No Sizzle In Collins Foods

By Glenn Dyer | More Articles by Glenn Dyer

Collins Foods (CKF), the KFC franchisee and target of a failed board shake-up earlier this year, reported an interim loss of $23 million after impairing the value of its struggling Sizzler chain.

The company told the ASX yesterday that falling sales at Sizzler had forced the write-down totalling $36.5 million.

The worsening situation at Sizzler has been apparent for some time, so the write-down and loss didn’t come as a shock to investors who marked the shares up 1.3% to $2.27 at the close.

While revenue rose an impressive 29.6% to $256.7 million in the six months to October 12 and underlying earnings before interest and tax jumped 49% to $19.5 million, there was an easy answer to that performance, and it wasn’t Sizzler or KFC for that matter.

It was the $55 million acquisition of Jack Cowin’s 42 KFC stores in Western Australia and the Northern Territory last November.

Sizzler’s earnings plunged 59% in the six months as same-store sales fell 8.4% and total sales fell almost 10%.

But the company’s new chief executive, Graham Maxwell, said the chain was showing some signs of recovery after Collins had “refreshed” stores and menus.

“While it is still early days, the results thus far are encouraging,” he said, citing a solid lift in sales at two renovated stores.

CKF YTD – Sizzler drags on Collins Foods

But the future position of Sizzler in the company’s portfolio remains under question. “Overall revenue for the first half of the year for Sizzler Australia was below expectations," Collins Foods said.

Sales at Sizzler have fallen each year since Collins Foods listed on the ASX in 2011.

Collins will complete a strategic review of the Sizzler chain after assessing the impact of the refurbishments, new menus and a new summer marketing campaign, and will update investors in the early by April 2015.

Judging by the comments yesterday it’s likely the 26 store chain will remain in the company’s portfolio.

Mr Maxwell said the Sizzler impairment charge – which reduced Sizzler’s book value to $38 million – had no impact on funding covenants or dividends.

The company is the biggest KFC franchisee in Australia and the $22.9 million loss was down from a $6.2 million profit in the first half of the 2013-14 year.

Sizzler’s woes cloaked a solid performance from the KFC business.

Sales in the 128 KFC outlets in Queensland operated by Collins Foods were up 3%, while the 42 KFC restaurants Collins Foods recently bought in the Northern Territory and Western Australia posted 4.3% sales growth.

That helped drive the 43% rise in underlying profit for the half to $10.7 million.

As always, the board’s dividend policy tells us something about the real performance and position of a company.

In the case of Collins the board increased its interim dividend 11% to five cents a share, so they see a solid outlook.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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