Famous Brands ups drive-thrus even as consumers feel pinch

The Mugg & Bean franchise is part of Famous Brands. Picture: Karen Sandison/Independent Newspapers

The Mugg & Bean franchise is part of Famous Brands. Picture: Karen Sandison/Independent Newspapers

Published May 21, 2024


Famous Brands will boost drive-thru outlets for its South African and regional quick-serve restaurants, divest from non-core assets, and seek to manage its debt profile well, after operating profit and headline earnings per share for the full year to the end of February, 2024, fell 6% and 5%, respectively.

Shares in the operator of Wimpy, Debonairs Pizza, and Steers outlets remained virtually unchanged by 0.11% at R53.25 in afternoon trade on the JSE yesterday after it reported that dividends for the full-year period had fallen to 302 cents, down from 363 cents in 2023.

The restaurant group attributed the fall in full-year dividends for the current period to its “lower than expected performance in the second half, and the uncertainty in the interest rate” outlook.

Famous Brands CEO Darren Hele said despite full-year revenues going up 8% to R8 billion on the back of a 13% uplift in cash generated from operations to R1.1bn, operating profits for the period softened 6% to R812 million while headline earnings per share (HEPS) were 5% lower at 465 cents.

“South African consumers face several challenges including political uncertainty, water shortages, an electricity crisis, elevated food and fuel prices, and higher interest rates,” Hele said.

Nonetheless, South African consumers were proving to be resilient as they were spending time at restaurants and spending money ordering take-away meals.

Hele said the company’s restaurants and takeaways were offering South Africans “affordable indulgent moments as a reprieve from their daily” challenges.

Moreover, he said the market was showing an inclination towards established networks over independent operators, although the casual dining restaurant division had delivered better performance than the quick service restaurant offerings.

“Consumers have reduced discretionary spending, evident in lower transaction size growth. Growth in the delivery channel slowed across all brands,” Hele added.

With the collect-ordering and drive-thru channels continuing to perform strongly, Famous Brands had opened five new drive-thru restaurants during the year to end February, 2024.

The company was now geared to roll out more leading brands restaurant outlets in its SA and regional markets.

This includes “boosting our drive-thru presence” as new sites become available, and also investing more into its consumer facing technology and improve its home delivery capabilities.

“In the medium term, we will evaluate opportunities to divest from non-core assets. We seek optimal disposal options of such assets to unlock value for shareholders,” the company said.

Market analyst Dave Hazelwood said “one area of potential growth is branded products (for example Wimpy + Steers patties and chips, but range expanding) sold in retail shops” such as Checkers, Shoprite and Pick n Pay, among others.

He said management of Famous Brands was sounding “cautiously optimistic” on this.

At the end of the period under review, Famous Brands had R1.2bn in total borrowings compared to R1.1bn last year.

The company attributed the increase in borrowings to “capital allocation for the acquisition” of the Midrand Campus.

“While reducing our debt is a priority, the current economic conditions, requirement for additional working capital, and investment in our Midrand Campus impacted this objective,” said the company.

Famous Brands acquired a 45% associate shareholding in Munch Software, a business in the point-of-sale software industry offering a modern cloud-based platform last year.

It has also snapped up a 51% majority shareholding in Famous Brands Restaurant Holdings in Mauritius, which has a portfolio of 10 restaurants.