to hold a dominant position in the market, with product innovation and value offerings driving consumer engagement. In particular, KFC Europe’s focus on offering new products, such as the “Beter Leven” Boneless Zinger, and enhancing its digital experience has been central to sustaining brand strength in the face of declining sales in some regions.

In Australia, KFC’s marketing initiatives have included campaigns such as “Christmas in July” and partnerships with major sports leagues like the Big Bash League and the National Rugby League. These initiatives, coupled with value-focused product launches, such as the $9.95 Packed Lunch and $24.95 Boneless Dinner, aim to strengthen the brand’s appeal across diverse customer segments, reinforcing Collins Foods’ position as a market leader.

Taco Bell, although facing challenges with a 0.3% decline in SSS for HY25, remains a strategic focus for Collins Foods. The company is investing in expanding Taco Bell’s footprint and improving customer engagement through geographical marketing and new product offerings. Taco Bell’s drive-thru and delivery options have seen success in certain regions, particularly Victoria, demonstrating the importance of convenient, high-quality locations in driving consumer traffic.