The Collins Foods Ltd (ASX: CKF) share price is under the spotlight after the business announced that it’s selling 20 of 27 Taco Bell restaurants.
Collins is a large franchisee operator of KFC outlets in Australia and Europe. It’s also the franchisee operator of Taco Bell in Australia.
Sale of Taco Bell restaurants
The fast food business announced to the ASX that it has entered into a legally binding conditional agreement to transition 20 of the 27 Taco Bell restaurants currently operated by Collins Foods to an affiliated company of Taco Bell (part of YUM! Brands) and Restaurant Brands Australia.
Those businesses propose to operate the Taco Bell business going forward under a new partnership arrangement.
Collins Foods said that this is an important step to exit Taco Bell so it can focus on its core brand, KFC and its key markets – Australia and Europe, particularly Germany.
The purchase price will include a “nominal amount” plus the value of stock and cash floats, with the new owners assuming the lease liabilities from completion for the 20 restaurants.
Also included will be the employees who accept offers of employment from the new owners, and net operating loss coverage – Collins Foods will be paid for any net operating losses and necessary capital expenditure incurred for the 20 restaurants from 1 April 2026 to completion.
Why is it conditional?
Completion of this deal is subject to the purchasing parties finalising the terms and the establishment of the partnership arrangement.
It’s also subject to landlord consent, store-based employment threshold and ACCC clearance.
Completion of the deal isads expected to occur between June and August 2026, depending on regulatory approval timelines.
Remaining restaurants
Collins Foods noted that the other seven restaurants are not transitioning and will be closed in the coming works.
The ASX fast food share is working with multiple interested parties with a view to assigning the leases with these sites to new tenants.
Losses and cash outflows relating to these seven will be “extinguished once assignments of leases have been executed”.
No further royalty or advertising contributions will be payable on any Taco Bell restaurant from 1 April 2026.
Closing the final seven restaurants is expected to lead to one-off costs of between $1 million to $2 million.
Final thoughts on the Collins Foods share price
The Collins Foods share price is down 20% in the last six months. I think this could be a good time to look at this business for the medium-to-long-term.
Exiting Taco Bell will increase its profitability and allow it to focus more on profitable growth in Europe where there is significant potential.
The higher inflation could cause a problem in the short-term for consumer demand, but I think the lower valuation makes this a great time to invest. I’d say it’s one of the leading ASX dividend shares and ASX growth shares to watch because of its growth plans in Europe.
