Waning consumer appetite for KFC takes a bite out of Collins Foods profit

The nation’s biggest KFC and Taco Bell operator has posted a $26.4 million slide in half-year profit in yet another sign of Australians’ waning demand for fast food amid the cost-of-living crunch.

Collins Foods is the owner of 285 of the 750 KFCs in Australia, as well as 27 Taco Bells, including all four in WA.

The company on Tuesday revealed that while revenue ticked up 1.2 per cent to $703.5m in the 24 weeks to October 13, net profit tumbled 52.1 per cent to $24.1m.

The negative results sent shares down 4.3 per cent to $8.25.

Collins Foods said the higher revenue was achieved against the backdrop of a challenging consumer environment impacting same store sales and persistent inflation weighing on margins.

“Whilst trading results reflected the impact of adverse consumer conditions, Collins Foods continued to generate strong cash flows and ended the period with lower net debt, leaving it with significant capacity for investment in growth opportunities,” it said.

At KFC Australia, sales improved slightly from the prior year’s $522.9m to $536.8m, which the company attributed to six new restaurants added in the first half.

But underlying earnings before interest, taxes, depreciation and amortisation fell 3.1 per cent over the year to $102.2m, with “sales growth not being sufficient to offset continued wage, energy and input cost inflation”. Same store sales declined 0.1 per cent in the half.

Meanwhile, Taco Bell posted a 2 per cent drop in revenue to $24.6m.

“Taco Bell continues to focus on everyday value at $5 and $10 price points, which improved key value metrics,” it said.

“Top reasons for customer repurchasing were great tasting food and good value for money.”

KFC Europe was the worst performer for the group, with revenue falling 3.4 per cent to $142.1m across its 74 stores.

This reflected what it described as ongoing soft consumer sentiment and affordability issues arising from cost-of-living pressures.

Collins Foods said sales in the first seven weeks of the second half reflected the continuation of a weaker consumer environment in Australia and Europe, as well as the conflict in the Middle East.

KFC Australia’s total sales increased 3.9 per cent at the start of the second half, while KFC Europe was down 1.6 per cent.

“The outlook for commodities has improved in Australia with some product categories expected to see slight deflation, although labour and energy costs remain elevated. Costs in Europe are stabilising, including labour,” the company said.

Providing its guidance for the financial year, Collins Foods expects underlying EBITDA margins to be in the range of 14.2 per cent and 14.7 per cent, compared with fiscal 2024’s 15.4 per cent.

The group this financial year expects to add three restaurants in Australia and four in the Netherlands.

Citi analyst Sam Teeger said the trading update for the first seven weeks of the second half showed incremental improvement, but the environment remained challenging.

“The combination of a better than expected result, Collins Foods having the lowest multiple of the major quick service restaurant-listed companies, and a more constructive cost outlook could lead to more investors becoming interested in the stock,” he said.