Famous Brands reports decline in profits amid struggling UK Business

SOUTH AFRICA – Famous Brands, South African restaurant franchisor, posted 5% decline in gross profit to US$246.02 million (R3.6bn) for the year ended February 2019 amid its struggling Gourmet Burger Kitchen (GBK) business.

GBK, a restaurant chain in the United Kingdom specialising in gourmet burgers, has been a drag on the group’s profits as a result of poor trading conditions mainly due to uncertainty around Brexit.

Despite reporting a marginal 2% rise in revenue to US$492.05 million (R7.2bn), the owner of the Steers, Wimpy and Debonairs Pizza brands, reported 5% decline in operating profit before non-operational items to US$58.07 million.

The group said headline earnings per share dropped 19% to 319 cents, highlighting economic and political uncertainty in its major markets, both locally, in the lead up to the national government elections, and in the UK.

“Across these markets, the trading environment was characterised by restrained consumer discretionary spend and negative sentiment, while keen competitor activity intensified margin pressure.

In South Africa, weak economic conditions were exacerbated by country-specific risks,” the company said.

Famous highlighted technological advancements as a major cause a strategic shift in the industry “evidenced by the rapid growth of online ordering and door-to-door delivery services in our sector”.

Famous Brands has a portfolio of 25 restaurant brands, represented by a network of 2,871 operations across Africa, the Middle East (AME) and the United Kingdom.

The business is segmented into Leading brands and Signature brands, strategically positioned to appeal to a wide range of consumers across the income and demographic spectrum and across meal preferences and value propositions.

The Leading brands are categorised as quick service, fast casual and casual dining. “Our network comprises 2,761 franchised and 110 company-owned operations,” it said.

“Given the subdued economic environment, our expansion programme was measured and conservative. We opened 162 restaurants and revamped, relocated or converted 260 sites,” the group said.

“Over 850 of our SA restaurants have now enabled online ordering via web or app. We also introduced driver-tracking technology and expanded our delivery offering to over 2 000 drivers on all major delivery platforms,” Famous Brands said.

Looking ahead, the group said that it is unlikely that local or global trading conditions will improve materially in the short term, “but the efforts made this year to restructure our business to withstand adverse conditions should hold us in good stead”.

The group said its goal is to open 187 restaurants in the new financial year, while 308 revamps are planned.

“This programme will however be determined by an improvement in trading conditions,” it stressed.

Famous Brands is home to numerous casual-dining and fast food chains in South Africa including Steers, Wimpy, Debonairs, Mugg & Bean, Tashas, Salsa, Mythos, and Turn n Tender.

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