Shares of ASX-listed Collins Foods Limited (AU:CKF) fell sharply after the company warned of a weak outlook while releasing its half-yearly results for FY25. Australia’s largest KFC operator, Collins Foods, warned that the profit margins will be strained over the next six months due to subdued consumer spending, rising wages, and energy costs. Following the announcement, CKF shares fell 4.3% in today’s trading session. Year-to-date, the stock has declined 31.19%.
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Collins Foods operates, manages, and oversees restaurants across Australia, Europe, and Asia. In Australia, the company manages KFC and Taco Bell restaurants.
Collins Foods Expects Lower Margin in FY25
For FY25, Collins Foods’ underlying EBITDA margin (after AASB16 adjustments) is projected to be between 14.2% and 14.7%, down from 15.4% in FY24. Similarly, the underlying EBIT margin is expected to range from 6.8% to 7.3%, compared to 8.3% in FY24.
The company also highlighted that the initial sales in the second half remained affected by a weak consumer environment in Australia and Europe, along with the ongoing conflict in the Middle East.
Collins Foods Cuts Dividend as Profits Decline
In H1 FY25, Collins Foods cut its interim dividend to 11 cents per share from 12.5 cents per share a year ago. This is primarily due to a 52% drop in statutory net profit to $24.1 million. Meanwhile, the company’s revenue grew 1.2% to $703.5 million, driven by restaurant expansion in Australia.
Regionally, same-store sales at the group’s KFC outlets in Australia dipped 0.1% during the half, reflecting cost-of-living pressures and competitive pressures. Additionally, its European KFC stores are also underperforming, with same-store sales declining by 3.8% in the first half.
Citi Analyst Weighs in on Collins Foods’ Outlook
Citi analyst Sam Teeger noted that the seven-week trading update indicated some improvement but highlighted the ongoing challenging environment. However, he believes that the numbers were still better than expected. Moreover, the company’s relatively low valuation compared to its competitors and a more optimistic cost outlook could attract greater investor interest in the stock.
Teeger confirmed a Hold rating on the stock, forecasting a downside of 5.29%.
Is CKF Stock a Buy?
According to TipRanks, CKF stock has received a Moderate Buy rating based on four Buy and two Hold recommendations. The Collins Foods share price target is AU$9.80, which is 18% above the current trading level.
