Tawanda Karombo
Restaurant group Famous Brands says it is beginning to benefit from improving South African economic conditions, including interest rate cuts, easing inflation, and a rise in foot traffic as more employees return to offices — despite ongoing pressure on consumers from high unemployment and rising household debt.
Darren Hele, CEO of Famous Brands, said on Wednesday that South African “consumer spending is constrained due to high unemployment, household indebtedness, and elevated inflation” in recent years.
Moreover, the online betting and gambling industry was also increasingly competing for a share of consumers’ discretionary spend.
Nonetheless, Famous Brands is seeing strong tailwinds that include “easing inflation, interest rate cuts and increased return-to-office traffic” which is “boosting restaurant” activity although basket sizes remain under pressure.
This was mainly because of depressed consumers continuing to seek value in an increasingly competitive environment. This includes “competition from supermarket retailers’ rapid delivery” offerings that are proving to be popular with consumers.
The company now has 3 800 restaurants in SA and 19 other countries, including in the region and the United Kingdom.
For Famous Brands’ leading brands category in SA, sales increased by 6% for the half year to the end of August. The company said restaurant sales for the category had been boosted by an uptick in local tourism and increased traffic resulting from return-to-office mandates.
Shares in Famous Brands appreciated by 1.46% in afternoon trade on the JSE on Wednesday to R56.44 while it has traded 8.02% and 3.11% in the past seven and 30 days respectively.
The company’s quick serve restaurants “performed strongly due to their competitive value offerings, successful promotions and prudent cost management” strategies.
Overall revenues in Famous Brands for the half year firmed up by 5.6% to R4.2 billion compared to the previous year while operating profits increased by 5.8% to R393 million.
Famous Brands’ interim operating profit margin was 9.3% compared to 9.2% a year earlier, with headline earnings per share (HEPS) springing up by 8 to 236 cents. Basic earnings per share (BEPS) for the same period were up by 6.8% to 236 cents compared to last year.
Market analyst Anthony Clark said: “The interim results from Famous Brands indicate a glimmer of hope after an extended period of weak consumer trading have hit results for some time. But scratch beneath the surface of results and look at the segmental breakdown and metrics and the picture is not so rosy, it’s rather lacklustre still”
“Sustained consumer preference for our South African leading brands portfolio, particularly for the QSR brands, led to robust revenue growth, which in turn lifted the performance of our manufacturing and logistics. In addition, we experienced strong growth in our brand footprint,” explained the company.
In the retail division, Famous Brands performance was “subdued,” with the company pursuing operational efficiencies and cost containment initiatives, including the opening of its own cold storage facility in June.
The new facility is expected to raise capacity, reduce transport costs and result in savings from more energy-efficient refrigeration technologies.
During the period under review, Famous Brands invested R140 million in capital expenditure, with capital allocated in line with the company’s strategy.
It has thus declared an interim dividend of 162 cents per share amounting to R162m in total, to be paid from profits for the period. Last year Famous Brands paid a 150 cents a share interim dividend.
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