Quarterly update from Famous Brands

If there is one business that has proven extremely resilient in this weaker consumer environment, it has been Famous Brands. The business released quarterly sales numbers for the period starting March to the end of May.


"System-wide franchise sales increased 16.8%, comprising a 16% improvement in South Africa and a 27.2% improvement in sales in the rest of Africa region. Like-on-like sales grew 9.6%, with South Africa and the rest of Africa operations delivering growth of 9.3% and 13.2% respectively. The average weighted menu price increase was 4.25% illustrating the real growth achieved."


There a few things to note here. Firstly it shows how small the rest of Africa still is. The 27.2% growth only increased overall sales growth by 0.8% compared to the 16% recorded in SA. As this grows however inevitably and obviously the impact will be bigger every period. The other thing to note is how big an impact new stores are having. The franchise model allows entrepreneurs to take on these businesses and employ people around the country. It has a very positive impact.


Talking about new stores here is what the release had to say which quotes CEO Kevin Hedderwick: "During the quarter 34 new restaurants were opened. Hedderwick notes, Of the 30 restaurants opened in South Africa, 18 are in new emerging markets. We are especially pleased with our entry into these markets where we were previously under-represented and where our brands are viewed as aspirational. This penetration into new emerging markets is part of a deliberate strategy to make our brands available, accessible and affordable."

This is an exciting trend which goes back to my point earlier. The African segment is going to influence sales more and more. The update goes on to talk about certain plans with new stores internationally and locally. Most of this was covered when I did the full year results last month but here it is in case you want to read the full release. Famous Brands Defies Retail Slump to Deliver Strong Quarterly Results.


I want to make one more point here. Kevin Hedderwick has often stated that typically in a developing market the fast food industry will grow at twice the speed of the economy. At these rates it seems like this was an understatement. If the South African economy was flying Famous Brands would be doing even better. There is still so much room for growth in South Africa. Even without African expansion this business has great potential. Again the stock shows why it trades at the multiple it does. We are not deterred by this, the potential is still huge. We continue to add.