Restaurant Brands: KFC Sales Figures Explained - Part 2

I am back to explaining the latest quarterly KFC sales regarding Restaurant Brands [RBD.NZ] to shareholders because the company and business media seem to keep ignoring the bogeyman of inflation.

It is something I have mentioned many times before but it must be stressed once again because Restaurant Brands shareholders and prospective investors in the company must be given the full picture when it comes to RBD managements disclosure over their KFC sales.

The "record" $54 million of sales reported in today's result for KFC is only a record in terms of 2010 dollars. KFC are actually serving up less chicken to fewer customers.

Their best listed year was in 1997 where they did $172.3 million in KFC sales. That is because of accumulated inflation at a very conservative 3% annually over the last 13 years amounts to 39%.

Now lets assume conservatively that RBD sell $220 million of KFC for the full year 2010 and compare that figure to the 1997 record year.

39% inflation means in 2010 dollars RBD would have to sell $67.2 million more chicken just to match the record made in 1997.

$220 million is a fair way from the figure they need to make, of $239.5 million, just to match the 1997 record.

I am not an accountant and nor do I think I need to be but if such emphasis of "record sales" is placed on a figure by RBD management to gain market approval that the expenditure of 10s of millions of shareholder funds on KFC refurbishment in order to attain those sales then that figure should be clearly accurate and take inflation into account. That is simply not the case here.

Granted one can do the math oneself to come up with relative figures and compare year by year sales but having said that, to use current sales figures as a tool to push further shareholder expenditure must be justified to the nearest decimal point.

RBD's figures therefore do not pass this test and furthermore for analysts and business reporters to accept this without question is surely remiss to some extent.

Still my record with this company probably goes back longer than many on the RBD board or those professional stock analysts in their professional capacity.

To say KFC are improving sales is true but to say the KFC product is selling in record numbers is highly misleading, to the market and to its shareholders. In order to show a decent "recovery" of the brands sales that justify the hoopla from RBD management and brain dead business writers KFC sales would at have to get nearer to $300 million per annum, than the $220 million it is now achieving.

Once again, I am not an accountant but I would like to see inflation taken into account when businesses do their books, at lease an annotation in the audited reports of what the inflation rate was in the last year so a stockholder or a prospective stockholder can make a fully accurate comparison before they decide to buy, or not as the case may be.

I am a big fan of the KFC product.


Restaurant Brands @ Share Investor

Finger Lick'n Good Management
Chart of the Week: Restaurant Brands Ltd
Long Term View: Restaurant Brands Ltd
Stock of Week: Restaurant Brands Ltd
Restaurant Brands: Buy or Sell ?
Pizza Hut sell-off provide opportunities all-round
Danny Diab & Restaurant Brands
2008-2009 KFC sales figures mislead investors
KFC Finally Flying
Starbuck's New Zealand Cup doesn't runneth over
RBD gives KFC a push
McDonald's playing chicken with KFC
Restaurant Brand's Pizza Hut faces increasing competition
RBD sales analysis
RBD saga continues: CEO leaves
The secret recipe is out
2007 FY profit analysis
Delivering increased profit in October 2007
No reason for optimism in latest sales figures

Discuss RBD @ Share Investor Forum





c Share Investor 2010

Finger Lick'n Good Management

Russel Creedy, CEO of Restaurant Brands Ltd [RBD.NZ] wouldn't give me an interview even though I probably know more about his company than anyone else but him but he did speak to the NZ Herald over the last week.

"There were some long-service people of 20 years plus who left, but the business needed that to change, and there's still some long servers left but they're the ones who were able to adjust and adapt."

A layer of managers between the chief executive and store managers was cut, Restaurant Brands quit making its own television adverts and supply agreements were renegotiated.
Most importantly, the emphasis on the company's star brand, KFC, was intensified.

"Change is necessary, you don't always know the true path or know 100 per cent where you're going to end up, but you've got to back yourself. It's not wild wild west stuff, you just talk to people, be open to change and ideas and bloody act.

"Procrastination will kill any business, no matter how good it is."

