Famous Brands, still cooking

Yesterday we had a voluntary sales update from Famous Brands. Maybe they were feeling left out because all the other retailers were throwing all sorts of numbers in our direction. At the face, it looked fairly good, not brilliant, but good. The company managed to grow turnover by 10% for the three months leading up to the end of December while same store sales increased by 6.8%.

The CEO Kevin Hedderwick was happy with this result. "This is a very pleasing performance given the prevailing subdued trading conditions, and bearing in mind that many of Famous Brands` well-established mainstream brands have immense restaurant networks, so growth is off a high base - for example, Wimpy comprises 521 restaurants (excluding the UK), Steers: 532 restaurants, Debonairs Pizza: 370 restaurants, Mugg & Bean: 128 restaurants and FishAways: 123 restaurants."

Wow I often forget how many restaurants these guys have under their franchise umbrella. 2042 to be exact. Their distribution business must be massive and extremely efficient with capacity to expand at the same rate as their restaurants. During the 3 month period a whopping 60 new restaurants were opened. One of those is a Mugg and Bean just up the road from where I live at the Total on Oxford. It's fantastic and a great formula. Think about it, we do not really have a walk to work culture in South Africa and that is probably why Starbucks has not taken off. But we definitely drive to work and where better to get your morning coffee and a muffin than at an easily accessible petrol station. Great idea and they are rolling these out at a fast pace.

The Debonairs brand has also been growing fast as pizza has become more and more popular amongst black consumers. The African expansion initiative is making good progress with 18 restaurants being opened north of our borders. The update said that particularly strong growth was experienced in Mauritius, Zambia and Nigeria.

They make some interesting comments about trading conditions over the December period. "The traditional exodus of holidaymakers from inland to coastal resorts took place much later than normal, and to a much lesser degree," explains Hedderwick. "Whilst our restaurants on transient routes and at airports traditionally deliver extremely robust growth at this time, we noticed that this was slightly more subdued than previously, however, the performance of the Group`s restaurants in inland shopping malls was stronger than traditionally expected." Most retailers have confirmed this stating that money was spent on consumption rather than travel. An interesting pattern.

Sasha sent me some astonishing figures for the Famous Brands group. Over the last 5 years they have managed to grow turnover by 21.7% annually, earnings by 21.1% annually and dividends by 34.7% annually. Phenomenal. Can they maintain this? Maybe not as robust, especially coming off such a high base but I'm still very confident in their growth potential and happy to add at these levels. More valuation analysis will come when the results are released.