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Famous Brands UK woes continue – time to cut out Gourmet Burger Kitchen?

By Janice Kew and Loni Prinsloo

(Bloomberg) – Famous Brands Ltd.’s woes in the UK aren’t abating.

The South African owner of Gourmet Burger Kitchen reported rising losses for the British chain for a five-month period through July 29 – leading some analysts to speculate that the Johannesburg-based company may have had enough.

Pedestrians pass a Gourmet Burger Kitchen (GBK) Ltd. restaurant in London, UK, on June 21, 2018. The rise of e-commerce, which makes up 18 percent of the U.K.’s retail sales, has left stores with declining revenue even as rent bills rise. Photographer: Chris Ratcliffe/Bloomberg

GBK is “the septic wart on the overall business and should be cut out,” said Anthony Clark, an analyst at Vunani Securities. “They may consider exiting the market as it’s not getting any better.”

Famous Brands ventured out of its South African heartland with the GBK deal in 2016 – shortly after the UK voted to leave the European Union. But the chain of about 100 restaurants hasn’t delivered the desired returns, with a sales decline in the most recent reporting period jarring with rising revenue in the company’s home market, where it owns popular outlets such as Debonairs Pizza, Steers burgers and the upmarket Tashas chain.

Post Brexit

GBK is losing market share to other UK premium-burger chains – there are more than 400 in the country – at the same time as customer preferences shift to online orders or takeaways, Famous Brands said in May. In September, Chief Executive Officer Darren Hele said he saw difficult post-Brexit trading conditions persisting for at least the next 18 months.

“This is less of a Brexit recovery story now and more a story of fighting for share in an oversupplied commoditized burger market,” said Janine van Wyk, an analyst at Avior Capital Markets in Cape Town. “GBK is starting to affect Famous Brands’s South African cash flows, so it may make sense to sell GBK, although I’m not sure who would buy it.”

Famous Brands said late Thursday the chain’s operating loss widened to 2.2 million pounds ($2.8 million) in the 22 weeks ending July 29, compared with 680,000 pounds the previous year. On Friday, the company said it was in talks about a division that may affect the share price – without giving further information.

The stock dropped for a sixth day in Johannesburg, bringing its decline for the week to 7.5 percent and giving it a market value of R9.9 billion ($665.8 million).

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