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Collins Foods shares higher after delivering strong half year result

The Collins Foods Ltd (ASX: CKF) share price has surged higher on Wednesday following the release of its half year results.

In morning trade the quick service restaurant operator’s shares are up 4.5% to $10.16.

How did Collins Foods perform in the first half?

For the six months ending October 13, Collins Foods delivered a 9.2% increase in revenue to $448.8 million.

And thanks to management’s focus on maintaining strong cost control, earnings grew at a quicker rate.

Collins Foods reported a 9.7% increase in statutory EBITDA to $58.8 million and a 12.1% lift in statutory net profit after tax to $24.1 million. On an underlying basis, net profit after tax increased 9.1% to $23.9 million.

As a result of its solid profit growth, the Collins Foods board delivered another dividend increase. It declared a fully franked interim dividend of 9.5 cents per share. This was up 5.6% on the same period last year.

What were the drivers of this solid result?

This positive result was driven by solid same store sales growth across Australia, new store openings, and a small increase in same store sales in Europe.

The highlight was arguably the KFC Australia segment, which delivered a 4.9% increase in same store sales.

The company’s managing director and CEO, Graham Maxwell, explained: “This business reported strong same store sales growth over the first half of the current financial year of 4.9%, and importantly all states delivered growth. The first half financial result demonstrates the success of past initiatives implemented, including the expansion of delivery, a successful focus on operational excellence, and an ongoing commitment to product innovation.”

Also contributing was its KFC Europe segment. Although it only achieved same store sales growth of 0.1%, new store openings helped drive an 11.8% increase in revenue to $63.7 million.

Mr Maxwell said its same store sales reflect “the early results from new strategies implemented within our network and across KFC’s total franchise network in Germany and the Netherlands.”

“Across the region, the Company’s focus remains on delivering consistently high operational standards and tight margin controls,” he added.

The Taco Bell segment continues to perform in line with expectations. A fifth restaurant was opened during the half and a further two have been opened since the end of the half.

Management advised that it will soon be opening its first stores in Victoria. And looking further ahead, it has a strong pipeline of sites in place and is aiming to open 20 new stores in calendar year 2020.

Outlook.

Management appears confident that there will be more of the same in the second half.

The chief executive explained: “The first half of FY20 saw us deliver on all the things that matter – great product and value, brand recognition, innovation and cost control, and further new restaurants. We see us doing the same in the second half of the year, focused on further strengthening all operational systems and executing on initiatives that continue to enhance the customer experience while maintaining operational excellence.”

Supporting this will be new store openings across KFC Australia, KFC Europe, and Taco Bell.

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Motley Fool contributor James Mickleboro owns shares of Collins Foods Limited. The Motley Fool Australia has recommended Collins Foods Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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