Collins Foods (CKF) – Margins over sales

Collins Foods operates KFC stores in Australia and Europe. The company was founded in 1969 and is based in Hamilton in Brisbane.

‍

Collins Foods posted FY25 earnings well ahead of Ord Minnett estimates, driven by wider-than-forecast margins in its KFC operations in Australia and Europe. The KFC fast-food franchisee’s sales update for the first eight weeks of FY26 disappointed and full-year FY26 earnings guidance fell short of market expectations, however, although the company does expect improved margins from cost savings and higher labour productivity.

‍

Generating wider second-half FY25 margin expansion in its Australian operations was an impressive result given the impact of Cyclone Alfred on Queensland, where circa 60% of the company’s KFC stores are located. We expect the Australian business can further grow margins in FY26 given apparent weakness in chicken and potato prices and better matching of staffing levels with customer demand to outweigh wages growth. In Europe, cost savings will be the key driver for its operations in Germany and The Netherlands.

‍

Post the result, we have cut our FY26 EPS forecast by 4.6%, while our FY27 and FY28 estimates rise 9.0% and 7.5%, respectively. This leads us to raise our target price to $9.50 from $8.50, while we maintain our Accumulate recommendation. "

‍