Basking in the summer of ‘15

  • Opinion
  • June 2, 2015
  • Warren Head
Basking in the summer of ‘15
Kerryn Smith

It seems that not only cold lemonade is retailing well this summer. Moroccan burgers were truly fast moving food for KFC and notably so when the sun shone all day.

Is weather a financially material factor for retail? Some would rather media didn’t mention the weather as a influential factor, yet it can determine sales volumes across forecourts, car yards, timber yards, apparel shelves, and food counters.

Restaurant Brands may long remember the dreamy days of the summer of 2015; across its fourth quarter ending 2 March, same store sales were 5.7 percent, led by KFC which grew revenue by an a gobsmacking 7.5 percent. Twelve weeks of blue sky bliss!

The weather data shows that above normal sunshine (110-119 percent of February normal) was recorded in the King Country, Marlborough, and Southland. Most other areas were within 10 percent of February normal sunshine hours).

However, of the six main centres, Auckland was the warmest in February 2015, and Christchurch was the driest and sunniest. These are large catchments for KFC.

Rainfall was also well below normal (< 50 percent of the February normal) or below normal (50-79 percent of the February normal) for most of New Zealand.

Restaurant Brands has 208 stores: 91 KFC, 46 Pizza Hut, 26 Starbucks and 18 Carl’s Jr stores.

Because the company normally uses a 364 day year, a “leap year” is sometimes required, and in 2015 it had an extra week in the fourth quarter. That takes little away from a sizzler of a summer’s performance.

Total sales for the 13 week fourth quarter were $92.8m, an increase of 10.6 percent or $8.2 million on the equivalent 12-week quarter. Total sales for KFC were $67.2m, up 9.3 percent or $5.3m, rolling over an increase of 5.0 percent the year before. Same store sales were up by 7.5 percent driven by a new menu (focused on family meals), increased marketing spend and longer store opening hours.

Successful promotions were the Moroccan Burger and the Festive Season Bucket campaign and promotions around the Cricket World Cup.

Retail analysts also rate a buoyant hospitality sector and a bigger advertising budget as important factors.

Same store sales for the company were up 5.7 percent, led by KFC which grew 7.5 percent; Starbucks Coffee was up 5.3 percent and Pizza Hut up 1.7 percent. Carl’s Jr. was down 11.4 percent on a same store basis as the brand continued to roll over high store opening sales experienced in the prior year.

Total sales for KFC were $67.2m, up 9.3 percent or $5.3m, rolling over an increase of 5.0 percent the year before. Same store sales were up by 7.5 percent driven by a new menu (focused on family meals), increased marketing spend and longer store opening hours.

Successful promotions were the Moroccan Burger and the Festive Season Bucket campaign and promotions around the Cricket World Cup.

After three years of rampant growth sales cooled off for Pizza Hut at $11.0m -5.3 percent. There are five fewer company stores at 46 as the company continued its strategy of selling lower volume stores to independent franchisees, now totalling 42 stores.

Starbucks Coffee poured $6.9m of coffee, with Same store sales up 5.3 percent (rolling over a 7.5 percent increase in the prior year) driven by better value and improved customer experience initiatives implemented over the past two years.

The burgers business Carl’s Jr. is still building brand awareness, yet sales of $7.6m were up 88.7 percent after opening in Manukau and almost doubling its store footprint by acquiring seven previously independent Auckland stores in December. We understand there were some supply chain disruptions from the long-running US West Coast port dispute.

Rebel Sports propels Briscoe Group

I wouldn’t normally see Rebel Sport as first choice for a cricket bat but the sports stores certainly put group owner Briscoe on the scoreboard as the star big retailer this summer.  Briscoe had a big knock, reported net profit up 17.1 percent at $39.3m for the 2015 year.

With a very slow wicket in the fourth quarter, the Homeware division had marginally higher inventory to carry and the pre-tax profit gain was kept to 3 percent. Rebel Sports, however, belted pre-tax profit skywards by 43 percent, driven by strong margin expansion and good same store sales growth.

Group revenues reached $507m and all due to watching the gross profit margins (38.9 percent). The then-strong Kiwi dollar helped purchasing power and a new stock receipting system came in across the store network, with refinement of brand offering. Add Briscoes’ customer cost control and it was a glorious innings.

Rod Duke, managing director, says sportswear has become fashionable and is on trend. He will open three new stores in the 2016 year to lock in the market share gains. Briscoe is fully hedged for most of this year, but will not have the same degree of risk reduction to currency swings when favourable hedging rolls off in the fourth quarter next summer.

Chilly start for Red Sheds

Weather patterns were influential in The Warehouse Group posting a 19 percent lower net profit of $37.2m for the first half of its 2015 year. Group retail sales for the period were $1,444.7 million, up 1.7 percent on the corresponding half year.

Softer trading performances in the ‘Red Sheds’ and Noel Leeming flowed from a late start to summer seasonal trading, and cycling of the Digital Switchover has been affecting sales in the Entertainment and Consumer Electronics categories. Planned one-off non-recurring costs such as the rebranding of both Noel Leeming and Torpedo7 also played a part in the slippage.

Chief executive officer Mark Powell is aware that the five-year recovery plan is cycling in a lower gear, though it appears he will hold course for now.

The group is three years in on stepping up investment in its stores, multichannel and support capability and in the latest half year the cost of doing business grew ahead of increases in gross profit.

While the company is to continue to invest in digital, it will also want to extract higher operating leverage from the existing cost base.

A cool spring season, and a late start to summer, required additional promotion and discounting by the Red Sheds. Strong sales recovery from Boxing Day through January was not enough to offset the softer November/December period.

However, the Red Sheds’ 0.9 percent sales increase in dollar terms is $8.6m ahead, and the stores have now recorded 16 quarters of positive same store sales growth.

Categories performing well were Home, Leisure, Outdoor, Consumables and the new range of Schooltex products. An ongoing decline in DVDs and CDs is compounded by the decline in TV sales with the Digital Switchover cycling.

Online sales grew strongly in the half and were up 30 percent in the Christmas quarter. The multichannel ‘Bricks and Clicks’ model is proving highly competitive, with ‘Click and Collect’ purchases now representing 20 percent of online sales.

The rebranded Torpedo7 unit launched a new look webstore, converting the R&R Sport stores and opened three new physical stores in Albany, Mt Wellington and Taupo.

I guess that means they’re already set for winter. Put the Kookaburra back in the bag. In just two clicks it will be time to pull on the Icebreaker and bring out the Volkl skis.

This story was originally published in NZRetail magazine issue 737, April/May 2015.

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