Famous Brands’ fancier restaurants are still losing money

Famous Brands’ efforts to restore profitability in its signature brands portfolio have yet to bear fruit, with revenue declining and the operating loss widening in the six months ended August.

The restaurant group, owner of niche dining offerings including Mexican Grill and Turn ‘n Tender, said on Wednesday it had introduced measures to address the portfolio’s performance. However, signature brands’ revenue fell 8.4% to R95m, while its operating loss widened to R9m from R7m a year ago.

Famous Brands is facing pressure on restaurant sales in several markets, even as its leading brands portfolio at home continues to expand.

Signature brands’ system-wide sales, which include sales from all restaurants in the network, fell 5.1%. Like-for-like sales, which exclude restaurants opened or closed during the period, dropped 0.9%.

The portfolio’s overall sales fell, while sales at restaurants operating throughout the comparison period also weakened.

Results at the group level also reflect pressure on profitability. Revenue increased 2.3% to R4.3bn, but operating profit fell 4.7% to R375m. The operating profit margin narrowed to 8.6% from 9.3% a year earlier.

Maintaining operational efficiency and cost discipline, including careful consideration of our investment decisions and timing, will protect earnings quality and support sustainable growth—  Famous Brands

HEPS for the half rose 3.2% to 228c, and the group declared a shareholder payout of 170c a share, up from 162c a year earlier, supported by stronger free cash flow.

The weaker results from signature brands contrast with the performance of the group’s leading brands portfolio in South Africa, which includes staple names Wimpy, Debonairs and Steers.

According to Famous Brands, leading brands South African revenue increased 2.5%, boosted by system-wide sales growth of 2.7% and the opening of 36 restaurants. Like-for-like sales, however, grew by only 0.8%.

The group’s supply chain business recorded stronger operating profit despite lower manufacturing volumes. Revenue increased as distribution volumes benefited from bringing Coca-Cola and frozen retail product distribution in-house.

In contrast, the signature brands portfolio remains an area that requires corrective action. The group said it had taken steps to restore the portfolio to profitability, including changes to management and reductions in costs.

Famous Brands said it remained focused on executing its strategy while operating constraints persisted. It also highlighted the need to maintain operational efficiency and cost discipline.

“Maintaining operational efficiency and cost discipline, including careful consideration of our investment decisions and timing, will protect earnings quality and support sustainable growth. We will continue to balance shareholder distributions, share buybacks, debt repayment and investment in the growth of the business,” it said.