Famous Brands sales grow 6.7% even as losses from UK’s GBK more than tripled

SOUTH AFRICA – Famous Brands, JSE listed and Africa’s leading quick-service franchisor has reported 6.7% growth in sales despite a loss from Gourmet Burger Kitchen (GBK) which more than tripled in the UK, Business Day has reported.

In its voluntary performance update issued on August 16, the casual dining restaurant chain said GBK would contribute a loss of US$2.55mn to its interim results for the six months to end-August.

In the interim results to be announced on October 29, strong performance is expected from its South African and rest of Africa and Middle East (AME) operations.

According to the firm, the results would be stronger than those reported in the prior comparable period.

Leading brands’ system-wide sales rose 6.6%, with like-for-like sales up 3.6% while signature brands’ system-wide sales increased 7.5%, with like-for-like sales declining by 2.9%.

Leading brands include Steers, Debonairs Pizza, Wimpy, Mugg & Bean, Fishaways, Milky Lane, Fego Caffé and Wakaberry and signature brands range involves Europa, Giramundo, The Bread Basket, Juicy Lucy, Brewers Guild and McGinty’s.

Unrealistic returns and UK losses

Famous Brands ventured out of its South African heartland with the US$144mn GBK deal in 2016 shortly after the UK voted to leave the EU.

The update read in a statement: “Famous Brands is giving consideration to strategic options relating to a subsidiary that may have a material impact on the price of the company’s share price.”

In May, the fast-food franchises said it expected to report a US$9.21m operating loss from the UK acquisition of Gourmet Burger Kitchen (GBK) in the 2017 financial year.

Decline for GBK is estimated to be at 35% over the past years and Famous Brands related this to consumer strain’ for GBK in the UK.

The UK chain is losing market share to other UK premium-burger chains as well as competition from online delivery platforms which are winning over customer preferences.

In September, CEO Darren Hele said he saw difficult post-Brexit trading conditions persisting for at least the next 18 months.

An analyst at Avior Capital Markets said: “This is less of a Brexit recovery story now and more a story of fighting for share in an oversupplied commoditised burger market.”

“GBK is starting to affect Famous Brands’ South African cash flows, so it may make sense to sell GBK, although I’m not sure who would buy it.”