Carlo Gonzaga Picture: SARAH DE PINA
Carlo Gonzaga Picture: SARAH DE PINA

The market found it tough to stomach the results of the year to February of fast-food brand specialist Taste Holdings, with the share shedding 7.69% to close at R1.80 on Monday.

Taste, which holds the Starbucks coffee and Domino’s Pizza brands, reported a R101m headline loss (-25c/share) from a 3% increase in core turnover to R1.1bn.

Operational cash flows were negative to the tune of R100m, with operating losses increasing more than 40% to R111m.

A divisional breakdown showed operating losses in Taste’s food segment bloating to R144m (previously a loss of R111m), with revenue edging up to R551m.

Anthony Clark, an analyst at Vunani Securities, said that the losses in the food division were astonishing.

Taste’s luxury goods division, which was recently put up for sale, increased revenue 9% to R622m. But margins were squeezed so operating profit was static at R53m.

Graphic: DOROTHY KGOSI
Graphic: DOROTHY KGOSI

Proceeds from the sale of the luxury goods division — jewellery retailers Arthur Kaplan and NWJ — will be earmarked for rolling out the Starbucks and Domino’s brands.

Clark wondered whether the operational performance of the jewellery brands, coupled with dour economic conditions, would prevent Taste realising a good price for the businesses.

Taste CEO Carlo Gonzaga said that the sales process for the jewellery operations was well under way.

"We have a good pool of bidders and have received strong interest in the jewellery brands," Gonzaga said.

He maintained that if the luxury goods business was sold in 2017, Taste would be required to "pivot nimbly into that mode of growing store numbers aggressively but with disciplined investment rationale".

The five-year potential of the food business was hugely attractive, he said, but many hurdles would need to be scaled. "There will be setbacks and enormous successes. It will take 12 to 24 months to reach real profitability," he said.

In his brand review, Gonzaga said it had been a reasonable year for Domino’s Pizza. Store conversions had been finalised that yielded results positive enough to prompt investments in new corporate stores in the financial year ahead.

Store margin improved to Taste’s target of 59% and same-store sales for March and April 2017 were up 7.8% and 13.4%, respectively.

Customer response to the Starbucks rewards programme was well ahead of expectations, with 9% of transactions already being paid with this system.

He said eight to 10 Starbucks outlets would be opened in 2017, including expansion to Cape Town and Durban.

Significantly, this expansion would include a drive-through format. Gonzaga said 40% of Starbucks sales in the US stemmed from these outlets.

"In the South African fast food industry the drive-through culture is already well entrenched. But there will be longer lead times to set up Starbucks drive-throughs as these are typically larger than the stores located in shopping malls," he said.


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