Collins Foods (ASX:CKF) share price jumps 7% on strong half year result

The Collins Foods Ltd (ASX:CKF) share price is racing higher after the release of a strong half year result by the KFC operator…

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The Collins Foods Ltd (ASX: CKF) share price is racing higher on Tuesday following the release of its half year results.

At the time of writing, the quick service restaurant operator’s shares are up 7% to $10.03.

How did Collins Foods perform in the first half?

For the six months ended 30 September, Collins Foods delivered a 11.3% increase in revenue compared to the prior corresponding period to $499.6 million. This was driven by a 15.6% increase in KFC Australia revenue to $415.5 million, which offset weakness in the European market caused by COVID-19 restrictions.

In respect to same store sales growth, KFC Australia recorded 12.4% growth, whereas Europe reported a 4.2% decline. Things were far worse for its Sizzler restaurants, which were significantly impacted by COVID-19. They reported a 50.7% decline in same store sales. Its Australian restaurants have now been closed.

The Taco Bell business was forced to shift towards takeaway channels as a result of COVID-19. This has impacted the pace of new restaurant development. Though, management notes that this is now recommencing.

This ultimately led to Collins Foods reporting earnings before interest, tax, depreciation and amortisation (EBITDA) of $63.7 million in the first half. This was an increase of 10.5% on the prior corresponding period.

And on the bottom line, underlying net profit after tax came in 15.1% higher to $27.5 million.

In light of this positive performance, an interim fully franked dividend of 10.5 cents per share has been declared. This is up 10.5% on the prior corresponding period.

Management commentary.

Collins Foods’ CEO, Drew O’Malley, commented: “The Company has delivered a strong result over the first half, effectively managing the economic and operational challenges brought upon by COVID-19.”

“KFC Australia was the main driver of the strong growth achieved, demonstrating the power of the KFC brand and benefiting from excellent operational disciplines, as well as the growth in digital and delivery channels,” he added.

Mr O’Malley appeared to be pleased with the performance of the rest of the business, especially given the tough trading conditions it was facing.

He said: “While KFC Europe had to manage through stricter lockdowns and a second wave of restrictions, sales momentum in Germany remained positive, and our Netherlands restaurants saw promising growth in drive-thru sales. Taco Bell’s free-standing drive-thru restaurant sales have now fully recovered to pre COVID-19 levels, and the brand has adapted well to place a greater focus on delivery and takeaway, enabling further rollout of new restaurants over the coming months.”

Outlook.

No guidance has been given for the full year but management has spoken positively about the future.

Mr O’Malley explained: “We see growth opportunities across each of our business units, and we are focused on strengthening the operational foundations and ramping up our new restaurant pipelines to deliver on these opportunities.”

The CEO also revealed that the company continues to target 9 to 12 new KFC Australia restaurant builds in FY 2021. It is also in discussions with Yum! Brands (KFC’s owner) towards an extended Development Agreement with a minimum 66 new restaurant builds through to December 2028.

In Europe, 2 to 4 new restaurant builds are planned. And a renewed Taco Bell ramp up in development is now underway, with plans to open 3 additional new restaurants in the second half of FY 2021, and an additional 6 to 8 restaurants by the end of calendar year 2021.

“Collins Foods will continue to remain focused on what we do best – running great restaurants – and on delivering on the multiple attractive growth runways we see for our business in the years to come,” Mr O’Malley concluded.

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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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