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Bad Taste results sees share plunge

May 29 2017 17:37
Lameez Omarjee

Johannesburg – Taste Holdings share price tumbled as much as 10% following the release of its financial results on Monday.

The group which owns food franchises Domino's Pizza (49 stores) and Starbucks (three stores) reported a total loss for the year of over R101m. This is 37% more than the loss of R74m reported in the previous year. Headline loss per share came to 25 cents per share and the group did not pay out any dividends.

The share opened at R1.90 and traded as low as R1.70 during the day. By 4pm was trading at R1.75.

Domino's and Starbucks both contributed to the 7% revenue growth from core activities to R1.08bn. However the group's operating loss came to over R110m, 41% more than the R78m loss reported in 2016. About R25m of the loss is attributed to Starbucks, the group explained in the report. Luxury goods contributed R20m to the operating costs. 

The loss was mainly attributed to the group’s work in converting its remaining Scooter’s Pizza stores to Domino’s as well as growing its Starbucks outlets, chief executive Carlo Gonzaga explained in a statement. “The loss reported this year was expected given the start-up nature involved in building up Starbucks and Domino’s simultaneously.”

But Gonzaga said that South African consumers have “welcomed” the international brands.  “There is now a natural rhythm of people regularly passing through the [Starbucks] stores,” he said.

The three Starbucks stores are individually profitable, however the brand will only start to breakeven after the fifth store is opened, according to the report.  Gonzaga said that in the long run, the investment case for Starbucks remains attractive. 

Focus on food

Gonzaga added that Taste Holdings is a “start-up with 16 years’ experience”. “In my experience, a large part of the success of a new venture lies in the persistence required to push through to that first rand of profit,” he said.

The group decided to sell its luxury goods division including Arthur Kaplan and NWJ to focus on its food division. This was evident as more capital expenditure has been allocated to the food division, at just over R31m, compared to the luxury goods division which is over R16m. 

However the group’s luxury revenue generated the most revenue of over R622m. Revenue from its food division was just over half a billion (R551m). Luxury goods generated an operating profit of R52m, compared to the operating loss from the food division of R143m.

"The five-year potential of the food business is hugely attractive," Gonzaga said. "There will be set-backs and enormous successes. It will take 12 – 24 months to reach real profitability."

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