Famous Brands works to turn the corner on its UK misadventure

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Famous Brands says sales at its UK chain, Gourmet Burger Kitchen, are picking up despite a constrained environment. Picture: FAMOUS BRANDS

Wimpy, Steers and Debonairs Pizza owner makes progress with bid to turn around UK business, but things remain tough at home

Famous Brands — owner of Steers, Wimpy and Debonairs Pizza — says its results for the six months to end-August are satisfactory, despite a slump in sales at Gourmet Burger Kitchen (GBK) as it continues to close stores.

But analysts say there may be “pockets of hope” in the group’s efforts to turn around its embattled UK-based GBK business.

In a voluntary update released on Wednesday, the group said systemwide sales for its GBK business decreased 12.5%. This reflected the closures it is carrying out as part of its company voluntary arrangements to right-size these operations. But like-for-like sales rose 8.6%, against a decline of 9.7% in the previous year.

“The disastrous acquisition of GBK, which has taken a significant amount of pain … at long last seems to be coming to an end, with significant closures and a voluntary arrangement to render leases at a lower cost,” said analyst Anthony Clark of Small Talk Daily. Hopefully we’ll right-size that business,” he said.

But given the debt that still has to be repaid on the GBK transaction, it is unlikely that the transactions will be profitable in the medium term for Famous Brands shareholders, he said.

Overall, the update, which covered the six months ending August, revealed a lacklustre performance from the fast-food group, said Clark.

Like a number of consumer facing businesses, Famous Brands said difficult trading conditions persisted across it primary markets in SA and the UK, characterised by subdued consumer sentiment, and intense competition and margin pressure.

Its SA operations, which houses leading brands such as Wimpy, Steers and Debonairs, systemwide sales grew 6%, while like-for-like sales rose 4%.

“It shows you how difficult the underlying economy is when they can’t even grow the like-for-like sales at inflationary levels,” said Clark.

Its signature, or niche, brands division, which incorporates the likes of Tashas and Vovo Telo, grew 14% on a systems wide basis, reflecting the opening of a number of new stores. Like-for-like sales increased by a much more subdued 1.4%

Judging by the limited market reaction, the update was in line with expectations, said Andrew Joannou, portfolio manager at Investec Asset Management.

The like-for-like figures, underlying GBK numbers were a positive, he said, but he cautioned against viewing these as a sure sign of an operational turnaround.

The closure of problematic stores and the retention of the performing ones, suggested there would be “some survivorship bias sitting in that number”, he said.

Source: BusinessDay – www.businesslive.co.za

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