The Collins Foods Ltd (ASX: CKF) share price is down 11% after the company gave the market a FY24 trading update.
Collins Foods operates KFCs and Taco Bells in Australia, and KFCs in Germany and the Netherlands.
FY24 update
Collins Foods said in the first 16 weeks of FY25 (to 18 August 2024), total sales had grown by 1.1%. However, the profit benefit of higher sales was more than offset by the impact of persistent inflation on its cost of sales, labour and energy.
In the first 16 weeks, total KFC Australia sales were up 2.5% and total KFC Europe sales were down 1.8%.
Same store sales (SSS) have been impacted by weaker consumer sentiment in Australia and Europe. In the first 16 weeks, Collins Foods SSS was negative 0.3% for KFC Australia, negative 2.6% for KFC Netherlands, negative 4.5% for KFC Germany and flat for Taco Bell (Australia).
The FY25 first half margins are expected to fall compared to HY24. The HY25 EBITDA margin is expected to reduce in the range of between 1.3% to 1.6% (the FY24 margin was 15.8%). The underlying EBIT margin is expected to decrease in the range of 1.5% to 1.8% (the FY24 margin was 8.8%).
Collins Foods reassured investors that it remains “highly cash generative and has a strong balance sheet, ensuring it can invest in growth opportunities domestically and in Europe as they arise”.
Management commentary
The Collins Foods interim CEO and Managing Director Kevin Perkins said:
Current conditions remain challenging for consumers. This, and the impact of continued cost inflation, albeit moderating, will impact H1 margins.
However, the fundamentals of our business remain strong. Collins Foods will continue to provide value and affordability for our customers and protect the long-term health of our trusted brands. While timing is uncertain, Collins Foods is well-positioned to take advantage of improved consumer conditions when they emerge.
Final thoughts on the Collins Foods share price
It’s disappointing for shareholders that this update has come – it seemed like the business had managed to recover from the high-inflationary period a couple of years ago.
I believe this is a long-term opportunity to buy shares while the business valuation is low. Its expanding network is a compelling tailwind. Hopefully the SSS can return to positive figures during the course of FY25. I think it could be one of the more attractive ASX dividend shares to buy now.
