This ASX 200 share is jumping 10% following its FY23 results

Investors have been impressed with this quick service restaurant operator's results.

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Key points

  • This KFC restaurant operator has released its full-year results
  • Its shares are charging higher after its revenue and earnings came in ahead of what one broker was expecting
  • Management revealed that FY 2024 has started positively but that inflationary pressures are expected to persist

The Collins Foods Ltd (ASX: CKF) share price is on the rise on Tuesday.

At the time of writing, the ASX 200 share is up a sizeable 10% to $8.66.

Why is this ASX 200 share jumping?

Investors have been buying this KFC restaurant operator's shares following the release of its full-year results. Here's a summary of how it performed in FY 2023:

  • Revenue from continuing operations up 14.2% to $1,349.5 million
  • Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) down 1.1% to $205.1 million
  • Underlying net profit after tax from continuing operations down 12% to $51.9 million
  • Statutory net profit after tax down 79.1% to $11.3 million
  • Fully franked full-year dividend flat at 27 cents per share (final dividend of 15 cents per share)

As a comparison, Morgans was forecasting revenue of $1,311.8 million and net profit after tax of $48.6 million.

What happened during FY 2023?

For the 12 months ended 30 April, Collins Foods reported a 14.2% increase in revenue from continuing operations to $1,349.5 million.

A key driver of this growth was the KFC Australia business. Its revenue surpassed $1 billion for the first time, up 10% over the prior corresponding period. This was driven by same store sales (SSS) growth of 5.8% and an expanded network of 272 restaurants.

Management advised that its SSS growth reflects higher ticket sizes, significant e-commerce growth, and the rollout of Uber Eats. This offset broadly flat transaction volumes, which was in line with the overall performance of the quick service restaurant market.

Supporting its growth was the KFC Europe business, which reported a 31% jump in revenue to $249.5 million and an 18.8% increase in underlying EBITDA to $32.8 million. This was underpinned by 13.9% SSS growth, the addition of new restaurants, and benefits from marketing and operational control under the Netherlands Corporate Franchise Agreement.

And while the Taco Bell business reported a 36.1% increase in revenue to $48.7 million, this was driven by the addition of eight new restaurants, which offset negative SSS growth of 4.8%. The business also recorded an EBITDA loss of $1.5 million for the period, up from $0.4 million a year earlier.

In light of this performance, the company opted to make a non-cash accounting impairment of $36.7 million to the Taco Bell brand. This explains the difference between its underlying net profit after tax of $51.9 million and statutory net profit after tax of $11.3 million.

Management commentary

The company's managing director and CEO, Drew O'Malley, was pleased with the results. He said:

In a year of unprecedented challenges, we are pleased to have maintained our long-term approach to driving sustainable growth for Collins Foods. KFC's strong same store sales performance in both Australia and Europe reflects the strength of this global powerhouse brand and its inherent resilience during challenging economic conditions.

Our expanding restaurant network and continued investment in digital and delivery is enhancing brand modernity and increasing convenience, and we remain laser-focused on maintaining best-in-class operational standards to provide an excellent experience to customers in our restaurants.

Outlook

The good news is that this ASX 200 share has started FY 2024 positively. O'Malley advised:

Sales over the first seven weeks of FY24 have been encouraging with all business units reporting positive same store sales growth. KFC delivered +8.8% in Australia, +9.0% in Netherlands, +12.4% in Germany, while Taco Bell reported +2.1%.

However, one potential negative that could be holding back its shares a touch today is its ongoing battle with inflation. Management expects these headwinds to weigh on its margins for the near term. O'Malley explains:

Inflationary pressures are still a very real part of our landscape. While some commodities are stabilising, there can be a lag before some of this flows through to input costs, and we expect margin pressures to persist for much of FY24. Though we certainly have a strong program of initiatives in place to address this in FY24, we will continue to manage this business for the long-term, prioritising brand health via providing exceptional value for consumers, which we believe will become even more critical in the year to come.

Motley Fool contributor James Mickleboro has positions in Collins Foods. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Collins Foods. The Motley Fool Australia has recommended Collins Foods. 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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