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Collins Foods (ASX:CKF) share price soars on strong FY23 result

The Collins Foods Ltd (ASX: CKF) share price has jumped 12% after releasing a good sales update.

This business operates KFC outlets in Australia and Europe, as well as Taco Bells in Australia.

FY23 result

Here are some of the highlights from the 12 months to 30 April 2023:

  • Revenue excluding Sizzler Asia rose 14.2% to $1.35 billion
  • Underlying EBITDA (EBITDA explained) decreased slightly to $205.1 million.
  • Underlying net profit after tax (NPAT) dropped 12% to $51.9 million
  • Statutory net profit from continuing operations sunk to $11.3 million (down from $54.1 million), including an accounting impairment of $36.7 million for Taco Bell
  • Total annual dividend of $0.27 per share, same as last year

The company blamed inflation for its lower profitability. But, it’s working on it and trying to protect transaction volumes, though margin headwinds are “expected to remain for much of next year”, but they are expected to start to subside.

KFC Australia, the key division, saw revenue growth of 10% to $1.05 billion, with same store sales growth of 5.8%. Underlying EBITDA declined from $206.9 million to $201.6 million.

KFC Europe saw a 31% jump in revenue to $249.5 million, with same store sales increasing by 13.9%. Underlying EBITDA grew from $27.6 million to $32.8 million over the year. Ongoing growth here could be key for the Collins Foods share price.

Taco Bell revenue rose 36.1% to $48.7 million, but same store sales declined 4.8% and it made an underlying EBITDA loss of $1.5 million. Management want to return this brand to growth – it’s focusing value marketing campaigns on ‘iconic’ Taco Bell products, and it’s going to use higher-quality core ingredients.

Outlook for the Collins Foods share price

All business units have reported positive same store sales growth, with KFC growth of 8.8% in Australia, 9% in the Netherlands, 12.4% in Germany and 2.1% for Taco Bell.

Margin pressures are expected to persist for much of FY24, though it has “initiatives” in place to address this. It’s going to focus on the long-term, prioritising brand health and value for consumers.

A further nine to 12 Australian outlet new builds are expected for FY24. It’s continuing to scale its European footprint, particularly in the Netherlands, it is aiming for 130 net new restaurants by 2031. It thinks there’s plenty more growth potential in Europe, with potential acquisitions.

I think Collins Foods shares have a compelling future as it grows same store sales and its store outlet numbers, particularly if it can make Taco Bell into a relative success. The decent dividend yield is also an appealing return-booster.

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