Friday, March 7, 2008

Restaurant Brand's want their sales back

In the absence of any decent analysis of Restaurant Brands Ltd [RBD.NZX] sales figures by our lazy mainstream financial journos, which were released yesterday, I will have another go for this last quarter.

Related image
Changing the image at KFC has only added cost to the
business and seriously eroded margins.

RBD management seem to trumpet their KFC brand so much that is deserves yet another serving of criticism by my good self:

For the full year, total KFC sales reached a new high of $199.1million, an increase of 9.0% over the prior year and 7.7% up on a same store basis. This same store sales performance is up on the 7.1% same store growth achieved in the previous year and is the fourth consecutive year of solid same store sales growth for the brand" 2008 sales release

Lets compare current yearly KFC sales figures with the "new high" of $177 million, as stated in the 2002 annual report. In reality if you included inflation(which prudent businesses must) in the $199.1 million "new high", then current sales are still approximately $4.5 million short of the 2002 figure. I calculated inflation over the last 5 years at conservatively 3% annually.

So the trumpeting by management yesterday of KFC's performance hides the truth that less chicken is being sold at a higher revenues for the business and now lower margins because of higher business costs.

In fact, things are so bad for KFC they would actually have to increase sales to approximately $235 million dollars annually, just to show 3% annual sales growth since that last "record" was reached in 2002.

Deception seems to have reached an art form amongst RBD management.

Image result for pizza hut nz

Pizza Hut seems a lost cause in New Zealand, sales are flagging with competitors taking their market share and business costs spiraling.

Once again Pizza Hut delivered a cold and soggy mess(just like their pizzas)in the form of annual sales. $71.4 million in sales in the last year was "disappointing" to management. That has to be the understatement of the year. That sales figure was down more than 10% from last year on a 97 store count.

Meanwhile Pizza Huts competition in this market, both Hell Pizza, a division of Burger King NZ/OZ and dominant Dominoes are growing sales strongly. With even more competition due from them over the coming year.

If we do the 2002 sales comparison, Pizza hut had just over $69 million(in 2002 dollars) on a 86 store count and now sales are just 2 million more with 11 more stores in the chain. Can you see a pattern forming here?

Image result for starbucks nz

Starbucks isn't the star RBD management
say it is. With real growth of only 3% for
the last 5 years, the brand is clearly suffering.

Surely Starbucks must be the star that management say it is?

Well, unsurprisingly, no.

With $33 million in sales this last year and a 5.6% increase on the previous year surely shareholders should be fit to leap over a KFC store in single bound on the news?

Lets time warp back to 2002 again. With annual sales of $18 million, on a store count of 29, one might assume that the $33 million latest annual sales looks excellent but you would be slightly wrong again colonel.

With same store sales of $620,689.00 per store back in 2002 vs $733,333.00 for the latest annual period and factoring in the same conservative 3% annual inflation that I applied to the KFC scenario, that gives a figure in 2008 dollars of $713,792.00 per same store sales. The difference, being a $19,541.00 per store increase after factoring in 5 years of inflation.

This is a growth rate in same store sales for Starbucks of less than 3%, over the whole 5 years.
Again, with increased business costs factored in, margins are as thin as Pizza Hut toppings and with more stores since 2002, costs are manifold times bigger. So Starbuck's margins, like RBD's other brands, are now less than they were 5 years ago.

I have previously canvased the poor service and bad management at RBD and that clearly still applies, and I'm not about to repeat myself again but things really need to change if the company is going to survive.

The sales might be increasing at RBD's brands but that doesn't equate into more food being sold, better margins and therefore increased profit.

Shareholders must look to the long term and decide whether a company that is earning considerably less than it did 10 years ago, and trumpets current sales figures that lack intellectual and financial rigour, is capable of achieving different results over the next ten years, in whatever guise it takes.

Restaurant Brands @ Share Investor

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Discuss RBD @ Share Investor Forum

c Share Investor 2008

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