The Collins Foods Ltd (ASX: CKF) share price is under the spotlight today after announcing it was going to exit Taco Bell.
Collins Foods is best known as a KFC franchisee operator in Australia and Europe. It also has a relatively small Taco Bell franchisee business too.
Taco Bell exit
Collins Foods announced it has decided to exit its Taco Bell business. Discussions are currently underway with Taco Bell International about a potential transition of the business to new ownership.
The company intends to complete the transition within the next 12 months, subject to formal terms being agreed.
Collins Foods will give another update, including estimated exit costs, as the exit progresses. If a new operator can’t be identified, or an agreement can’t be reached, other exit options will be explored.
KFC update
The company said Australia remains highly profitable – it will continue pursuing growth both same store sales growth and new restaurant openings.
Yum! Brands and Collins Foods have entered into an agreement to accelerate strategic growth in Germany, which has a market of over 80 million customers and only 207 KFC restaurants. It’s targeting between 40 to 70 new KFC restaurant openings across Germany in the next five years. Yum! has granted exclusivity to operate KFCs in certain trade areas in Germany where it already operates, which account for approximately 35% of the German population. Potential acquisitions will be considered to support faster scaling.
In the Netherlands, cost-of-living pressures, labour inflation and development constraints have impacted the fast food industry, according to Collins Foods. It’s going to focus on lifting same store sales and cost efficiencies, review and optimise the existing restaurant portfolio, and reconsider its short-term development plans. An impairment expense of between $25.5 million to $32.7 million is expected. Collins Foods wants to ensure sustainable profitable growth.
The company also announced a number of management changes, including the departure of both the CEO of its Europe division and the chief operating officer of KFC Australia.
Final thoughts on the Collins Foods share price
It’s a shame that the food company wasn’t able to make its Taco Bell plans work, but closing it could lead to stronger profits in the medium-term and hopefully the longer-term. The acceleration of growth in Germany sounds good to me. However, I’m not sure if this is the best opportunity on the ASX, but I think it could deliver pleasing returns in the next two to three years, if demand rises after an improvement in the cost-of-living situation (hopefully).