And there's more to come, with the company looking for a trade buyer for its 41 Starbucks stores - worth an estimated $10 million to $20 million - and the progressive sale of some of its 91 Pizza Huts to owner-operators. NZ Herald
I have been super critical of RBD and its management over the years (see links below and this Google search)) and skeptical of Russel's tenure over his last 3 years as CEO but I have to give him his dues.

Russel has done everything that I have been talking about for the last 13 years since the company listed to turn RBD around and it has worked.

Focusing on service and cleanliness, cutting costs and middle management and selling parts of the business that were losing money - Starbucks and Pizza Hut.

Creedy focused on the star performer, KFC, and has managed to grow sales to record numbers (if inflation is discounted since its record listed sales in the 1990s).

Profit is also near record levels if you ignore inflation again - I don't.

Previous management were focused on growing the company at all costs but Creedy has put the service and focus back in fast food and reaped the rewards.

This has had the effect of boosting the share price to above the 1997 listing price of $2.20 for the third time in 13 years.

Russsel has been the man at the right time for RBD and he has put in place all that the company needs for a sustainable and balanced business in terms of profit, something that RBD has never seen before. That must be tempered by the fact that he has just about wrung the maximum drop of extra profit out of KFC and the recession is helping his cause.

What he has done though is allowed the company to be able to trade well through the good and bad times and as the fast food sector is a fickle cyclical beast he has obviously put this at the top of his agenda and RBD, in the future just KFC, is in good health no matter what you think of the food they sell.

I only wish Mr Creedy would talk to me.


Restaurant Brands @ Share Investor

Chart of the Week: Restaurant Brands Ltd
Long Term View: Restaurant Brands Ltd
Stock of Week: Restaurant Brands Ltd
Restaurant Brands: Buy or Sell ?
Pizza Hut sell-off provide opportunities all-round
Danny Diab & Restaurant Brands
2008-2009 KFC sales figures mislead investors
KFC Finally Flying
Starbuck's New Zealand Cup doesn't runneth over
RBD gives KFC a push
McDonald's playing chicken with KFC
Restaurant Brand's Pizza Hut faces increasing competition
RBD sales analysis
RBD saga continues: CEO leaves
The secret recipe is out
2007 FY profit analysis
Delivering increased profit in October 2007
No reason for optimism in latest sales figures

Discuss RBD @ Share Investor Forum



c Share Investor 2010

Chart of the Week: Restaurant Brands Ltd

The aim of this series of charts is to show the divergence - up or down - of the selected individual stock price away from the NZX 50 Index. The chart is a 1 year look to give some relevant background to any recent (two to three months) share price movements.

Restaurant Brands Ltd [RDB.NZ] has had a cracker last year share price wise and 2010 result wise.

Over the last two months the stock has risen from just under 2 bucks to just over $2.30, beating its IPO price 14 years ago of $2.20, for the third time. The NZX by comparison has been almost flat.

If you were a chartist you would say this stock has been over bought and is ready for a correction.

Just on fundamentals alone the company is now expensive, even if you choose to forget its poor and patchy financial results over the last 14 years.

The time for buying this stock was long ago and if you are buying at these prices you are going to be in for some pain in the wallet.


Chart of the Week Series

Mainfreight Ltd

Restaurant Brands @ Share Investor

Chart of the Week: Restaurant Brands Ltd
Long Term View: Restaurant Brands Ltd
Stock of Week: Restaurant Brands Ltd
Restaurant Brands: Buy or Sell ?
Pizza Hut sell-off provide opportunities all-round
Danny Diab & Restaurant Brands
2008-2009 KFC sales figures mislead investors
KFC Finally Flying
Starbuck's New Zealand Cup doesn't runneth over
RBD gives KFC a push
McDonald's playing chicken with KFC
Restaurant Brand's Pizza Hut faces increasing competition
RBD sales analysis
RBD saga continues: CEO leaves
The secret recipe is out
2007 FY profit analysis
Delivering increased profit in October 2007
No reason for optimism in latest sales figures

Discuss RBD @ Share Investor Forum

Download RBD company reports


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c Share Investor 2010