Wimpy suffers in the UK

Johannesburg - Casual dining franchise group Famous Brands will continue to invest in the United Kingdom despite prevailing trade difficulties in the country.

Delivering interim results for the six months to August 2009, Famous Brands - whose portfolio include Wimpy, Steers, Debonairs and the recently-acquired Mugg & Bean - said the UK recession continued to hurt its 177 Wimpy stores there.

Growth plans were also hampered by the reluctance of UK banks to grant loans to franchisees in the prevailing economic climate, the group said.

For the six months under review, Famous Brands said like-for-like sales were down 6.3% in the UK.

"Current economic conditions are not in our favour. But it won't be gloom and doom forever," said Famous Brands chief operating officer Kevin Hedderwick.

"We still remain committed to our UK business. We're in the UK for a long-term purpose."

UK consumers are under severe pressure due to the recession, observed Zahira Osman, an investment analyst at Afena Capital.

"Furthermore, Wimpy UK is currently undergoing a strategic repositioning and has therefore not yet achieved the benefits of scale and brand to limit the effects of the downturn," said Osman.

In addition, she said that the strong culture of eating out in the UK makes casual dining extremely competitive, resulting in fierce market share rivalry.

Famous Brands plans to eventually also establish its other flagship brands Steers and Debonairs in the UK.

Debonairs gets its slice

Famous Brands' interim group revenue was up 14% to R811.4m, with operating profit 13% higher at R139.8m, reflecting an operating profit margin of 17.2%.

Both earnings and headline earnings per share increased by 16% to 93c.

"Operationally, this was a good result given the current economic backdrop," said Osman.

"The result was boosted by lower finance costs due to lower net borrowings as a result of excellent cash generation and the pay down of debt."

In the period, the group opened 52 stores (mainly Steers and Wimpy) and revamped 43. It has plans to open another 83 and revamp 39 in the second half of the year.

Hedderwick said fierce competition in the fast food and casual dining business had resulted in declining numbers at the group's flagship Steers and Wimpy chains.

However, pizza chain Debonairs has been highly successful in gaining market share, despite pizza being an exceptionally competitive segment of the market, noted Osman.

Famous Brands recently acquired the coffee chain Mugg & Bean for R104m as part of the group's portfolio growth.

"The acquisition of Mugg & Bean should complement their portfolio of brands, especially as it is the brand leader in its category. Furthermore, Famous Brands' strong balance sheet should enable strategic value-enhancing opportunities in the medium term," said Osman.

- Fin24.com