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COVID-19 causes Sizzler to shut, are Collins Foods (ASX:CKF) shares worth a bite?

Collins Foods Ltd (ASX: CKF) has taken the difficult decision to shut down Sizzler Australia.

Collins Foods is/was the operator of Sizzler Australia restaurants around Australia. It’s also the franchisor of Sizzlers in Asia. It’s also a KFC franchisee in Australia, the Netherlands and Germany. Collins Foods is also a franchisee of Taco Bells in Australia.

Sizzler Australia shuts

Collins Foods announced this morning that its nine remaining Sizzlers will permanently close by 15 November 2020.

The company said that Sizzler has been hit hardest by COVID-19 because of its casual dining concept but it hasn’t rebounded like KFC and Taco Bell have. Revenue and earnings have been slow to recover and it’s been operating at a loss since the onset of COVID-19. Before the crisis, it was cashflow positive.

Its store in NSW, and its stores in QLD and WA will all shut. These are company-owned leasehold sites and due for renewal over the next four months, so lease break costs will be minimal.

Sizzler’s employees have been offered “appropriate” redundancy packages and access to support. It wants to redeploy people to its KFC and Taco Bell network.

Collins Foods will continue to licence the Sizzler brand in Asia.

The company said it couldn’t see a path to profitability for Sizzler. It accounted for less than 3% of total FY20 revenue. The closure will minimise future losses, but there will be one-off closure costs in the upcoming result.

Summary

It’s always tough to see closures. Collins Foods operates to make money, so a loss-making subsidiary would need to be closed.

I think Collins Foods is a defensive idea for this COVID-19 period, particularly whilst restaurants and cafes don’t get much activity. More KFC and Taco Bell outlets should grow earnings and the dividend over time. But I like the look of other ASX dividend shares even more like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) which I wrote about here.

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At the time of publishing, Jaz owns shares of WHSP.