Collins Foods, a franchisee of KFC and Taco Bell, has warned of lower margins in the fiscal first half amid weak consumer sentiment and high cost inflation.

In the first 16 weeks of FY25, the company has achieved a 1.1 per cent increase in sales. However, same store sales were negative, reflecting weaker consumer sentiment in Australia and Europe and the impacts arising from the conflict in the Middle East.

The profit gains on higher sales were more than offset by the impact of persistent inflation on cost of sales, labour and energy.

As a result, the company expects group underlying EBITDA margins to reduce in the range of 1.3-1.6 per cent compared to last year’s 15.8 per cent. Underlying EBIT margins are also forecast to decrease in the range of 1.5-1.8 per cent from last year’s 8.8 per cent.

The company said it remains highly cash generative and has a strong balance sheet.

“Collins Foods will continue to provide value and affordability for our customers and protect the long-term health of our trusted brands,” said Kevin Perkins, interim CEO and MD. “While timing is uncertain, Collins Foods is well-positioned to take advantage of improved consumer conditions when they emerge.” 

Collins Foods operates the KFC and Taco Bell chains in Australia, as well as the KFC Netherlands and Germany businesses.