The Collins Foods Ltd (ASX: CKF) share price is in focus after the fast food business reported a challenged HY25 result.
Collins Foods is a large franchisee operator of KFCs in Australia and Europe. It also operates Taco Bells in Australia.
Collins Foods FY25 first-half result
Here are some of the highlights from the six months to 13 October 2024:
- Revenue from continuing operations rose 1.2% to $703.5 million
- Underlying EBITDA from continuing operations dropped 6.6% to $102.7 million
- Underlying net profit declined 23.8% to $23.7 million
- Statutory net profit fell 52.2% to $24.1 million
- Net operating cashflow down 8.4% to $75.3 million
- Dividend per share down 12% to $0.11
Collins Foods reported that KFC Australia revenue rose 2.7% to $536.8 million, KFC Europe revenue declined 3.4% to $142.1 million and Taco Bell revenue dropped 2% to $24.6 million. During the period, the business opened six new Australian KFCs.
The company explained its profit was impacted by flat sales, inflation of labour and energy costs, and higher depreciation related to new builds and remodels.
Pleasingly, the business noted its net debt had reduced by $14.1 million to $158.9 million, due to strong cashflows, creating “greater investment capacity”.
Trading update
A trading update could be as influential on the Collins Foods share price as the result itself.
In the first seven weeks of the second half of FY25, KFC Australia total sales were up 3.9% with same store sales (SSS) growth of 0.8%, representing a “continuation of the gradual improvements in sales trends during HY25”.
Total KFC Europe sales were 1.6% lower in a “soft” fast food sector, with SSS down 3.5% in the Netherlands and 0.4% in Germany.
Taco Bell’s overall sales were flat in the first seven weeks of the FY25 second half, with SSS down 1.4%.
Collins Foods said the outlook has improved in Australia, with some product categories expected to see slight deflation, though labour and energy costs remain elevated. It said costs in Europe are stabilising, including labour.
The company expects to add seven new restaurants over the rest of FY25, with three in Australia and four in the Netherlands.
Is the Collins Foods share price an opportunity?
I think the market was largely expecting this result, so it wasn’t a big negative.
If earnings rebound when the Australian and European economic picture improves, then the Collins Foods share price could be an underrated buy right now.
However, there is a lot of competition in the fast food sector, so we can’t expect Collins Foods will become an extremely profitable business. But, it does help that the company continues to grow its network, giving it scale benefits.
I’d call it a higher-risk idea, but this would be the right time to pounce, for interested investors. Other ASX growth shares could be even better choices though, which aren’t facing profit challenges.
