Taste’s expansion takes toll on profit

The first Starbucks coffee shop to open in South Africa is in Rosebank. Picture : Simone Kley

The first Starbucks coffee shop to open in South Africa is in Rosebank. Picture : Simone Kley

Published May 26, 2016

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Johannesburg - Taste Holdings, which bought global brands Domino’s and Starbucks to South Africa, saw its share price slide more than 15 percent yesterday after it released its annual results as its expansion programme took a toll on profit. The share price later regained its losses to close unchanged at R2.45.

The company reported a 91 percent drop in core headline earnings a share to 1.5 cents for the year to February, down from 16.1c a share.

Read: Taste brews big goals

“We have invested quite a lot in our businesses and we have brought Starbucks this year and Dominos Pizza in 2014. We had to set up new production and distribution facilities for our business and this involved using a lot of cash for these operations. We are focusing on the long term and not the short term as we expect the businesses to contribute significantly in the future,” chief executive Carlo Gonzaga said.

Taste said its five-year growth plan focused on licensing global brands, boosting sales, buying back franchised outlets and supporting all this through a leveraged shared service and vertically-integrated platform.

The group has already established 74 Domino’s Pizza in 16 months. With Starbucks, the group has a 25-year development agreement with the coffee company and it opened its first coffee shop in Rosebank and recently in Mall of Africa.

Gonzaga said Taste was planning to open a new store in Gauteng later this year. “It takes time to set up a business and we are rolling out Starbucks at a slower rate as compared to Domino’s Pizza.”

Taste operates two divisions: food and luxury brands.

Taste had to close some of its Fish & Chip franchises due to hake’s prices rising in the past two years and hurting sales. “However, we are still retaining 231 stores under the Fish & Chip franchise,” Gonzaga said.

Core earnings before interest, tax, depreciation and amortisation decreased by 35.43 percent to R47.2 million due to the start-up of Taste’s corporate store ownership programme in the food division.

Core revenue rose 41 percent to R1.01 billion. Group sales increased by 9 percent to R1.72bn. Core gross profit margin increased to 40.6 percent as compared with 39.6 percent growth last year.

“As the weak economy is expected to persist in the country for the rest of the year, we remain hopeful that when the economy recovers we will be in a position to benefit from the recovery through our investments,” Gonzaga said.

The luxury goods division consists of retail outlets branded under NWJ, Arthur Kaplan and World’s Finest Watches.

Gonzaga said the 15 percent increase in the luxury goods division for the year was encouraging. The board did not declare a dividend.

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