Collins Foods Limited (Collins Foods, ASX: CKF) was founded in California in 1968 by James Collins as Collins Foods International. In 2005 Australian private equity firm, Pacific Equity Partners acquired the business for US$208 million. In August 2011 the company was floated on the ASX at $2.48 per share. The IPO share price was $2.50 per share. Today Collins Foods is an ASX300 company that employs 20,000 people within 285 restaurants in Australia and 74 restaurants in Europe under the KFC and Taco Bell brands. The Group is structured as a franchise model that operates about 40 percent of KFC stores in Australia.

Powerful brands are a source of earnings resilience

Collins Foods’ KFC and Taco Bell restaurant brands in Australia and Europe are displaying earnings resilience against a backdrop of a challenging consumer environment impacting same store sales and persistent inflation weighing on margins.

This is reflected by a subdued 1.2 percent Group revenue increase to $703 million for the first half-year to 31 October 2025, but a 6.6 percent decline in underlying EBITDA from continuing operations to $102.7 million. Margins are being impacted by a combination of flat same-store sales and ongoing inflationary pressures, including higher energy prices. Modest revenue growth in Australia is offsetting softness in Europe.

KFC Australia (76.3 percent of Group revenue) achieved a 2.7 percent revenue uplift to $536.8 million, although same-store sales were fractionally lower by 0.01 percent. Australian revenue is benefiting from 6 new restaurants opened in the half -year. Higher wage, energy and input costs weighed down on margins by 1.14 percent. Significantly, KFC Australia is maintaining market share, and this is important because brand health is essential in advance of a consumer-led recovery.

KFC Europe revenue (20.2 percent of Group revenue) was down 3.4 percent to $142.1 million for the first half-year of FY25, while same-store sales growth was negative 3.8 percent. Digital channels remain key to growth in Europe and now account for more than 60 percent of sales in the Netherlands and Germany. Margins declined by 1.7 percent in the first half-year despite deflation in some commodity costs.

Taco Bell (3.5 percent of Group revenue) was down 2 percent to $24.6 million, with same store sales growth down by 0.3 percent.

The Quick Service Restaurant category remains resilient despite the soft consumer environment as consumers show preference for convenience and easier, faster services compared to traditional food and restaurant outlets.

Low debt and strong cash flow support expanding store footprint

Strong Group cash flow is driving down net debt which was reduced to $158.9 million as at 31October 2024. This compares to $173 million a year ago and represents a net leverage ratio of 1.09 (down from 1.12).

The Group’s strong cash flow generation is reflected in its impressive profit to cash flow conversion rate of 108 percent which supports the payment of fully franked dividends and an expanding store footprint. Collins Foods expects to add 7 restaurants to the portfolio in the balance of FY25, with 3 in Australia and 4 in the Netherlands.

By continuing to add scale through new restaurant development, backed up by strong cash flow generation and margin improvement, shareholders can reasonably anticipate modest future profit growth in the medium-term.