European Cost Pressures and Taco Bell Exit Cloud Collins Foods’ Outlook

Resilient Financial Performance Despite Challenges

Collins Foods Limited reported a steady FY25 with revenues climbing 2.1% to a record $1.52 billion, underpinned by solid growth in Australia. However, underlying net profit after tax (NPAT) declined 14.8% to $51.1 million, reflecting margin pressures and impairments, particularly in Europe. The company’s net debt fell to $137.9 million, supported by strong cash flow and disciplined capital management.

The second half of FY25 showed marked improvement, with revenue up 2.8% and EBITDA margins expanding by 32 basis points, driven by operational efficiencies and commodity cost deflation in Australia. This momentum bodes well for the company’s outlook as consumer conditions gradually improve.

Strategic Focus on German Growth and European Reset

Germany emerges as Collins Foods’ key growth frontier, with a development agreement in place to open 40 to 70 new KFC restaurants over the next five years. The German market remains underpenetrated compared to competitors, presenting a significant opportunity. Collins Foods benefits from a period of exclusivity in populous states like North Rhine Westphalia and Baden-Württemberg, supported by Yum! Brands’ investments in marketing and brand building.

Conversely, the Netherlands continues to face headwinds from high labour inflation, cost-of-living pressures, and regulatory challenges. Same-store sales declined 2.5%, and profitability remains subdued. Collins Foods is implementing a portfolio reset focused on operational excellence, cost control, and brand revitalization to restore sustainable margins.

Australian Market Stability and Digital Innovation

In Australia, Collins Foods maintained a stable footprint with 288 KFC restaurants and modest same-store sales growth of 0.3%. Digital sales now account for over 34% of revenue, fueled by kiosk adoption and app engagement. The company opened 10 new restaurants and completed 40 remodels, including eight ‘supercharged’ stores designed to enhance customer experience and operational capacity.

The decision to exit Taco Bell reflects a strategic refocus on core brands and markets. Taco Bell’s 27 restaurants underperformed amid a challenging consumer environment, and Collins Foods is pursuing a transition to new ownership within 12 months.

Sustainability and Capital Discipline

Collins Foods continues to advance its sustainability agenda, achieving a 21% reduction in per-restaurant emissions since 2019 and significant progress in ethical sourcing and waste diversion. The company’s strong cash flow enabled ongoing investment in new stores, remodels, digital capabilities, and sustainability initiatives, while maintaining a fully franked dividend of 26 cents per share.

Looking ahead, Collins Foods targets low to mid-teens growth in underlying NPAT for FY26, supported by improving market conditions, operational improvements, and expansion in Germany. The company remains vigilant on cost pressures, particularly in Europe, and committed to disciplined capital allocation.