Famous Brands, the owner of popular restaurant franchises Debonairs Pizza, Steers and Wimpy, has seen its share price surge by 44% over the past six months, indicating the success of its strategy to close underperforming outlets.
The group’s year-to-date valuation has increased by 20%, despite ongoing economic challenges impacting consumer spending.
In October, the group announced it had shut 41 stores this year. The decision, according to CEO Darren Hele, was prompted by shifting consumer demographics and economic pressures that made some locations unviable.
Fourteen stores were part of its leading brands portfolio, four were from its signature brands and others spanned regions including Southern Africa, the rest of Africa and the Middle East and the UK.
Famous Brands operates more than 2,900 outlets globally. The group said the closures allowed them to focus resources on profitable locations and improving overall performance.
At the time, the group reported mixed revenue results for the six months to end-August. Revenue from its leading brands increased by 0.8%, boosted by a 3.2% rise in sales for fast-food chains such as Steers and Debonairs.
However, the signature brands division, which includes higher-end outlets such as Lupa Osteria and Mythos, saw a 3.2% decline in sales, reflecting reduced discretionary consumer spending.
Revenue from logistics and manufacturing remained flat at R2.5bn and R1.6bn, respectively, with lower protein and potato chip sales particularly affecting results. Despite the challenges, Famous Brands saw a 9.5% increase in headline earnings to R218.7m. Operating margins were constrained by overhead costs and lower volumes, but the company’s cost-cutting efforts helped deliver a better result.
The group increased its dividend by 9% to 150c per share.
Famous Brands invested R91m in initiatives during the interim period, including upgrades to consumer-facing technology and improvements in manufacturing and logistics. The group also allocated R12m to a new cold storage facility at its Midrand campus.
The group remains optimistic that improvements in load-shedding reduction, lower fuel prices and interest rates cuts could boost consumer spending. However, it may take time for disposable incomes to recover, it said.
According to the Financial Mail, Famous Brands’ share price hit a 52-week high of R67.52 in October, up from R48 in June.
Trading at R69 at the time of writing, the stock remains a promising performer on the JSE with a R6.9bn market valuation.
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