JSE-listed Famous Brands expects its results for the six months to August 31 to be weaker than those reported for the six months to August 31, 2016.
In a voluntary trading update issued on Wednesday, the company said trading conditions in the South African market had declined further in the five months to July 31, as a result of continued economic pressure on disposable income, sustained sociopolitical uncertainty and low consumer confidence.
During the five months under review, system-wide sales in South Africa increased by 7% while like-for-like sales grew by 1.8%.
System-wide sales in the Africa and Middle East (AME) region decreased by 0.2%.
Across the group’s restaurants in South Africa and the AME region, combined system-wide sales increased by 6.3%, underperforming management’s expectations. The logistics and manufacturing operations, however, performed solidly, producing volumes in line with management’s expectations.
In the UK market, consumer confidence declined in the context of increasing political uncertainty surrounding Brexit negotiations and recent terror attacks.
The Gourmet Burger Kitchen (GBK) acquisition, in September 2016, is Famous Brands’ largest transaction to date, and a transformative one for the business model – introducing a substantial company-owned restaurant component to Famous Brands’ traditional franchise model.
GBK has an extensive network of 95 restaurants in the UK and Ireland and a secure pipeline of sites to support its expansion programme.
In line with the group’s strategy, the acquisition has served to diversify earnings, expand the group’s geographic footprint, and up-weight its company-owned restaurant base.
For the 22-week period under review, GBK’s system-wide sales in the UK increased by 12.1% from the prior comparable period, while like-for-like sales declined by 2.6%.
During the five months under review, Famous Brands opened 52 restaurants in South Africa, eight in the AME region and six in the UK, taking its network to 2 801 restaurants.
The company noted that its store roll-out programme will be more conservative for the foreseeable future.
Famous Brands expects trading conditions in its local and international markets to remain challenging for the coming year, amid constrained consumer demand and intensified competition.
GBK’s profitable contribution to the business will also take longer than initially anticipated, the company revealed.