Famous Brands expects spike in half-year earnings after Gourmet Burger Kitchen knock

Famous Brands [JSE:FBR] expects a more than 100% growth in earnings for the six-months ended August 31, 2019; compared to the losses made for the same period last year.

The branded food services group, which owns casual dining restaurants – Debonairs, Steers, Milky Lane, Mugg & Bean and Fishaways – issued a trading update on Friday. It expects basic earnings per share to be within range of 143 cents per share and 175 cents per share.

"This is an approximate improvement of 125% to 131%, compared to the prior corresponding period's basic loss of 572c per share," the trading statement read.

The expected increase in earnings per share is likely due to the previous period's financials being impacted by a R874m impairment of its UK-based business Gourmet Kitchen Burger Restaurants (GBK). There are no impairments for the current period, the group explained.

The group has operations in South Africa, the rest of Africa and the Middle East (AME) and the UK.

In a voluntary update to shareholders, issued on September 11, the group noted that "difficult trading conditions" had impacted its markets in both SA and the UK.

While the group's brands in South Africa and the AME have recorded revenue growth, its UK business is undergoing a restructuring programme. Famous Brands has said the business is benefiting from the resulting operational improvements. Sales in its UK division declines as a result of the closure of stores, according to its September update.

The group's supply chain operations did not perform so well either. The manufacturing business, for example, saw a marginal decline in sales, due to the loss of a major client. Its logistics operations reported revenue growth of 3%, but margins deteriorated due to softer sales, sustained low food inflation and once-off costs related to the relocation of its facility in Free State- but the group said this was a planned cost. The group also cut margins in its logistics operations to stay competitive.

The final results for the six-month period will be released on Monday, October 28.

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