Loss-making Taste Holdings to continue rolling out Starbucks stores

Starbucks Rosebank (picture supplied)
Starbucks Rosebank (picture supplied)

Johannesburg – Taste Holdings [JSE:TAS], which owns Starbucks and Domino’s Pizza, reported a loss of more than R65m in its interim financial results.

According to the results report for the six months ended August 31, loss per share was down by 74% to -16 cents, compared to 9c reported in 2016. Revenue declined by 9% to R483m, compared to the same period last year. But the business is running at an operating loss of -R73.3m.

The group issued a rights offer during the period which saw cash increase to R86m, twice as much as the cash value reported in 2016.

In a note to shareholders, CEO Carlo Gonzaga said the operational gains made in the period were “overshadowed” by the “brutal and sustained” decline in consumer spending across all categories of the group’s offerings.

The food division, which includes Starbucks, Domino’s, The Fish & Chip Co, Zebro’s Chicken and Maxi’s, reported revenue of R282m and an operating loss of –R61.5m.

The revenue drop is attributable to a decrease in distribution and royalty revenue, and an 8.6% decline in locally-owned brands.

Two Starbucks stores were added in August 2017 and four more openings are expected by year-end, the report read. This means there will be a total of 10 stores. The food division has 69 corporate-owned stores, with six Starbucks and 63 Domino’s outlets.

The division will focus on growing Starbucks and Domino’s stores, until their individual profit contributions will exceed support cost.

The luxury goods division, which includes NWJ, Arthur Kaplan and World’s Finest Watches, has had its “toughest” six months in the group’s recent history, the report read. Luxury goods sales are cyclical and negatively influenced by the uncertainty of the macro-economic environment and rand strength.

Although the decline in sales was expected, the “extent” and “speed” of the decline reported in the first quarter of the period was not, said Gonzaga.

This division reported revenue of more than R253m and an operating loss of -R769 000. It has reduced its stores from 83 to 79.

Both the food and luxury goods division contributed to the 16% rise in operating costs to R36m. 

In April the group took a decision to separate the food and luxury goods division. However, the timing of such a sale was not ideal, Gonzaga said. “The group has therefore stopped the sale process and is focusing its attention, across both divisions, on the operational and tactical responses this environment necessitates.”

Going forward the group plans to invest in marketing expenditure, enhancing value propositions to customers and building on operational improvements.

The group is also undergoing a capital restructure to reduce long-term debt of R225m, and to raise equity to fund more Starbucks and Dominos stores. If this restructure is successful, the food division is expected to reach a cash breakeven during the second half of next year, according to the report.

“The next six months will no doubt continue to test to the fortitude of South African consumers.

“We are however confident that the strength of our brands across our divisions will see the group well placed to capitalise on consumer spending as the cycles turn,” concluded Gonzaga. 

The share opened at 0.89c on the JSE on Thursday, down 4.30% from the previous day's close.

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