Company Reports

Dining out and takeout retail sales volumes are well above the prepandemic trend. Australians are spending more through this channel than before the pandemic, partly at the expense of at-home liquor and food consumption.

Collins Foods reported underlying net profit after tax from continuing operations of AUD 61 million for fiscal 2026, up 13% year on year. Low-single-digit same-store sales growth and new store openings in the core Australian market underpinned group sales of AUD 1.6 billion, up 9%.

We think the success of the Australian KFC network will prove crucial for Collins Foods. Despite KFC expansion into Europe, Collins' Australian KFC network should drive the vast majority of operating earnings over the next decade. Collins is the largest KFC franchisee in Australia with around 295 restaurants of a total of around 800 stores in the country. Its long-term earnings growth is mainly dependent on increasing sales, by increasing same store sales and adding to its store network. Collins grows its network through both new builds and acquisitions of existing restaurants from other franchisees. Similar drivers underpin growth of the smaller European business, although we forecast new builds to play a more important role.

We think the success of the Australian KFC network will prove crucial for Collins Foods. Despite KFC expansion into Europe, Collins' Australian KFC network should drive the vast majority of operating earnings over the next decade. Collins is the largest KFC franchisee in Australia with around 290 restaurants of a total of around 800 stores in the country. Its long-term earnings growth is mainly dependent on increasing sales, by increasing same store sales and adding to its store network. Collins grows its network through both new builds and acquisitions of existing restaurants from other franchisees. Similar drivers underpin growth of the smaller European business, although we forecast new builds to play a more important role.

Collins Foods has identified Germany as its second strategic growth pillar, behind KFC Australia. It will acquire eight KFC restaurants in Bavaria and has lifted its rollout target for Germany. Taco Bell is no longer a distraction, with Collins exiting the brand in Australia.

Collins Foods' first-half fiscal 2026 underlying NPAT grew 30% on last year to AUD 31 million. Management lifted full-year guidance to "mid to high-teens" underlying NPAT growth, up from "low to mid-teens" guidance issued in June.

We think the success of the Australian KFC network will prove crucial for Collins Foods. Despite KFC expansion into Europe, Collins' Australian KFC network should drive the vast majority of operating earnings over the next decade. Collins is the largest KFC franchisee in Australia with more than 280 restaurants of a total of around 800 stores in the country. Its long-term earnings growth is mainly dependent on increasing sales, by increasing same store sales and adding to its store network. Collins grows its network through both new builds and acquisitions of existing restaurants from other franchisees. Similar drivers underpin growth of the smaller European business, although we forecast new builds to play a more important role.

Collins Foods reaffirmed guidance of low to midteens underlying net profit after tax growth in fiscal 2026 at its recent investor day. Management also reiterated its focus on the German KFC expansion.

Household incomes are growing in real terms after a period of rampant inflation. With inflation back within the Reserve Bank of Australia’s target range, the focus is shifting to keeping the job market in good shape. Monetary settings are slightly restrictive, providing room for more easing.

Collins Foods' fiscal 2025 underlying EPS fell 15% on last year, to AUD 0.43, due to soft sales growth and cost inflation. However, conditions improved in the second half with easing food costs and better store productivity. Management expects low to midteens underlying NPAT growth in fiscal 2026.

We think the success of the Australian KFC network will prove crucial for Collins Foods. Despite KFC expansion into Europe, Collins' Australian KFC network should drive the vast majority of operating earnings over the next decade. Collins is the largest KFC franchisee in Australia with more than 280 restaurants of a total of around 800 stores in the country. Its long-term earnings growth is mainly dependent on increasing sales, by increasing same store sales and adding to its store network. Collins grows its network through both new builds and acquisitions of existing restaurants from other franchisees. Similar drivers underpin growth of the smaller European business, although we forecast new builds to play a more important role.

Tariffs are softening Australian consumer sentiment and investors are preferring defensive over cyclical retailers. Since sweeping US tariffs were announced April 2, our Morningstar Australia Consumer Defensive Index is up 3%, but the Morningstar Australia Consumer Cyclical Index is flat.

We think the success of the Australian KFC network will prove crucial for Collins Foods. Despite KFC expansion into Europe, Collins' Australian KFC network should drive the vast majority of operating earnings over the next decade. Collins is the largest KFC franchisee in Australia with more than 280 restaurants of a total of around 800 stores in the country. Its long-term earnings growth is mainly dependent on increasing sales, by increasing same store sales and adding to its store network. Collins grows its network through both new builds and acquisitions of existing restaurants from other franchisees. Similar drivers underpin growth of the smaller European business, although we forecast new builds to play a more important role.

New leadership at Collins Foods is reassessing its smaller businesses. It is exiting the ailing Taco Bell business in Australia. In Germany, it has secured exclusivity rights in two large states. However, its strategy is unchanged for the core Australian KFC business.

Retail spending is rebounding due to a larger workforce, higher wages, and meaningful fiscal stimulus. Discretionary categories are benefiting more than defensives from rising household incomes. Dining out is elevated as a share of spending at the expense of supermarkets.

No-moat Collins Foods is battling soft demand and cost inflation. In first-half fiscal 2025, sales in the core KFC Australia segment increased 3% on last year. This was all store openings, with like-for-like sales essentially flat. Cost growth, namely rent and wages, is outstripping sales, and margins are under pressure. Underlying EPS in first-half fiscal 2025 fell 24% on last year, to AUD 20 cents.

We think the success of the Australian KFC network will prove crucial for Collins Foods. Despite KFC expansion into Europe and the nascent roll out of Taco Bell stores in Australia, Collins' Australian KFC network should drive the vast majority of operating earnings over the next decade. Collins is the largest KFC franchisee in Australia with more than 280 restaurants of a total of around 800 stores in the country. Its long-term earnings growth is mainly dependent on increasing sales, by increasing same store sales and adding to its store network. Collins grows its network through both new builds and acquisitions of existing restaurants from other franchisees. Similar drivers underpin growth of the smaller European business, although we forecast new builds to play a more important role.

Trading momentum for nonessential goods is picking up. So far in fiscal 2025, sales growth is improving at Super Retail’s chains and Woolworths’ Big W discount department stores, as well as at electronics goods retailers JB Hi-Fi, Harvey Norman, and Kogan.

We lower our fair value estimate for no-moat Collins Foods by 6% to AUD 13.50 on a weak trading update. In the first 16 weeks of fiscal 2025, same-store sales in the core KFC Australia segment are essentially flat on the previous corresponding period, or PCP. Top-line growth of 3% for the segment was supported by the rollout of new stores.

We think the success of the Australian KFC network will prove crucial for Collins Foods. Despite KFC expansion into Europe and the nascent roll out of Taco Bell stores in Australia, we expect Collins' Australian KFC network will continue to drive the vast majority of operating earnings over the next decade. Collins is the largest KFC franchisee in Australia with over 280 restaurants out of a total of around 800 stores in the country. Its long-term earnings growth is mainly dependent on increasing sales, by increasing same store sales and adding to its store network. Collins grows its network through both new builds and acquisitions of existing restaurants from other franchisees. Similar drivers underpin growth of the smaller European business, although we forecast new builds to play a more important role.