Covid-19 still casting a shadow over consumers, says Famous Brands

Famous Brands, which has a network of almost 3,000 restaurants across SA, the UK and the Middle East, has warned that the psychological and economic effects of the Covid-19 pandemic are weighing on consumer spending even as summer arrives in SA.

Covid-19 shutdowns severely hit the owner of Mugg & Bean, Steers and Wimpy in the first half of its financial year, with the group saying it is too soon to tell what consumer demand will be like in December.

The year-end holiday period is usually peak trading time for restaurants and fast-food chains, but group CEO Darren Hele said it was difficult to take a view of the next three months.

Uncertainty about a holiday recovery stems from school holidays being later and shorter, expected weak international tourism and SA consumers feeling financial pressure amid rising job losses.

Restaurants such as Wimpy and Mugg & Bean that are usually busy in holiday months cannot cater to as many customers as before due to social-distancing requirements.

A survey the group commissioned in July also showed that two-thirds of consumers were reluctant to dine in restaurants.

But Hele said trade in the past seven weeks had given him confidence that consumers were eating out and he was seeing some return to normality.

"The last seven weeks had been ahead of expectations, but not consistently where we were last year."

Group revenue fell 48% to R2bn in the six months to end-August, as Famous Brands swung into a R1.35bn loss, from a profit of R166.7m previously, due to further writedowns of UK’s Gourmet Burger Kitchen (GBK), which it no longer owns.

In total, it has impaired almost R3bn of what it spent on its failed purchase of the UK hamburger chain. Stripping out writedown charges, the company’s operational losses came in at R110m.

In the six months to August, the company’s Leading Brands portfolio, which includes Steers, Debonairs and Wimpy, declined by 48%. The group’s fast-food brands traded better than its casual sit-down brands such as Mugg & Bean, as they offered takeaways and delivery during the hard lockdown.

The Signature Brands portfolio, which includes niché restaurants such as Italian chain Lupa Osteria and cafes in two hospital groups, declined 70.1%.

The group says it is continuing to review this part of the business and will exit non-
performing brands. It did not disclose which ones.

Famous Brands expects a mild improvement in its second half to end-March.

"The SA economy is flattening. We are not expecting a big recovery in quarter two," said Hele in a virtual results
presentation.

However, the group said casual dining restaurants would take a long time to recover.

Small Talk Daily analyst Anthony Clark thinks Famous Brands could outperform rival Spur because it has a larger portfolio of takeaway brands.

Famous Brands was not considering a rights issue to raise capital even as it had a R341m positive cash balance and more than R1.3bn in long-term debt, in part due to its GBK acquisition.

"Hele coming out equivocally and saying he probably doesn’t need a rights issue" would ease the concerns the market has had, Clark said.

But as the economy opens up, the group is generating enough working capital, has good cash management and sufficient liquidity, he said.

Alpha Wealth fund manager Keith McLachlan explained: "Famous Brands debt was only a problem in lockdown when it didn’t generate enough income. When operating normally, Famous Brands is a very cash-generative business."

The group retail business, which sells Mugg & Bean coffee and Steers sauces in grocery stores, was resilient during the lockdown.

The share price closed 1.23% higher at R47.07.