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Taste Holdings, the operator of Starbucks and Domino's Pizza in South Africa, reported its half-year financial results for the month of August 2018, which show a decline in sales as the company continues to restructure.
Revenues decreased by 3% to 470 million euros, against 483 million previously, with an operating loss of 87 million.
The group recorded a total loss per share of 8.0 cents per share, compared to 15.9 cents per share previously.
Taste said that the first half of fiscal year 2019 ushered in a new era for the group. "Successive periods of unsatisfactory results have forced us to ask tough questions about our business and to answer them," he said.
"While it was not easy to operate in this environment, given internal revisions and external economic difficulties, we are (proud) proud of the change acceptance demonstrated by our team.
"In the last six months we have embarked on this new journey. We have been able to make significant changes to the group that will provide a solid foundation for long-term sustainability and growth. "
During the previous year, Taste decided to divide its business into two distinct sectors, namely food and luxury goods.
The food division includes Domino's and Starbucks Coffee brands, as well as local brands such as Maxi's and The Fish and Chip Co.
Taste said its first crucial decision was to suspend the expansion of the Domino and Starbucks network.
"Firstly, to ensure that the remaining cash in the Group after the settlement of the credit facilities is sufficient to fund the Group's expected current operating losses and, most importantly, to provide us with the opportunity to review the operating models. Brand stores and capital required to obtain an acceptable return on investment. "
Domino's existing store network generates operating losses. Although the Starbucks network is profitable at the EBITDA level, it does not generate the necessary return on in-store investments.
Taste stated that it has developed new business models for stores, new metrics for investment measurement, and market development strategies.
"Given the progress noted above, we believe that once we have secured long-term funding for the Group, we will be able to expand the brand networks," he said.
Starbucks currently has 12 stores in Gauteng and KZN, while Domino's has 30 outlets in Gauteng and 18 in the Western Cape. This compares to Debonairs Pizza's Famous Brands, which has nearly 550 outlets in the country.
Taste pointed out that the South African economy continued to shrink during the review period and that the combined effects of rising fuel taxes, VAT and income taxes on disposable income and consumer consumption habits had a negative impact on consumers' financial results. reporting period.
Earnings before interest, taxes, depreciation and amortization are 20%, a loss of 65.5 million rand. Domino's was the largest contributor to the group's EBITDA loss during the period, mainly due to losses incurred by the company's stores.
Taste stated that some of these losses are attributable to increased costs that have not been pbaded on to the consumer.
"We have identified a number of opportunities that will allow us to obtain the break-even point of EBITDA of the Domino Group stores as soon as possible. The initiatives will aim to increase the number of orders and reduce food costs. We have implemented many of these initiatives and we are confident that the positive results will begin to materialize in the second half of the fiscal year, "he said.
The turnover of the food division increased by 13% to 319 million rand (2017: 282 million rand), gross margins remaining constant despite the non-exceeding of VAT and the price increases of fuel for consumers.
The Food Division's operating expenses increased by 7%, primarily due to the doubling of Starbucks' operating expenses since the comparative period as a result of the addition of eight stores to the network and the expiration of a royalties granted to Taste by Domino's International.
Taste stated that the slowdown in store rollout had allowed the Food Division to realign its respective branding strategies and focus on planning its growth initiatives for the next fiscal year.
Same-store sales for local brands remained positive at 1% for the six-month period, while Domino's same-store sales increased to 2.8%.
Two more Starbucks stores were added in April 2018 and July 2018, bringing the total number of Starbucks stores to 12.
Although sales of the Starbucks brand have increased, there is pressure on the top four stores that can be measured on the basis of store sales, he said.
Read: Top 20 Fast Food Franchises That Make the Most Money in South Africa
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